PAROLE
EVIDENCE
RULE


1. ISSUE


 Agreement
in
writing?


 One
party
claims
prior
oral/written
agreement?


 Prior
agreement
was
not
in
the
writing
but
was
intended
to
be


part
of
K?


 WHETHER
THIS
PRIOR
AGREEMENT
COMES
IN
DEPENDS
ON


P.E.R.


2. RULE


 R
209
+
215


• 
Parties
have
intended
a
writing
as
the


final
expression
of
all
or
part
of
their


agreement
=
evidence
of
any
other
prior


term
is
not
admissible
to
contradict
the


writing


 Traynor


• Parties
to
a
written
K
have
agreed
to
an


integration(complete
and
final
embodiment
of
the
terms


of
an
agreement)
=
evidence
cannot
be
used
to
add
or


change
the
terms




 • When
there
is
a
partial
integration=
rule
applies
to


integrated
part
but
PER
could
be
used
to
prove
elements


of
the
agreement
not
reduced
by
the
writing


3. WHY


 Juries
favor
underdog


 People
make
up
agreement
that
never
happened


 Certainty
in
K
interpretation


4. INTEGRATION


 COMPLETE


• ‐


• Parties
intended
the
written
K
to
be
a
final
and
complete


statement
of
the
agreement


 PARTIAL


• Parties
intended
the
writing
to
be
final
expression
of


part
of
the
agreement


1. FORMAL
INTENT:
(traditional
view)
writing
could


be
treated
as
an
integration
if
taken
as
a
whole


and
on
its
face
the
writing
appears
to
be
an


instrument
that
completely
expresses
the
parties


agreement
(writing
is
evidence
of
intent)
[Gianni


v.
Russel]1
































































1



 2. ACTUAL
INTENT:
(modern
view)
writing
is
an


integration
only
if
the
parties
actually
intended


for
the
writing
to
be
integrated.

(courts
can


consider
relevant
evidence
to
determine
the


intent)
[Masterson
v.
Sine]2


 UCC
2.202(cmt
3):3


• Only
if
the
term
would
have
certainly
be
included
in
the


writing,
if
agreed
upon,
then
it
must
be
kept
from
the


trier
of
fact.


 §
216


• Naturally
test,
it
is
a
term
that
would
have
naturally
not


been
omitted
then
a
complete
integration


5. MERGER
CLAUSES


 A
provision
in
a
K
that
provides
that
“the
K
is
the
complete
and


final
statement
of
all
the
terms
the
parties
have
agreed
upon”


 ‐

























































































































































































 
Gianni
v.
Russel:
If
the
term
is
a
term
that
would
have
naturally
been
included
in
the
K
and

embraces
the
field
f
the
alleged
oral
K
then
the
court
will
not
employ
the
P.E.R.
(gave
up
rights
to
sell

tobacco
in
exchange
for
exclusive
rights
to
sell
soda;
when
another
company
began
selling
beverages)



2

 
Masterson
v.
Sine:
If
the
K
appears
to
be
complete
the
court
must
still
consider
the
parties

intent.
(rejects
Gianni)(A
ranch
was
conveyed
by
a
deed
but
reserved
the
right
to
repurchase
the
ranch
at

a
certain
rate
only
to
P
in
order
to
keep
it
in
the
family)



3







  (traditional
approach‐majority
rule)
clauses
are
determinative


on
the
question
of
whether
the
writing
is
an
integration


 (modern
approach‐minority
rule)
will
sometimes
say
it
is
one


factor
in
determining
whether
there
is
an
integration


6. DEFENSES:



 claim
it
is
unconscionable


 fraud


 duress


 mistake
[Bollinger
v.
Central
Pennsylvania]4


 illegality


7. EXCEPTIONS


 Separate
consideration


• Even
if
the
writing
is
integrated
the
PER
could
apply
if


the
written
agreement
and
the
parol
agreement
are


supported
by
separate
consideration


 Collateral
agreement


• If
the
parol
agreement
is
related
to
the
subject
matter


but
not
part
of
the
writing(collateral)
then
PER
is


admissible
































































4

 
Bollinger:
A
court
can
reform
a
K
for
a
mutual
mistake
where
a
term
that
would
have
naturally

been
included
is
left
out.
(bury
waste
on
land
so
long
as
they
covered
and
filled
the
hole
leaving
things

level)






  Naturally
omitted
terms‐R
216


• (modern
rule)‐PE
is
admissible
if
it
concerns
a
term
that


would
have
naturally
been
omitted.


1. Naturally
if
term


a. Doesn’t
conflict
with
written
integration


b. ‐


c. Concerns
a
subject
that
similar
parties


would
not
ordinarily
be
expected
to


include
in
the
writing.


i. Reasonable
person
would
have


omitted
it


ii. Actual
parties
may
have
omitted
it


[Masterson
v.
Sine]5


8. Analysis


 Did
the
parties
intend
for
the
writing
to
be
a
final


statement(integration)


 Is
it
a
partial
or
a
complete
integration?


• Gianni(writing)


• Masterson(parties
intent)


 Look
for
a
merger
clausemay
be
unconscionable
































































5

 
Masterson
v.
Sine:
Court
should
consider
the
parties
intent
when
discerning
what
terms
come

in
and
others
don’t.






  Look
for
§
216naturally
testomission


 Look
for
UCC
2.202certainly
testincluded


 Look
for
evidence
that
the
writing
was
the
final
statement


• If
it
is
a
complete
statement
§214
interpreting
evidence


can
always
be
admitted


‐

INTERPRETING
K
LANGUAGE




1. RULE


 Where
the
interpretation
of
a
expression
(words
or
conduct
of


one
party)
is
in
issue
the
expression
should
receive
an
objective


interpretation(reasonable
person
standard)


 Vague




 • When
applicability
in
marginal
situation
is
uncertain
the


court
will
find
a
K
under
a
reasonable


interpretation[Frigaliment
v.
BNS]6


 Ambiguous


• Two
completely
different
ideas
of
the
meaning
[Oswald


v.
Allen]7


2. EXCEPTIONS


 When
a
term
could
easily
be
as
meaning
two
different
things


[Raffles
v.
Wichelhaus]8


 When
both
parties
interpretation
is
different
from
the
objective


meaning.
(dispute
unlikely)


 When
one
party
knows
of
the
others
interpretation
then
the


known
interpretation
rules.

A
knows
B’s
interpretation
so
B’s


wins


 When
there
is
a
common
trade
usage
[Hurst
v.
Lake]9
































































6

 
Frigaliment
v.
BNS:
Where
the
term
is
vague
the
court
will
apply
the
more
objective
definition

of
the
term.

(old
chicken
case)



7

 
Oswald
v.
Allen:
where
the
term
of
a
K
is
ambiguous
the
court
will
find
no
K
unless
one
party

knew
of
the
others
understanding(Swedish
coin
collection).



8

 
Raffles
v.
Wichelhaus:

Where
there
are
two
reasonable
interpretations
the
court
will
find
no
K.

(two
ships
called
Peerless)



9

 
Hurst
v.
Lake:
Where
there
is
a
common
trade
usage
the
court
will
employ
that
standard
to

interpret
ambiguity
(meat
scraps
case
where
the
meat
shipped
was
not
high
enough
protein)




 3. INTERPRETING
TOOLS


 Plain
meaning
rule:
what
parties
reasonably
understood
term
to


mean


 Public
Interest:
(think
Peevyhouse‐court
looked
to
support


public
policy
not
the
∏)


 Expressio
unius:
to
express
one
is
to
exclude
others


 ‐


 Nascitu
a
sociss:
known
from
its
associates


 Contra
Proferentum:
against
the
author
of
K


4. EVIDENCE
NEEDED


 Evidence
internal
to
the
K


 Dictionary


 Foreign
language


 Statutes
or
regulations


 Trade
usage,
course
of
dealing,
custom


 Most
likely
intention
of
parties





























































































































































































 


‐

GAP
FILLING

1. RULE


 Good
faith
obligations
means
that
Party
A
will
not
do
anything


to
reduce
the
reasonable
expectation
of
party
B

and
jeopardize


the
expectation
of
the
K.



2. UCC


 R
205
&
UCC
1.203


• 
In
all
K,
there
is
an
implied
obligation
of
good
faith
on


both
parties.
(Eastern
v.
Gulf)10
































































10



  1.201(19)


• Definition
of
good
faith


 2.103


• Sale
of
goods


• Merchants
have
a
higher
standard
of
good
faith;
have
to


operate
both
subjectively
and
objectively
on
good
faith.


 2.208


• Course
of
performance‐parties
conduct
throughout
the


K[Eastern
v.
Gulf]


3. WHY


 Fairness


4. LIMITATIONS


There
was
a
good
faith
obligation
in
the
contract
but
the
good
faith
obligation
does
not

mean
best
efforts.
[Zilg]11

 ‐


 
The
implied
obligation
can’t
contradict
the
expressed
terms
of


the
K.
[Dalton
v.
ETS]12

























































































































































































 
Eastern
v.
Gulf:
Where
there
is
a
K
for
the
sale
of
goods
the
UCC
governs(2.103);
Eastern

violated
implied
term
of
good
faith;
fuel
freighting
is
a
trade
custom
(1.205);
course
of
performance

applies
under
2.208.



11

 
Zilg
v.
Prentice
Hall:
Where
there
is
an
issue
of
a
parties
obligations
to
another
party,
the
court

will
only
find
an
implied
duty
of
good
faith
not
best
efforts.
(publishing
companies
obligations
to
the

author)2.306



12

 
Dalton
v.
ETS:
Where
there
is
a
K
there
is
an
implied
obligation
of
good
faith
and
fair
dealings

so
long
as
it
is
not
inconsistent
with
the
terms
of
the
K.
(student
was
accused
of
cheating
on
a
test
and
the

board
refused
to
full
fill
their
good
faith
obligation)




  The
implied
obligation
does
not
allow
that
parties
can
add
a


term/duty
especially
if
it
would
contradict
the
expressed
terms.


[BK
v.
Weaver]13


5. Woods
Rule


 Courts
have
presumed
employment
to
be
at
will
and
that
an


employee
can
be
dismissed
at
anytime
for
any
reason


• Older
courts
place
some
public
policy
limitations
on


woods
rule
(adding
terms
to
K
for
employment
at
will)


1. Something
in
convo,
or
employment
manual

that


might
imply
firing
only
for
cause.


2. Public
Policy
exception:
at
will
employees
may


not
be
terminated
for
engaging
in
conduct
in


which
the
public
has
an
important
interest
like
1)


refusing
to
commit
perjury
2)
filing
a
workers


compensation
claim
3)
engaging
in
union
activity


or
4)
calling
the
employers
attention
to
possible


criminal
violations.
[Sheets
v.
Teddy’s]14


























































































































































































13

 
BK
v.
Weaver:
Where
a
term
is
not
included
in
the
writing
the
court
will
not
use
the
implied

obligation
of
good
faith
to
add
terms.
(BK
franchise
next
to
an
already
existing
franchise)



14

 
Sheets
v.
Teddy’s:
An
employer
cannot
violate
public
policy
by
asking
employee
to
be
at
risk
for

criminal
sanctions.

(was
going
to
report
the
shady
food
packaging
practices
and
was
fired)






 3. Employment
contracts
,
am
implied
obligation
of


good
faith
and
fair
dealing…has
to
be
some


reason
for
firing
an
employee.


• Modern
courts
have
cut
back
the
above
3


1. Statutes
providing
no
good
faith
obligation


2. Disclaimers
in
employment
manuals


3. Public
policy
narrowed
considerable


4. ‐


5. Does
not
apply
to
in
house
counsel
because


violates
client
trust
(2
courts
disagree
because


attorney’s
deserve
protection
for
reporting


unethical
practices
of
their
employers)
[Balla
v.


Gambro]15


6. ANAYLSIS


 When
and
why
will
a
court
read
an
implied
term
into
a
K?


 What
meaning
will
the
court
give
to
an
implied
term
in
the
K?


 Do
the
exceptions
apply?


 Does
trade
usage
govern?
































































15

 
Balla
v.
Gambro:
an
attorney
was
fired
in
retaliation
for
reporting
unethical
practices
of
his

employer
and
the
court
provided
him
no
protection.










‐

CONDITIONS

1. RULE


 K
may
provide
a
condition
“a
party
does
not
have
a
duty
unless


a
condition
is
fulfilled


 A
parties
failure
to
perform
may
be
excused
by
the
failure
to


meet
a
condition


2. DEFINITION


 An
event
or
state
of
the
world
must
occur
or
fail
to
occur
before


a
party
has
a
duty
to
perform
under
the
K




 OR


 An
event
or
state
of
the
world(occurrence
or
non
occurrence,


which
will
release
a
party
from
its
duty
to
perform
under
the
K


3. Restatements


 R2d
244


• A
condition
is
an
event,
not
certain
to
occur,
which
must


occur,
unless
its
non
occurrence
is
excused,
before


performance
under
a
K
becomes
due


 R2d
217


• Conditions‐a
reasonable
well‐accepted
exception
to
the


parol
evidence
rule.

One
is
permitted
to
use
parol


evidence
to
show
the
parties
agree
to
a
condition


precedent
to
the
effectiveness
of
a
K.


1. The
condition
cannot
contradict
the
writing
in


order
for
the
condition
to
apply


4. ISSUES


 Have
the
parties
made
a
particular
event
or
non
even
a


condition
of
one
party’s
performance
or
both
parties


performance?


 Has
the
condition,
if
it
is
one,
been
satisfied?


 ‐




  If
it
hasn’t
been
satisfied,
what
the
legal
effect
of
the
no‐

occurrence
of
a
condition?


• BOAT
EXAMPLE


1. Sarah
promises
to
carry
Carl’s
goods
in
her
ship


from
London
to
Gibraltar.

Carl
promise
to
pay


her
for
that
service
500l.

In
addition
the
parties


agree
that
in
some
fashion
Sarah
will
get
the


goods
there
in
25
days.

Two
ways
to
word
25
day


condition


a. Sarah
could
promise
to
get
the
goods


there
in
25
days.

If
she’s
later,
then
she


has
breached
her
promise
and
will
be


liable
for
damages


b. Parties
will
word
the
term
as
a
condition.



“It
shall
be
a
condition
of
Carl’s
obligation


to
pay
that
Sarah
get
the
good
there


within
25
days”

If
she
is
late,
she
hasn’t


breached,
she
just
doesn’t
get
paid.

This


excuses
Carl’s
performance.


c. It
is
almost
always
more
equitable
to


construe
language
as
a

promise
than
as
a


condition.




 5. EXCEPTIONS


 If
a
reasonable
attempt
to
meet
the
condition
is
made
but
fails


the
party
is
relieved
from
performance
[Luttinger
v.
Rosen]16


 Timing
provisions:
When
a
date
is
set
for
a
payment,
payment


will
happen
on
that
day
it
is
not
conditional
because
that
is
the


day
that
contractors
usually
get
paid;
trade
usage[Peacock
v.


Modern
Air]17


 Condition
to
act
in
good
faith[Gibson
v.
Cranage]18


• ‐


• Subjective:
if
individual
taste
is
involved,
exercise


judgment
in
good
faith


• Objective:
if
economic
utility,
fitness,
marketability
or


performance
to
satisfy
a
reasonable
person


6. MITIGATING
DOCTRINES


 Prevention:
































































16

 
Luttinger
v.
Rosen:
When
a
party
makes
a
reasonable
effort
to
meet
the
condition
then
if
they

cannot
complete
the
condition
they
will
be
excused
from
performance.
(trying
to
get
approved
for
a
loan

at
a
particular
rate
and
could
not
achieve
it)



17

 
Peacock
v.
Modern
Air:
Where
there
is
a
timing
provision
for
payment
the
court
will
not
find

that
there
is
a
condition
precedent
but
rather
that
payment
should
occur
on
a
certain
date
regardless.

(sub
contractor
and
GC
said
would
pay
30
days
after
owner
paid
but
the
GC
should
bear
the
risk
of

nonpayment
not
the
SC)



18

 
Gibbons
v.
Cranage:
Where
there
is
a
condition
to
act
in
good
faith
the
court
may
apply
a

subjective
standard
when
an
individual’s
taste
is
involved
and
the
court
will
use
an
objective
test
where

there
is
an
economic
implication.
(portrait
of
dead
daughter)






 • A
party
to
a
K
cannot
rely
on
the
failure
of
another
to


perform
a
condition
precedent
where
he
has
prevented


that
party
from
being
able
to
perform


 Waiver,
Estoppel
and
Election


• Waiver‐R2d
84


1. Intentional
relinquishment
of
a
known
right


2. Waiver
is
not
explicit


• Estoppel‐R2d
84(2)‐UCC
2.209(5)


1. A
party
that,
without
consideration,
has
waived
a


condition
that
is
within
the
other
party’s
control


before
the
time
of
occurrence
of
that
condition


can
retract
the
waiver
and
reinstate
the


requirement
that
the
condition
occur
unless
the


other
party
has
relied
to
such
an
extent
that
the


retraction
would
be
unjust


• Election:



1. A
party
that
chooses
to
disregard
the


nonoccurrence
of
a
condition
is
bound
by
an


election
to
treat
this
duty
as
unconditional


 Impossibility


• ‐




 • Impossibility
or
impracticality
excuses
the
fulfillment
of
a


condition
of
fulfillment
of
the
condition
is
not
a
material


part
of
the
agreed
exchange
and
forfeiture
would


otherwise
result







‐

CONSTRUCTIVE
CONDITIONS
 


1. CONSTRUCTIVE
CONDITIONS
OF
PERFORMANCE


 The
duty
of
each
party
to
render
performance
is
that
the
other


party
has
rendered
its
performance
or
made
tender
of
its


performance.


 If
the
∏
breached
the
duty,
provided
that
the
performance
was


a
constructive
condition
of
the
others
duty,
then
the
∏
is
in
the


wrong.




 Without
good
security
there
is
not
duty
to
perform[Kingston
v.


Preston]19


 Work
must
be
completed
prior
to
performance
of
payment


[Stewart
v.
Newbury]20


2. MITIGATING
































































19

 
Kingston
v.
Preston:
Where
sufficient
security
is
a
requirement
the
court
will
find
it
a
condition

precedent
(apprentice
wanted
to
buy
the
business
but
needed
to
pay
a
security
and
never
did)



20

 
Stewart
v.
Newbury:
Where
the
parties
do
not
provide
otherwise
payment
will
occur
upon

completion
(contractor
completed
part
of
the
work
and
wanted
paid;
court
held
that
the
owner
could
pay

upon
completion)






  Issue


• What
sort
of
conduct
by
one
party
gives
rise
to
a
cause


of
action
for
breach
by
another
party,
or
gives
to


another
party
the
right
to
withhold
its
own


performance.


 Doctrine
of
substantial
performance
or
substantial


completion[Jacob
&
Young]21


• When
the
∏breaches
but
still
completes
performance


the
other
party
is
still
under
a
duty
to
perform


 Doctrine
of
Divisibility


• When
the
performance
has
been
or
can
be
broken
into


different
parts
and
assigned
a
value
then
the
breaching


party
can
only
recover
for
the
work
they
completed.
[Gill


v.
Johnstown
Lumber]22


 ‐


 Doctrine
of
Restitution


• Where
a
K
is
unenforceable
for
some


reason(impracticality,
frustration
etc)
but
a
substantial
































































21

 
Jacob
&
Young
v.
Kent:
Where
a
party
has
substantially
completed
the
work

they
may
request

payment
for
the
portion
completed
or
if
there
is
no
material
breach
full
payment.
(reading
pipe
case)



22

 
Gills
v.
Johstown
Lumber:
Where
a
K
provides
for
partial
payment
for
partial
completion
then

the
court
may
award
recovery
for
the
portion
completed.
(lumber
transport)






 benefit
was
conferred
upon
one
of
the
parties
then
the


aggrieved
party
may
want
restitution
instead
of


expectation


• Resistance
to
this
doctrine
because
seems
unfair
to
let
a


breach
party
recover
anything.
[Britton
v.
Turner]23
































































23

 
Britton
v.
Turner:
when
a
portion
of
the
K
is
performed
the
breaching
party
may
be
able
to

recover
for
the
work
completed
to
avoid
unjust
enrichment
(began
a
project
and
walked
off)






 ‐

BREACH
IN
THE
COURSE
OF
PERFORMANCE

1. RULE


 Non
material
breach‐“yes
I
breached
but
your
later
breach
was


more
serious”[Walker
v.
Harrison]24


 Material
breach(factually
sensitive)‐“your
breach
excuses
me


from
performance”[K
&
G
v.
Harris]25


 Breach
at
the
time
of
performance
gives
rise
to
an
immediate


COA


• A
contractor
contract
to
build
a
milling
dollar
building


and
puts
on
some
of
the
wrong
doorknobs,
the


Contractor
will
be
liable
for
damages
but
the
owner


won’t
be
excused
from
paying(performance)


 Factors


• The
extent
to
which
the
breaching
party
has
already


performed


• Was
the
breach
willful,
negligent
or
was
it
completely


innocent
































































24

 
Walker
v.
Harrison:
Where
the
there
is
a
trivial
breach
the
court
will
not
find
a
material
breach.

(tomato
on
the
sign)



25

 
K
&
G
v.
Harris:
Where
performance
is
a
constructive
condition
to
payment
the
court
will
find

that
upon
a
breach
the
aggrieved
party
will
not
be
held
to
performance.
(workmanlike
conduct)






 • The
extent
of
uncertainly
that
the
breaching
party
will


perform
the
remainder
of
the
K


• Extent
to
which
the
non
breaching
party
will
obtain
the


substantial
benefit
he
has
bargained
for


• The
extent
to
which
the
non
breaching
party
can
be


compensated


• Hardship
on
breaching
party
if
the
breach
is
material


 Repudiation


• Major
breach


• UCC
2.609


1. ‐


2. a
victim
of
a
minor
breach
should
request


assurances
of
adequate
performance
in
the


future
and
if
the
other
side
does
not
respond


then
you
can
say
they
repudiated


 Responses
to
this
defense


• I
substantially
performed


• K
is
divisible
and
you
have
to
pay
me
at
the
rate
for
the


portion
I
did
complete


• I
am
entitled
to
restitution
fo
the
K
for
the
amount
of


the
benefit
I
have
conferred
on
you




 • By
breach
was
not
material
and
it
does
not
excuse
your


failure
to
act.


 LIMITATION


• Separate
K
doctrine:
a
party
cannot
breach
in
one


contract
just
because
there
has
been
a
breach
from


another
contract
[NW
Lumber
v.
Continental]


3. Application


 Is
there
an
uncured
breach?


 Is
it
a
breach
of
duty
to
perform
that
was
to
be
exchanged


under
the
exchange
of
promise?


 What
the
performance
to
be
performed
before
the
aggrieved


party’s
performance?(material
breach)


• If
not
a
material
breach
then
parties
must
perform
and


can
recover
partial
damages
but
not
cancel
the
K.


• If
a
material
breach
2
options
1)treat
at
complete
breach


or
2)treat
as
a
partial
breach


 If
a
material
breach
then
COA
for
damages
and
no
performance


from
aggrieved
party


 If
the
breach
is
not
material
then
COA
for
damages
but
other


side
must
perform




 ‐

ANTICIPATORY
REPUDIATION

1. RULE


 If
either
party
to
a
K,
before
time
of
performance,
repudiates,


the
repudiation
excuses
performance
of
other
party


 The
innocent
party
may
treat
AR
as
a
material
breach


 Acts
are
a
sufficient
AR[Stewart
v.
Newbury]


 Insistence
on
terms
not
contained
in
the
K
constitutes
an
AR


 Renunciation
may
be
treated
as
a
material
breach.[Hochster
v.


De
La
Tour]26


2. EXCEPTIONS


 Installment
K


• Cannot
file
breach
early
instead
must
wait
until
deadline


for
completion.


 Acceleration
clause


• State
a
default
on
any
one
payment
on
this
K
shall
cause


all
remaining
payments
under
the
K
to
be
due.


 Declaratory
judgment


• Declaration
by
court
that
buyer
breached
and
payment


will
be
due
when
K
says































































26

 
Hochster
v.
De
La
Tour:
can
you
sue
before
there
is
technically
a
breach?

Yes,
you
can
sue
early

so
that
the
aggrieved
party
can
be
free
from
his
obligation.






 3. ANALYSIS


 If
the
recipient
of
a
repudiation
free
to
make
other


arrangements?


 Can
the
recipient
of
a
repudiation
to
court
immediately?


 Can
the
recipient
of
a
repudiation
ignore
the
repudiation
and


wait
for
performance?


 What
are
the
consequences
if
the
recipient
of
repudiation
urges


retraction?


 Can
a
party
withdraw
repudiation?


‐

DEFENSES

MUTUAL
MISTAKE

1. RULE


 A
mistake
by
both
parties
to
a
K
concerning
a
basic
assumption


of
fact
on
which
the
K
is
based


 (traditional)
if
the
∆
was
mistaken
concerning
the
substance
or


identity
of
the
K
subject
matter
then
K
was
voidable


• If
it
was
only
an
accident
or
a
collateral
attribute
K
was


not
voidable(barren
cow)


 (modern)
if
the
mistake
is
concerning
a
basic
assumption
of
the


fact
then
the
K
is
voidable
by
the
adversely
affected
party
I
the




 mistake
has
a
material
effect
on
the
exchange
the
adversely


affected
party
did
not
bear
the
risk
of
that
assumption.


• A
race
horse
is
purchased
but
the
horse
dies
before
it


was
sold
but
neither
party
knew.
Then
the
K
is
voidable


b/c
both
parties
were
mistaken(jewelers
case)


2. DEFENSES


 Mistake
was
not
basic
enough
[R
2d
152]/question
of
value


 Parties
considered
the
possibility
of
a
major
gain
or
loss/
assume


risk
by
virtue
of
trade


 Not
a
mutual
mistake
because
“I
had
an
inkling”


• Perfect
knowledge
Duty
to
tell
person;
K
undone


• No
knowledge

mutual
mistake;
K
undone


• Middle
ground

no
duty
to
tell
for
just
a
hunch
but
not


exactly
mutual
mistake


3. RESTATEMENTS


 151


• Mistake
is
a
belief
that
is
not
in
accord
with
the
facts


 ‐


 152


• For
a
mistake
of
both
parties
at
the
time
the
K
was
made


1. Basic
assumption
has
a
material
effect
on
the


aggrieved
exchange




 2. K
is
voidable
unless
voiding
party
assumed
the


risk
of
mistake


 154


• Party
bears
the
risk
where
the
party
is
aware
at
the
time


of
K
that
she
has
only
limited
knowledge
with
respect
to


the
facts,
but
treats
her
limited
knowledge
a


sufficient(conscious
ignorance)[Nelson
v.
Rice]27[Stees


v.
Leonard]28


1. I
don’t
think
the
paintings
are
very
valuable,


although
I
know
they
might
be,
so
I
will
sell
them


for
not
very
much.
I
know
I
should
have
them


authenticated
but
that
timely
and
costly.

Court


allocates
the
risk
to
one
party
on
the
ground
is


reasonable
to
do
so


 158
































































27

 
Estate
of
Nelson
v.
Rice:
When
a
party
happens
on
a
windfall
at
the
expense
of
the
seller;
the

seller
assumes
the
risk
(154)($60
painting
that
were
worth
$1
million)



28

 
Stees
v.
Leonard:
(older
and
harsher
law)
when
a
party
enters
a
K
that
party
is
bound
by
the
K

to
complete
the
K(building
that
kept
collapsing)
design
defectivebecause
they
signed
K
they
agreed

with
design;
prior
agreement
(PER)
nope
because
contradicts
K






 • Either
party
can
have
a
claim
for
restitution
following
a


rescission
on
the
grounds
of
mistake(forward


looking)[Renner
v.
Kehl]29


 153


• Unilateral
mistakes[Elsinor]


‐

IMPRACTICABILITY

1. RULE‐R
2d
261


 Performance
is
excused
if
the
it
has
been
made
impracticable.


 Occurrence
of
an
event
that
was
sure
not
to
occur
at
the
time


the
K
was
made


 Adversely
affected
party
must
not
have
assumed
the
risk
of
the


event
occurring


2. SELLERS
DEFENSE


 When
an
element
of
the
K
becomes
unavailable
because
of
an


event
to
which
neither
party
is
at
fault
then
the
K
is
voidable.


[Taylor
v.
Caldwell]30































































29

 
Renner
v.
Kehl:
Where
there
is
a
mutual
mistake
the
court
will
make
both
parties
whole
again

(jojoba
plants)






  The
occurrence
of
an
event
that
simply
makes
performance


more
difficult
does
not
render
the
K
legally
impossible
or


impracticable.
[Transatlantic
v.
US]31


• Test


1. A
contingency(something
unexpected)
must


have
occurred


2. Unexpected
occurrence
must
not
have
been


allocated
for


3. Occurrence
of
the
contingency
must
have


rendered
performance
commercially


impracticable.


 UCC
2.615


• Doctrine
of
commercial
impracticability:
the
unforeseen


cost
increase
that
would
excuse
performance
must
be


more
than
onerous
or
expensive,
it
must
be
unjust
to


hold
the
parties
bound.[Eastern
v.
Gulf]


3. VARIATIONS


 Supervening
prohibition
by
law
























































































































































































30

 
Taylor
v.
Caldwell:
When
performance
is
impracticable
then
both
parties
are
excused
from

performance
(performance
hall)



31

 
Transatlantic
v.
US:
Where
performance
is
a
little
more
expensive
does
not
mean
performance

was
impracticable
(had
to
take
a
detour
and
cost
them
more
money)






  Death
of
one
party
in
a
personal
services
K


 ‐


 Destruction
of
the
subject
matter
[Taylor
v.
Caldwell]


4. HYPO


 Farmer
makes

K
to
sell
wheat
to
G,
G
sells
wheat
to
Wheaties.



Drought
occurs
and
no
wheat.

Is
the
farmer
liable
for
breach


b/c
the
G
had
to
purchase
at
a
higher
price?


• Defense:
impossibility
of
performance
or
commercial


impracticability


• Issue:
Was
the
K
for
a
particular
quantity
of
wheat
or


specifically
for
all
the
farmers
wheat?


• If
it’s
for
the
farm’s
wheat
then
performance
is


impossible
and
defense
works.

If
it
is
for
a
specific


quantity,
performance
is
not
impossible
and
then
farer
is


liable
for
breach.







‐

FRUSTRATION
OF
PURPOSE

1. RULE‐R2d
265


 Performance
may
be
excused
under
the
doctrine
of
frustration


where
the
purpose
or
value
of
the
K
has
been
destroyed
by
a


supervening
event
that
was
not
reasonably
foreseeable
at
the


time
the
K
was
entered
into?


2. BUYERS
DEFENSE


 Always
possible
for
the
buyer
to
fulfill
his
promise
to
pay,
even


if
he
gains
nothing


 Where
the
object
of
one
of
the
parties
is
the
basis
for
the
K,


performance
is
a
constructive
condition
on
the
attainment
of


that
condition.
[Krell
v.
Henry]32


































































32

 
Krell
v.
Henry:
A
change
in
value
of
the
substance
of
the
K
does
not
render
the
K
voidable

(coronation)









‐

UCC

Article
I

1. 1.102:
meant
to
be
liberally
construed
to
promote
underlying
policies


 Simplify,
clarify
and
modernize
law


 Permit
the
continued
expansion
of
commercial
practices
by


validating
trade
custom
and
usage
as
well
as
parties
expressed


agreements


 To
make
the
law
uniform
among
the
various
jurix


2. PRINCIPLES
OF
ART
II:




  Good
faith


 Commercial
reasonableness


 Facilitation
of
actual
commercial
practices
through
the


incorporation
of
course
of
performance,
course
of
dealing
and


usage
of
trade


• 2.208‐course
of
performance‐how
we
perform
the
K


• 1.205‐course
of
dealing‐how
we
performed
under
prior
K


• 1.205‐usage
of
trade‐how
the
industry
understands
K


practices


3. GOOD
FAITH‐


 2.201(19)‐Honesty
in
fact:



• Subjective
test


• So
long
as
the
person
really
believed
their
contention


that
is
good
faith


 1.203


• Obligation
of
good
faith
on
every
party
of
a
transaction


governed
by
any
part
of
the
UCC


 2.103


• ‐


• Supplements
good
faith
def.
under
Art
II
good
faith
for


merchants
includes
not
only
honesty
in
fact
but
also
the


observance
of
reasonable
commercial
standards
of
fair




 dealing
in
the
trade


GOOD
FAITH
+
FAIR
DEALINGS
=


MERCHANT
OBLIG.


1. 2.104‐merchant


• Deals
in
goods
of
that
kind


OR


• By
his
occupation
he
holds
himself
out
as


having
knowledge
or
skill
peculiar
to
the


practices
involved
in
the
transaction


2. SUPER
MERCHANT‐look
for
the
broadest


definition
of
goods[wiglet
case]


3. Can’t
disclaim
good
faith
or
commercial


reasonableness
so
make
sure
the
conditions
are


not
inherently
unreasonable







‐

SCOPE
OF
ART
II

1. 2.102


 Applies
to
transactions
of
goods


• Not
just
transactions
by
merchants


• ONLY
super
merchants
make
merchantability
warranties


• Where
a
K
is
a
hybrid
(service
and
goods)
the
court
will


look
to
see
if
the
K
was
more
service
or
more
goods
or
if


the
goods
were
independent
from
the
service
part
of
K.


[Anthony
Pools
v.
Sheehan]33


2. 2.105


 Goods=all
things
movable
at
the
time
of
identification
to
the
K


other
than
money,
investment
securities,
and
things
in
action


3. TESTS[Anthony
Pools
v.
Sheehan]


 Predominant
purpose
test
































































33

 
Anthony
Pools
V
Sheehan:
where
there
is
a
hybrid
K
(service
and
goods)
the
court
will
apply

the
predominant
purpose
test







 • Whether
the
predominant
factor
is
a
transaction
for
the


sale
of
goods
with
labor
incidentally
being
involved.


 Gravamen
test


• Whether
the
reason
for
the
breach
is
directly
related
to


the
fault
of
the
service
or
the
fault
of
the
good


 Policy


• If
the
test
results
in
transaction
for
services
then
it
is
not


UCC
based



‐

K
FORMATION
UNDER
UCC

1. 2.204


 K
for
the
sale
of
goods
can
be
made
in
any
manner
sufficient
to


show
an
agreement


 Still
requires
a
meeting
of
the
minds


2. 2.206(1)(a)


 A
party
may
accept
in
an
manner
and
by
any
medium


reasonable
in
the
circumstances
unless
the
offer
unambiguously


states
otherwise.


 Unilateral
K
can
be
accepted
by
a
promise
to
perform


 Option
K
is
enforceable
without
separate
consideration
(2.205)


3. 2.207
Eliminates
Mirror
Image
Rule




  4
routes


• Route
A:
a
definite
and
seasonable
expression
of


acceptance
or
a
written
confirmation
which
is
sent


within
a
reasonable
amount
of
time
operates
as
an


acceptance
even
though
it
states
terms
additional
to
or


different
from
those
offered
or
agreed
upon
(could
be


called
the
first
shot
doctrine)


1. Is
there
a
contract?

Yes


2. What
are
the
terms?

Terms
provided
by
the


acceptor.




3. Are
the
new
terms
accepted?



They
are


proposals
to
the
existing
contract;
if
they
are


merchants
then
the
terms
become
an
automatic


part
of
the
contract,
with
the
exceptions

that
the


new
terms
do
not
materially
alter
the


characteristics
of
the
original
bargain,
or
if
the


offer
limits
the
acceptance,
or
notification
of


objection
to
them
has
been
given
or
is
given


within
a
reasonable
time.


• ‐




 • Route
B:
Unless
acceptance
is
expressly
made


conditional
on
assent
to
the
additional
or
different


terms.


1. Is
there
a
contract?
A
conditional
acceptance
is


usually
a
counter
offer
and
not
acceptance.

Have


to
find
that
the
offerer
has
assented
to
the
terms


of
the
counter
offer.

(last
shot
doctrine)


2. What
are
the
terms?

The
counter
offerer
controls


the
terms


3. Are
the
terms
accepted?

Not
necessarily


accepted
terms
but
are
the
terms
agreed
upon
or


are
they
implied
by
the
UCC


• Route
C:
conduct
by
both
parties
which
recognizes
the


existence
of
a
contract
is
sufficient
to
establish
a


contract
for
sale
although
the
writings
of
the
parties
do


no
otherwise
establish
a
contract.


1. Is
there
a
contract?

If
there
is
conduct


2. What
are
terms?

No
one
party
controls
them;


what
ever
was
dickered
for
and
gap
filler
terms


3. Are
the
terms
accepted?
If
there
is
conduct?


• Route
D:
an
oral
agreement
and
both
parties
send


confirmations
(one
with
a
new
term)




 1. Is
there
a
contract?

An
oral
contract


2. What
are
the
terms?

Because
of
the
new
term;


we
treat
a
new
term
in
a
confirmation
the
same


way
we
treat
an
acceptance
of
route
A.


 A
party
must
expressed
unequivocal
assent
to
the
terms


[Diamond
v.
Krack]34


‐

STATUTE
OF
FRAUDS

1. 2.201‐sof


 K
for
the
sale
of
goods
more
than
$500
is
not
enforceable
by


way
of
action
of
defense
unless
there
is
some
writing
sufficient


to
indicate
that
a
K
for
sale
has
been
made
btn.
Parties
AND


SIGNED
BY
THE
PARTY
AGAINST
WHOM
ENFORCEMENT
IS


SOUGHT.


 Dispenses
writing
requirement
in
4
situations


• Btwn
merchants,
if
confirmation
is
received
in


reasonable
time
and
is
sufficient
against
sender
,
unless


objects
within
10
days
































































34

 
Diamond
v.
Krack:
Where
assent
is
not
unequivocal
then
the
term
is
not
accepted.
(tubing

manufacturing)






 • When
a
seller
has
made
a
substantial
beginning
in
the


manufacturing
of
a
specially
manufactured
good
or
has


committed
itself
to
buy
goods
forma
3rd
party
it
may


enforce
an
oral
K
for
them
if
it
cannot
resell
them
in
an


ordinary
course
of
business.
(Distribu‐Dor
v.
Karadanis)35


• If
a
party
judicially
admits
the
existence
of
the
alleged
K


(2.201(3)(b)


• To
the
extent
that
the
seller
has
received
and
accepted


payment
of
the
buyer
has
received
and
accepted
the


goods,
the
Statute
is
no
bar
(2.201(3)(c)


2. Elements


 Evidence
of
K


 Must
be
signed
(2.201(39)


 Writing
must
specify
a
quantity


3. Defenses


 I
never
entered
into
a
K


 Even
if
there
was
a
K,
there
was
no
objective
meeting
of
the


minds(no
signed
K)


‐































































35

 
Distribudor
v.
Karadanis:
when

a
portion
of
the
goods
are
specially
manufactured
the
court

will
apply
them
to
the
SOF
unless
one
term
is
not
specially
manufactured
then
SOF
does
not
apply.
(mirror

and
tub
enclosures)






 PAROLE
EVIDENCE
RULE

1. 2.202


 A
writing
intended
by
the
parties
to
be
a
final
and
complete


statement
of
the
terms
of
the
agreement
and
cannot
be


contradicted
by
any
prior
agreement
term


 The
final
writing
can
be
explained
or
supplemented
using
the


PER


• By
course
of
dealings,
usage
of
trade,
or
performance


• Where
there
is
a
partial
integration,
by
evidence
of


consistent
terms


2. TEST


 Is
the
writing
integrated?


 Is
the
integration
partial
or
complete?


 If
no
then
the
rule
does
not
apply!


 If
it
is
completely
integrated
then
(a)
says
it
can
still
be


explained
or
supplemented
by
course
of
dealing
or
usage
of


trade
or
course
of
performance)
(214
evidence
could
come
in


also)


 If
it
is
a
partial
integration
then
consistent
additional
terms
can


be
introduced
(b).


3. 2.209(1)


 Modification
does
not
need
consideration
to
be
binding




  Does
need
to
be
made
in
good
faith


• DURESS
AGAINST
IT


1. Oral
modifications
are
okay
unless
it
falls
under


the
SOF
or
is
bad
in
bad
faith


2. A
modification(if
fails
above)
can
operate
as
a


waiver
of
a
oral
modification
clause.


4. 2.210


 ‐


 (1)
a
party
bay
DELEGATE
its
duty
unless
the
other
pary
has
a


substantial
interest
in
performance
by
that
party(singer)


 (2)
a
party
may
assign
a
right
unless
doing
so
would
materially


change
the
duty
of
the
other
party,
or
increase
materially
the


burden
of
risk
imposed.







‐

GENERAL
OBLIGATIONS

1. GAP
FILLER


 Common
omissions
(price,
duration,
payment,
delivery
date)


 2.204


• Even
though
one
or
more
items
are
left
open
a
K
for
the


sale
does
not
fail
for
indefiniteness
if
the
parties
have


intended
to
make
a

K
and
there
is
a
reasonably
certain


basis
for
given
an
appropriate
remedy


 2.305


• Price:



1. How
do
we
know
there
is
K
without
a
price




 2. Parties
intent


3. Or
when
the
price
is
not
determined
because
of


one
party
the
other
party
can
cancel
the
K
or


assign
a
price


 2.306(1)


• Quantity


1. No
quantity
unreasonably
disproportionate
to


any
stated
estimate
or
in
the
absence
of
a
stated


estimate
to
any
normal
or
otherwise
comparable


prior
output
or
requirements
may
be
tendered
or


demanded


2. OUTPUT
SELLER:
may
not
tender
an


unreasonable
quantity[Feld
v.
Henry]36


a. Seller
has
a
good
faith
obligation


b. Buyer
did
not
give
up
right
to
buy


somewhere
else


c. ‐


d. This
language
seeks
to
protect
the
buyer.


Seller
must
produce
and
the
buyer
must


pay
































































36

 
Feld
v.
Henry:
2.306
an
output
seller
has
a
good
faith
obligation
to
continue
to
have
output
and

nothing
more(breadcrumb
case)






 3. REQUIREMENTS
BUYER:
may
not
demand
an


unreasonable[Eastern
v.
Gulf]


a. Seller
did
not
give
up
right
to
sell


elsewhere


b. Buyer
must
purchase
in
good
faith


 2.306(2)


• EXCLUSIVITY:
Best
efforts
for
a
exclusivity


requirement[Wood
v.
Lucy
Lady
Duff]


1. Seller
gives
up
rights
to
sell
elsewhere


2. Buyer
must
use
best
efforts


3. Like
a
requirements
K,
language
seeks
to
protect


the
seller


4. Buyer
must
operate
in
good
faith


 2.311


• Unless
otherwise
agreed
the
buyer
has
the
right
specify


the
assortment
of
goods


 2.308(a)


• Delivery


1. Sellers
place
of
business
unless
otherwise
agreed


2. If
no
place
of
business,
his
residence


 2.309


• Termination




 1. Notification



 2.307‐2.310


• Parties
must
comply
with
ordinary,
reasonable


commercial
practices


1. 310(A)
buyer
pays
where
buyer
receives


shipment(the
buyer
has
possession
of
the
goods)


 ‐


 DEFENSES


• Trade
usage


• Course
of
dealings


• Course
of
performance







‐

CODE
WARRANTIES

1. 2.312‐2.318


 Commercial‐loss
is
economic


 Consumer‐personal
injury
from
a
defective
product


2. Buyer


 Establish
that
the
seller
warranted
the
goods
under



• 2.313
expressed
warranties


1. Affirmation
or
promise


a. If
the
buyer
could
have
reasonably


considered
the
statements
from
the
seller


to
be
his
opinion
only
then
there
is
no


expressed
warranty
based
on
affirmation.




 b. Reliance
on
statements
are
required
in


some
states.


2. Description[Keith
v.
Buchanan]37


3. Sample(actually
drawn
from
goods)
or
model(not


drawn
from
bulk
of
goods)
[Barton
v.
Tra‐Mo]38


• DEFENSES


1. Puffing


a. Comparing
goods
to
other
goods


b. Specificity
of
the
representations


c. Relating
to
goods
quality


d. Goods
experimental


e. ‐


f. Buyers
actual
knowledge
of
goods


condition


g. Statement
written
or
oral


2. Reliance


3. Privity
(2.318)
































































37

 
Keith
v.
Buchanan:
where
a
seller
presents
a
brochure
(affirmations
of
fact)
and
where
those

representations
are
basis
for
the
bargain
there
is
an
expressed
warranty
but
if
the
buyer
does
not
rely
on

the
skill
and
judgment
of
the
S
then
there
is
no
implied
warranty.
(boat)



38

 
Barton
v.
Tra‐Mo:
Where
a
seller
presents
a
sample
or
model
for
the
buyer
to
consider
in
the

basis
for
their
bargain
the
court
will
find
an
expressed
warranty.
(fuel
tanks
made
of
an
alternative

material)






 4. Expressed
warranties
can’t
be
disclaimed(2.316(1)


a. Disclaimer
is
dropped
if
inconsistent
with


expressed
warranty


5. Merger
clause


• 2.314
impliedmerchantability[Blockhead
v.


Plastic]39[Valley
Iron
v.
Thorin]40[Delano
v.
SC
Wine
Co.]41


1. Applied
to
every
sale
of
goods
by
a
merchant


with
respect
to
goods
of
that
kind


• 2.315
impliedfitness
for
a
particular


purpose[Blockhead
v.
Plastic]42[Valley
Iron
v.
Thorin]43


1. When
the
seller
had
reason
to
know
of
the
buyers


need
AND
































































39

 
Block
head
v.
Plastic:
Where
a
warranty
of
merchantability
is
effectively
disclaimed
the
court

will
not
find
a
breach(wiglet
case)



40

 
Valley
Iron
v.
Thorin:
Where
the
merchant
deals
in
goods
of
that
kind
the
court
will
provide
a

broad
application
of
goods
materials
(make
iron
collars
Tim
Ream
case)



41

 
Delano:
breach
of
merchantability
because
8000
cases
of
wine
were
unmerchantible.



42

 
Blockhead:
Where
the
buyer
specifies
or
has
more
knowledge
about
the
goods
in
question

then
the
court
will
find
no
implied
warranty
of
fitness
for
a
particular
purpose
because
the
buyer
is
not

relying
on
the
seller(wiglet
case)



43

 
Valley
Iron:
when
a
buyer
makes
their
intended
purpose
known
then
an
implied
warranty
of

fitness
applies.
(might
hit
a
rock)






 2. The
buyer
is
relying
on
the
sellers
skill
or


judgment
to
select
the
goods
[Keith
v.
Buchanan‐

no
implied
warrant]


3. These
are
likely
to
have
been
included
had
the


parties
considered
such
terms.


 Prove
that
goods
delivered
did
not
conform
to
the
warranty


and
that
as
a
result
the
buyer
suffered
damage.


3. Seller


 ‐


 2.316
authorizing
certain
warranty
disclaimers[Blockhead
v.


Plastic]


 2.719
permitting
certain
remedy
limitations


 2.318
requiring
a
measure
of
horizontal
privity


 2.607
(3)
require
that
the
buyer
give
reasonable
notice
of
the


breach
[Delano
v.
Wine
Growers]44


 2.735
SOL


4. Issues



 Is
the
seller
a
supermerchant?
Does
he
deal
in
goods
of
that


kind?2.104


 Are
the
goods
merchantable
under

2.134(2)?
































































44

 
Delano
v.
Wine
Growers:
must
give
notice
of
breach
of
warranty
within
a
reasonable
time






  Did
seller
breach
warranty
of
merchantability?


 Is
the
item
being
used
for
its
ordinary
purposes
foor
for
a


particular
purpose?

Is
the
itme
specially
manufactured?



Warranty
of
fitness
2.315


 Did
seller
breach
warranty
of
fitness?


 What
defenses?


• Warranty
disclaimers
2.316…was
it
conspicuous?



• Remedy
limitation
2.719?
Will
warranty
fail
of
it
s


essential
purpose
if
this
is
enforced


• Trade
usage
(2.208)?
Can
buyer
come
back
with
course


of
dealing
response(Delano)?


• 2.607
(3):
did
buyer
give
effective
notice
of
the
alleged


breach
in
required
reasonable
time?


 Damages


• LV
–
CA


‐

SELLER
DEFENSES
TO
WARRANTY
LIABILITY

1. Warranty
disclaimer
2.316


 (1)
a
seller
may
not
disclaim
an
express
warranty


 (2)
a
disclaimer
of
the
merchantability
must
mention


merchantability
and
be
conspicuous
(if
in
writing),
a
disclaim
of




 the
fitness
warranty
must
be
conspicuous
and
in
writing[Cate
v.


Dover]45


• The
manner
in
which
the
K
was
entered


• Whether
the
parties
has
a
reasonable
opportunity
to


understand
terms
of
the
K


• Whether
important
terms
were
hidden
in
fine
print[Cox


v.
Lewiston]46


2. Remedy
limitation
2.719[Moscatiello
v.
Pittsburg]47


 (2)
invalidates
any
remedy
limitation
that
causes
a
warranty
to


fail
of
its
essential
purpose


 (3)
provides
that
a
limitation
of
PJ
damages
in
a
sale
of


consumer
goods
is
prima
facie
unconscionable
[Cox
v.
Lewiston


Grain]


 ***be
aware
that
if
the
goods
have
needed
repeated
repair


then
the
limited
warranty
then
the
proper
remedy
would
be
to


replace
the
entire
good































































45

 
Cate
v.
Dover:
A
disclaimer
must
be
conspicuous
to
a
reasonable
person
2.316;
actual

knowledge
of
the
disclaimer(lifts
that
never
worked)



46

 
Cox
v.
Lewiston:
A
warranty
disclaimer
is
unenforceable
when
they
are
not
negotiated

between
the
buyer
and
seller
***
Berg
Rule:
applies
when
the
sale
has
special
requirements.

Applies
a

test
for
unconscionable
(seeds
failed
to
germinate)



47

 
Moscatiello
v.
Pittsburg:
A
disclaimer
against
must
be
conspicuous
and
can
be
off
a
different

font
or
color
and
the
remedy
limitation
was
unconscionable
because
it
was
swaying
on
one
direction

(paving
machine






 3. Notice
requirement
2.607(3)


 Requires
a
buyer
to
notify
a
seller
within
a
reasonable
time
of


any
claimed
warranty
breach
or
be
barred
from
remedy

Buyer


bears
the
burden
of
proof(4)


‐

NOTICE

1. 2.607(3)
Requires
that
the
buyer
notify
the
seller
of
any
alleged


warranty
“within
a
reasonable
time”


 Cmt
4:
allows
a
retail
consumer
somewhat
more
time
to
notify,


but
for
a
merchant
a
reasonable
time
bay
be
very
short
(10
days


for
perishable
goods)


 Notice
given
immediately
upon
discovery
of
breach
ordinarily


satisfies
the
requirements


 Manner
and
content
can
be
important;
oral
notice
is
ordinarily


sufficient
may
have
to
specify
breach


 Occasionally,
direct
notice
form
buyer
to
seller
is
not
required
at


all;
when
the
seller
has
actual
knowledge
of
the
defect
of
the


product,
or
is
deemed
to
have
been
reasonably
notified
by
the


filing
of
the
buyers
complaint


2. Variations


 Seller
has
actual
knowledge
of
the
problem




  If
it
is
a
consumer
sale
that
has
resulted
in
personal
injury


3. Issues


 Prejudice
test:
would
the
seller
been
able
to
fix
the
problem
if


they
had
found
out
earlier,
has
the
car
been
driven
too
much
to


recognize
the
problem


 Effective
policy
argument:
even
if
we
had
given
notice
two


weeks
earlier,
it
wouldn’t
have
mattered


 If
the
consumer
is
actually
a
merchant,
that
person
should
be


held
to
a
higher
standard


‐

TITLE

1. When
does
title
pass?


 Only
parties
interested
in
this
are
insurance
companies
and
tax


authorities


 2.401(2)
unless
otherwise
explicitly
agreed,
title
passes
at
the


time
of
delivery
to
the
seller


 2.308
GAP
FILLER:
unless
otherwise
agreed,
delivery
is
a
the


seller’s
place
of
business


2. When
does
good
title
pass
to
the
buyer


 2.403
Voidable
title(sub1)
Entrusting
(sub2)




 • Voidable
title
is
created
by
bad
checkscan
be


transferred
to
a
good
faith
purchaser


3. Difference
btwn
a
good
faith
purchaser
for
value
(voidable
title


analysis)
and
an
ordinary
course
of
business
(entrusting
analysis)


 Good
faith
purchaser
for
value
can
buy
from
anyone


• In
good
faith


• Give
value
(1.201(44)


• ∏
must
show


1. ∆
delivered
under
transaction
of
purpose


2. ∆
paid
with
a
bad
check


3. ∏
was
a
good
faith
purchaser
for
value


 If
you
are
and
entrusting
analysis,
you
have
to
buy
from
a


merchant
who
deals
in
goods
of
this
kind.

A
buyer
in
ordinary


course
of
business
is
only
buying
from
a


supermerchant[Heinrich
v.
Titus]48


• Entrusting
2.403


• Intermediary
needs
to
be
a
merchant
who
deals
in
goods


of
this
kind


• ‐
































































48

 
Heinrich
v.
Titus:
gives
us
the
voidable
v.
entrusting






 • Buyer
needs
to
e
a
buyer
in
the
ordinary
course
of


business


 GOOD
TITLE
CANNOT
EVER
BE
TAKEN
FROM
A
THEIF


 UCC
allows
good
faith
purchasers
to
obtain
title
more
than
the


common
law
did


• Seller
or
entruster
is
in
a
better
position
to
judge
the


merit
of
the
intermediary
than
the
purchaser


• Stream
of
commerce

we
don’t
want
buyers
from


supermerchants
worrying
all
the
time
about
whether


they
are
going
to
get
a
good
title.







‐

RISK
OF
LOSS

1. RULES


 CL
and
US
ActROL
rested
on
the
party
holding
title
to
the


goods


 UCCROL
are
more
flexible
and
more
functional


• Places
the
ROL
on
the
party
most
likely
to
take


precautions
against
loss
(one
with
control
of
the
goods


or
the
one
most
likely
to
insure)


 2.509
Risk
of
loss
absent
a
breach


 2.510
effect
of
breach
on
risk
of
loss


4. Insurable
interest
under
the
code


 2.501‐buyer
obtains
insurable
interest
in
goods
upon
their


identification
to
the
contract.

At
this
point
the
buyer
may


insure
the
goods.


5. Types
of
delivery


 2.309


 2.320




  FOB(PLACE
OF
SHIPMENT)[Windows
v.
Jordan
Panel


Systems]49[Cook
v.
Schrlock]50


• Buyer
pays
shipment
costs
and
the
ROL
passes
to
buyer


when
goods
to
carrier


 FOB(PLACE
OF
DESTIANTION)


• Seller
pays
shipment
costs
and
ROL
passes
to
buyer


when
the
goods
are
tendered
at
the
destination
as
to


enable
the
buyer
to
take
delivery


 CIF
and
C&F
Terms


• ‐


• CIF
prices
includes
in
a
lump
sum
the
cost
of
goods


and
the
insurance
and
freight
to
the
named
destination


• C&F
Price
inc.
costs
and
freight
to
named
destination


6. Bill
of
lading


 Receipt
(document
of
title‐warehouse
receipt
is
also
a


document
of
title)
indicating
what
the
goods
are;
where
they


are
suppose
to
be
delivered.


7. 509































































49

 
Windows
v.
Jordan:
Where
there
is
a
K
for
specially
made
goods
for
shipment
but
the
K
is

ambiguous
then
ROL
passes
to
the
buyer
(shipment
of
windows
all
broken)



50

 
Cook
v.
Shrolock:

2.509
goods
transported
by
a
carrier
so
ROL
transferred
to
buyer
upon

entering
carrier
hands
but
in
a
2.504
the
seller
maintains
certain
responsibilities
(insurance)
but
the
seller

does
not
have
to
verify
insurance
(brakes
fell
out
of
truck
in
transit)






  1)
(a)[Cook
v.
Schrlock]


• ROL
on
the
buyer
once
the
goods
are
in
the
carriers


hands


 2)(b)[Jason
v.
Peter]51


• ROL
on
the
buyer
because
the
goods
were
in
the
hands


of
the
bailee
and
because
acknowledgement
had
not


been
given
to
the
buyer.


 3)[Shock
v.
Ronderos]52[
Wilke
v.
Cummins]53


• ROL
on
the
buyer
because
the
seller
is
not
a
merchant


• ROL
passes
to
the
buyer
upon
TENDER
of


delivery(payment
for
or
acceptance
of)


1. Seller
cannot
be
a
bailee


8. 510effect
of
breach
on
ROL


 ROL
goes
to
the
breaching
party;
who
but
for
the
breach
would


not
have
had
the
loss
































































51

 
Jason
v.
Peter:
When
goods
left
in
the
hands
of
a
bailee
ROL
remains
with
the
seller
until

acknowledgment
has
been
received
by
the
buyer
alerting
them
to
their
possession(ribs)



52

 
Shock
v.
Ronderos:
Where
tender
of
delivery
has
occurred
then
ROL
passes
to
the
buyer

(mobile
home
case)



53

 
Wilke
v.
Cummins:
where
the
requirements
of
the
K
are
not
fulfilled
upon
delivery
of
the
goods

the
ROL
remains
with
the
seller(gov.
generator)






  (1)
if
tender
or
delivery
of
goods
so
fails
to
conform
to
the
K
as


to
give
a
right
of
rejection,
the
risk
of
their
loss
remains
on
the


seller
until
cure
or
acceptance.[
multiplastics
v.
Arch]54[


• ‐


• Wild
card
of
negligence
here…even
if
one
party
bears


the
risk…if
the
other
party
can
show
that
the
other


parties
negligence
caused
the
damage
then
the
neg
COA


trumps
the
other.
































































54

 
Multiplastics
v.
Arch:
2.510
provides
that
ROL
passes
to
the
breaching
buyer
for
a
reasonable

time
and
seller
is
entitled
to
recover
K
price.(making
pellets)









‐

PERFORMANCE
AND
BREACH
UPON

DELIVERY

1. 2.507Delivery
is
a
condition
to
the
buyers
duty
to
accept
the
goods


and
unless
otherwise
agreed
to
his
duty
to
pay
for
them.


2. 2.511tender
of
payment
is,
unless
otherwise
agreed,

a
condition
to


the
sellers
duty
to
tender
and
complete
any
delivery


 Cmt
2explicitly
concurrent
conditions


 Practical
effectneither
party
can
sue
for
breach
w/out


properly
tendering
his
own
performance


3. Buyer
right
to
prior
acceptance


 Inspection
and
rejection


• B
can
inspect
to
ensure
conform
with
K
(2.513(1))




 • B
can
contract
away
that
right
(2.513(3))


 Nonconformity


• Reject
the
goods
2.601


• Refuse
payment
and
invoke
remedies
(2.711)


• Upon
accepting
goods;
waives
rejection
right,
pay
the


price,
assumes
burden
of
proving
breach(2.607)


 Revocation


• B
can
revoke
after
acceptance
but
much


stricter(2.608)[Bowen
v.
Foust]55


• Payment
before
revocation
is
not
acceptance
(2.512(2))


 Rejection


• If
goods
or
tender
fail
to
conform
the
B
can
reject
(2.601)


• ‐


• Good
faith
to
peform
(2.103)


• Seller
has
right
to
cure
(2.508)


1. Does
seller
have
right
to
cure?


2. What
constitutes
an
effective
cure?


• B
can’t
reject
installment
K
unless
substantial
impairs
its


value
(2.612)
































































55

 
Bowen
v.
Foust:
When
a
buyer
revokes
acceptance
under
2.608
the
buyer
must
act
quickly

upon
discovery
of
the
nonconformity
(heating
and
cooling
units
that
did
not
work)






 • B
can
reject
if
material
loss
ensues;
just
b/c
S
did
not


ensure
does
not
provide
right
to
reject
(2.504)


• LIMITATIONS


1. Good
faith
obligation


2. 2.612,
B
may
not

reject
shipment
for
non


conformity
unless
substantially
impairs
its
value


3. B
can’t
reject
if
already
accepted(2.607)
and
seller


has
a
right
to
cure
(2.508)


4. B
must
make
an
effective
rejection


(2.606(2))[International
Comm
v.
North
Pacific


Lumber]56


‐































































56

 
Intern’l
v.
North
Pac.
Lumber:
The
buyer
must
reject
the
goods
or
revoke
acceptance
within
a

reasonable
time
and
not
act
contrary
to
the
sellers
possessory
rights
(moldy
beans)






 ACCEPTANCE
AND
REVOCATION
OF

ACCEPTANCE

1. B
Acceptance(2.606(1))


 After
reasonable
time
to
inspect


 B
fails
to
make
an
effective
rejection


 B
acts
inconsistent
with
S
rights


2. B
revocation
(2.608)[Kesner
v.
Lancaster]57


 Upon
acceptance
buyer
looses
right
to
reject(2.607)


 Requirements
of
revocation


• The
non
conformity
“substantially
impairs”
the
value
of


the
goods
and
that



• B
accepted
the
goods
either
without
discovering
the


defects
because
discovery
was
difficult
or
assumed
the


seller
would
cure
the
defect
and
he
doesn’t


 Revocation
must
be
within
a
reasonable
time
 


3. 2.605‐specify
what
the
defect
is


4. Anticipatory
repudiation(2.610)
































































57

 
Kesner
v.
Lancaster:
When
a
non
conformity
is
not
easily
discovered
and
the
buyer
accepts

based
on
the
assurances
of
the
seller
then
revocation
is
acceptable
so
long
as
done
in
a
reasonable

time(tractor)






  Reasonable
insecurity
about
performance;
demand
in
writing
a


reasonable
assurance
of
performance.

If
the
other
party
fails
to


respond
you
can
assert
an
anticipatory
repudiation


‐

REMEDIES

1. Code
wants
to
put
the
aggrieved
party
in
the
position
as
if


performance
had
occurred
(1.106)


2. Code
wants
an
aggrieved
seller
to
try
to
resale
(2.706)
and
a
buyer
to


mitigate
through
cover(712)


 S
recover
RESALE+INCIDENTAL
COSTS
‐
K
–
COST
AVOIDED


(2.706(1))


 S
doesn’t
need
to
specify
market
price
for
goods


 Cmt
2:
failure
to
act
properly
deprives
S
of
the
measure
of


damages
here


 If
S
cannot
recover
the
entire
K
price
under
2.709
or
2.706
the
S


might
recover
K‐MP
a
the
time
and
place
for
tender
plus


incidental





 3. 2.703
catalog
sellers
remedies


4. 2.711
catalog
buyers
remedies


 Issues


i. When
and
where
to
measure
the
market
price


ii. What
times
to
include
in
damage
measure


iii. When
do
we
have
a
lost
volume
seller


‐

SELLER
REMEDIES




1. 3
REMEDIES


 2.709
full
K
price


• Seller
may
recover
full
K
price
if


1. Buyer
accepted
(2.606)
and
retained
the
goods




 a. B
who
procedurally
rejectsno


acceptance


b. B
who
wrongfully
rejectsaccepts
the


goods(2.606)


c. B
revoking
acceptance
(2.608)
no


acceptance


2. Conforming
goods
have
been
lost
or
damages


after
ROL
passed(2.509)


3. S
tried
and
failed
to
resell
goods
or
circumstances


show
not
likely


 2.706
resaledifference
btwn
K
and
resale
price


• Most
sellers
invoke
2.706


1. If
non
breaching
party
resells
in
good
faith,
then


the
aggrieved
seller
may
recover
the
difference


btwn
K
price
and
lower
resale
price
+incidental‐

expenses
saved.


2. If
seller
makes
a
profit
does
not
have
to
share


3. Advise
client
to
act
like
it
is
their
own


money(commercially
reasonable
care)


4. Resale
privately,
must
give
notice
of
intent
to


resale
privately




 5. Resale
publically,
must
give
notice
of
time
and


place


6. If
resold
unreasonably
(way
below
market
price)


can’t
get
remedies
under
2.706
but
maybe
under


2.708


 2.708K
market
penalty


• ‐


• Lost
volume
seller:
if
the
damages
of
2.708
is
inadequate


then
proceed
under
(2)
to
recover
profit(including


overhead)that
would
have
ensued
from
sellers
full


performance
+
incidental

‐proceeds
from
resale


2. 2.704
permits
a
reasonable
completion
of
½
finished
goods


 Risk:
can
lose
even
more
money
if
you
are
unable
to
resale


goods
after
you
have
finished
You
want
to
notify
the
buyer
of


your
plans
to
resale







‐

BUYER
REMEDIES




1. 2.716Specific
performance
and
replevin(like
709
sellers)


 Specific
performance
where
goods
are
unique


 Cmt
1
wants
a
more
liberal
application
of
spec
per


 Cmt
2
output/req.
K
involving
special
markets
or
sources
are


now
the
typical
commercial
spec
perf
cases.
***see
these


where
the
seller
can’t
recover***[Eastern
Gulf]


 2.716(3)
replevin



• When
cover
is
unavailable




 • When
they
have
shipped

under
reservation
the
buyer


has
tendered
full
payment


2. 2.712cover(like
706)


 Without
unreasonable
delay
and
in
good
faith
a
reasonable


purchase
of
goods
in
sub
for
those
due
from
the
seller


 (2)
K
–
cover
and
any
incidental
costs‐expenses
avoided



 Cmt
2


• TEST


1. Did
the
buyer
act
in
good
faith


2. Within
a
reasonable
time


3. Irrelevant
whether
it
was
the
most
inexpensive


4. But
must
be
reasonable
[Farmers
v.
Lyle]58


 Non
covering
buyer
can
get
other
remedies
but
cannot
recover


consequential
damages
that
cover
would
have
prevented


3. ‐


4. 2.713market
price
(708
sellers)


 Recovery
between
market
price
and
the
K
price
when
the


aggrieved
party
does
not
seek
spec.
per
or
cover


 Have
to
determine
the
proper
date
and
time
for
fixing
the


damages
































































58

 
Farmers
v.
Lyle:
equitable
estoppel
may
prevent
a
party
from
invoking
the
SOF(corn
case)






 • Determine
the
date
by
either
the
last
day
for


performance,
date
for
knowledge
of
breach(usually
use


the
later
date)[Cargill
v.
Stafford]59


• Determine
place
by
place
for
tender
or
if
after


revocation
place
of
arrival


5. 2.714breach
for
accepted
goods


 B
accepts
defective
goods
and
does
not
revoke
acceptance
by


nonetheless
sue
for
breach


 (1)B
may
recover
damages
“reasonable
manner”


 (2)breach
of
warranty
regarding
the
goods
the
measure
of


damages
will
normally
be
the
difference
at
the
time
and
place


of
acceptance
between
value
of
the
goods
and
the
should
have


been
value
of
the
goods
































































59

 
Cargill
v.
Stafford:
If
a
substitute
is
available
and
the
buyer
fails
to
cover
within
a
reasonable

time
then
the
price
measurement
for
damages
should
be
when
performance
was
due
unless
there
was
a

valid
reason
for
not
covering.






 CONTRACTS A
FALL 2000
PROFESSOR BJERRE

FALL CONTRACTS OUTLINE

Contract is an exchange for goods, services, and behavior. Enforceable promises insure stability
and predictability (used primarily in business deals). Two remedies to enforce a contract or for
breach of a contract is either specific performance or damages.

Theories of Obligation
1. Contract – if it meets consideration
2. Quasi-Contract – if unjust enrichment can be avoided
3. Promissory Estoppel - if person is reliant

I. Traditional Contract Elements

A. Bargained for…Quid Pro Quo

1. inducement
(a) “please” test - will you give me the address please and I’ll do this… vs. give
me the address and I’ll do this….
(b) Kirksey v. Kirksey - bro-in-law: if you come and see me I’ll let you have a
place to live) - no consideration, no inducement to get her to move
(c) past consideration - no “bargain” for (Feinberg v.s Pfeffer Co. - promise of
pension is not inducement for past work)

B. Consideration

1. Detriment to promisee -- forbearance -- promisee must do something he does not have

to do, or refrain from doing something that he has a right to do. (Hamer v. Sidway –
nephew forbore on his legal right to drink); or

2. Benefit to promisor

3. Consideration Examples
(a) performance – unilateral -- 1 promisee, 1 promisor
(b) promise - bilateral
(i) both are promisees and promisors
(ii) both want assurances about the future
(c) Contracts implied in fact based on interpreting the parties’ intentions
(i) Wood v. Lucy - designer hires sales agent to use “reasonable efforts” –
no explicit promise by sales agent but ct. found implied contract
(ii) damages = what was intended
 (d) Moral Obligations – Since there is a moral obligation to follow through on
every promise, every promise would be binding. Contract law focuses more on
business deals, not personal matters/promises. Contracts need to be reliable
(legally enforceable) and morality varies individually – not stable enough for
business purposes. Court refuses morality to play a role in legally enforceable
contracts. Autonomy vs. Paternalism: Law is meant to protect fair-minded
people from “Good Samaritans” that fair-minded people may feel casually
obligated to compensate people that they didn’t even bargain or request them to
do something. Casually in the sense that you may have second
thoughts…Cautionary Function – make people think twice before making their
promise. Ultimately, this protects fair-minded people in making sincere promises
with consideration that would be legally binding. Autonomy is limited by this
cautionary function (paternalism).
(i) Mills v. Wyman (∆’s son) became ill. Mills took care of him and
consequently incurred expenses. Wyman’s dad promised in writing to pay
Mills for these expenses, but he did not follow through. Court says
promise was without legal consideration – no bargaining of the “contract”.
Services of the sick son were not bestowed at his request. Π was a good
Samaritan and gave ∆’s son comfort until he died.
(ii) EXCEPTION!!! Only avail in certain jurisdictions Webb v. McGowin -
victim promises to pay $15 every 2 weeks to man who threw himself off a
roof w/ a 75lb block to save his life – enforceable against estate because
victim received material benefit of life.

4. What is NOT consideration?

(a) peppercorns
(i) Restmt 1 - peppercorn enough
(ii) Restmt 2 - peppercorn not enough
(iii) except - enough for option contracts
(b) Illusory Promises (Strong v. Sheffield – uncle said he’d promise to forbear as
long as he felt like it - back door) - 2 tests:
(i) subjective - good faith
(a) Mattei v. Hopper - Π agrees to buy land from ∆ subject to
gaining “satisfactory” leases. Passed good faith test by trying to
get good leases.
(b) contracts w/ unrestricted termination clauses are usually
illusory - alleged in Eastern Airlines v. Gulf Oil –but Eastern acted
in good faith even though mv reporter stopped reporting true mv of
oil - didn’t go crazy buying up a lot of it.
(ii) objective - reasonable person
(c) Past Performance - no inducement
(d) Gratuitous Promises
(e) Promisor Defenses to a Contract …Unenforceable w/o Reaffirmation:
(i) Infancy
(ii) Bankruptcy
(iii) Statute of Limitations expired

2
II. Quasi-Contract - Contracts implied in law or fact. Court does not care about individual
intentions, but what a reasonable person would want. No consideration requirement. It’s
express purpose is to prevent unjust enrichment.

A. Requirements:
a) Conferred benefit
b) Unjust Enrichment -- Officious and Gratuitousness – To recover on the quasi-contract
theory, the Π must prove that defendant was enriched, received a benefit, and that
retention of the benefit without paying for it would be unjust. If the plaintiff is acting
gratuitousnessly and officiously than the contract is not enforceable.
Cotnam v. Wisdom – Doctor/Streetcar Case. (1) whether compensation under a legal
contract is entitled since recipient of services was unconscious…Yes.
(1) Benefactor cannot act officious --“The Meddler” -- Person voluntarily
renders services without being asked or being bargained.
(2) Benefactor cannot act gratuitous -- Presumption of gratuity if good Samaritan
voluntarily aids helpless – recovery/compensation is denied. Exceptions (1)
samaritan’s services are excessively expensive or burdensome and (2) samaritan
renders services in a business or professional capacity.
B. Amount of Recovery
a. “Implied in Fact” contract – based on the intentions of the parties; the agreement
is intended by both parties. Compensation determined by the going rate.
b. “Implied in Law” contract – intentions of the parties have little or no
determination of proper measure of damages. Restitution is not limited to the
value of the acquired benefit.

C. Quasi-Contract cannot be used to get around traditional contract obligation theory.

Callano v. Oakwood Park Homes Corp. Shrubbery Case. Π could have sued the estate of the
buyer. Quasi-contractual liability “implied in law” means the intention of the parties is entirely
disregarded on the grounds that they are dictated by reason and justice. While with “implied in
fact,” the intention is the essence of the transaction. Successful application of quasi-contract
liability… (1) Π expected remuneration from ∆ at the time the benefit was conferred; and (2)
involve either some direct relationship between the parties or a mistake on part of the person
conferring the benefit.

Paschalls, Inc. v. Dozier contends that Π must exhaust legal remedy against direct contracted
party before rightfully pursuing the other party. Therefore, if case against original direct contract
fails, Π still has an alternative party remedy under Paschalls not Callano. Justice comes from
“process” in Callanos and “outcome” in Pashcalls.

The Problem of Unsolicited Action

3
A. Reliance and the Requirement of Bargain

Kirksey v. Kirksey – Widow moves for an adequate place for her to raise her family and
subsequently evicted. Court rules ∆’s promise was merely gratuitous because it was not
bargained.

Central Adjustment Bureau, Inc. v. Ingram – Bill Collector/Non-compete Case. Whether a

covenant not to compete meets consideration based on a sufficient length of future
employment…Yes, if the employee remains for an appreciable length of time after he signs the
covenant and the employee ends his employment voluntarily. Thus, a binding unilateral
contract is forged out of a former, invalid bilateral contract.

B. Reliance as an Alternative Basis for Enforcement -- Ricketts v. Scothorn -- Π alleges x

amount was in return of surrendering her employment. “You don’t have to work.” No
consideration, but Π meets the elements of estoppel in pais – affirmative defense – to make
contract binding. Estoppel in pais is defined as a right arising from acts, admissions, or conduct
which have induced a change of position in accordance with the real or apparent intention of the
party. Promisor doesn’t have to try to induce promisee, but does induce the promisee. Objective
Test – what should the promisor reasonably expect to induce promisee -- but most importantly,
promisee is induced.

III. Promissory Estoppel - Restatement §90 – Promises which foreseeably induce reliance
on the promisee’s part. Contracts are an exact rule, while Promissory Estoppel and Quasi-
Liability meets an inherently, vague indeterminate standard. Rules are better for planning
purposes because of their specificity—more business oriented. Note: Restatement Second 90
– a promise which the promisor should reasonably expect to induce action or forbearance on
the promisee is binding if injustice can be avoided only by enforcement of the promise. It also
suggests in some situations that relief may be measured by the extent of the promisee’s
reliance rather than by the terms of the promise. Note: Promissory Estoppel is distinguishable
from Equitable Estoppel because (1) the issue is the promise, not the facts; and (2) it can be the
basis for a suit instead of just used as a defense against payment.

A. Elements
a) promise
b) induces actual detrimental reliance
c) reliance is reasonably foreseeable. See Alden v. Presley - no reasonable reliance b/c
mother-in-law knew she wasn’t getting the money b/f she brought divorce suit.
d) unjust

B. Four categories:
1. Family Promises – promise made by one member of a family to another.
2. Promises to Convey Land – promises to convey land on which the promisee had relied by
moving onto the land and making improvements.

4
3. Promises Coupled With Gratuitous Bailments – a bailor seeks to enforce a promise made
by the bailee in connection with a gratuitous bailment.
4. Charitable Subscriptions – enforce the promise by finding that the charity has done or
promised to do something in exchange for the subscriber’s promise. Enforceability is
particularly desirable as a means of allowing decisions about the distribution of wealth to
be made at an individual level. Charities are reliant on funding sources, thus promised
contributions are enforceable. Allegheny College v. National Chautauqua County Bank
of Jamestown (NY 1927) is the most influential case in this category.

(1) Feinberg v. Pfeiffer – Little Old Lady’s Retirement Case -- At the time the
payments were discontinued, Π was 63 years old and it was virtually impossible
for a woman of that age to find satisfactory employment.

C. Damages
a) c/b reliance interest vs. expectancy (full amt. of promise)
b) depends on the court - but bias toward reliance

Promise for a Promise

Restatement Second 71 states that consideration for a promise can be found in a return promise.
With some exceptions, a promise which is bargained for is consideration, if, but if only if, the
promised performance would be consideration.

A. Unilateral and Bilateral Contracts. Unilateral contracts entail one party making a
promise—not binding unless one party acts on the basis of the promise. Bilateral contracts entail
both parties making promises. Determination of which type of contract is identified through the
terms of right and duty. Right and duty are correlatives – there can never be a right without a
duty, nor a duty without a right. The offeree has the power to change the relationship.

B. Conditional Promises. Even though a promise is enforceable, it may still be conditional in

that its performance will become due only if a particular event/condition occurs. The event
must occur before the promisor must perform. Either party can protect their promise by making
it conditional on performance by the other party, so that it is under no duty to perform until the
other party has performed. Under Restatement 71, consideration can be a return promise –
promise for a promise. Promisor and promisee induce the making of the bilateral promise rather
than the performance.

Output Contracts – satisfaction with performance

Strong v. Sheffield -- Bilateral Contract Example -- Not Promissory Estoppel.
Π promises to actually wait for an indefinite amount of time until he wants/needs his money
(illusory promise). Whether promises can be consideration for one another (Bilateral Contract),
if one of the promises is illusory…No, Π made an illusory promise. Π is not restricted at all. He

5
can do whatever he wants without impacting the arrangement. Thus, his promise does not meet
consideration.

Note: CAB v. Ingram – court says binding contract can be forged out of a former, invalid
bilateral contract. Thus, this case (Strong) would be decided differently under those perimeters.

Mattei v. Hopper – Satisfaction Standards and Illusory Promise -- ∆ allegedly breached contract
by failing to convey her real property in accordance with the terms of a deposit receipt. Π had
the power and privilege to terminate the contract if he did not obtain the required leases. For the
contract to be enforceable, both parties must have assumed some legal obligation. If one of the
promises leaves a party free to perform or withdraw from the agreement at his own unrestricted
pleasure, the promise is deemed illusory. Court believes this case is most similar to the
subjective, good faith standard in determining the satisfactory clause. Because both parties
inserted a satisfactory clause on Π’s performance, the contract was not illusory, nor lacking
mutuality.

Satisfactory Clauses meet consideration requirement, not illusory.

1. Objective, reasonable person standard
a. Utility
b. Operative Fitness
c. Commercial value

2. Subjective, good faith honesty standard by particular person. Burden is on the party that
made the satisfactory condition as part of the contract to evaluate it.
a. Fancy
b. Taste
c. Judgment

Eastern Air Lines, Inc. v. Gulf Oil Corp -- Similar fact pattern to Strong v. Sheffield and
Mattei v. Hopper. Judge applies UCC. ∆ alleges the contact is (1) not binding because it lacks
mutuality – illusory promise since no required supply amount…could be nothing and still
compliant with contract – Π has no constraints; and (2) commercial impractical with current
economic conditions. Court says ∆ is not excused for impracticality. ∆ is unhappy with its own
promise…too bad. Contracts for output is not too indefinite since it is held to mean good faith
output. It must be reasonably proportional.

Wood v. Lucy, Lady Duff-Gordon – Designer Case. Court says even if a promise may be
lacking, the writing may be animated with an obligation. Court says this promise has value --
Π’s implied promise to share results from his reasonable efforts to bring in a profit.

C. Unrestricted Termination Clause -- A promise with an unrestricted termination clause does

not have consideration. Promisor has the explicit freedom to never follow through on their part
of the promise. For example, I promise to do Y, but I can terminate this promise at any time for
any reason. Therefore, the contract is not binding. Conversely, a restricted termination clause

6
does have consideration. For example, I promise to do Y, but I can terminate Y – no mention of
any time or any reason excuses.

THE BARGAINING PROCESS

A. The Nature of Assent (mutual agreement) – offer + acceptance = agreement
1. Objective Theory– reasonable person standard – This is the primary theory that the
courts use now. Historically, this theory treated all contract arrangements the same and
excluded consideration of the actual intentions of the parties.
2. Subjective Theory – “actual intent” or “meeting of the minds” or “will theory” --
Objectivists believed this theory placed too much stress on unique individual motivations
that would destroy legal certainty and stability.

Lucy v. Zehmer –Sold Farm in Jest -- Subjective intent is not enforceable; rather it’s the
party’s outward manifestation of intent – CITE on TEST -- If words and acts, judged by
a reasonable standard, manifest an intention to agree, it is immaterial what may be the
real but unexpressed state of his mind.

Keller v. Holderman – “Frolic and Banter Rule” -- a mere peppercorn intent lacks
consideration based on objective standard. Restatement § 75. Π not expecting to sell,
nor ∆ intending to buy.

*Gentleman’s Agreements. The legal term is a “Letter of Intent.” These agreements

arise in Securities and Bonus/Death Plan Benefits, where parties do not intend promises
to be legally enforceable.

*Formal Contract Contemplated – Objective Intent to be Bound -- parties agree on

what they consider to be the essential terms of a contract and leave details to be worked
out in preparation of a formal document that they expect to sign.

(a) Common law principles (1) that absent an expressed intent that no contract
shall exist, mutual assent of the parties, even though oral or informal, to exchange
acts or promises is sufficient to create a binding contract, and (2) that to avoid the
obligation of a binding contract, at least one of the parties must express an
intention not be bound until a writing is executed.

(b) Factors to determine whether the parties intended to be bound in the absence
of a document executed by both sides (Winston v. Mediafare
Entertainment…REMEMBER
(1) whether there has been an express reservation of the right not to be
bound in the absence of a writing.
(2) whether there has been partial performance of the contract
(3) whether all the terms of the contract have been agreed upon

7
 (4) whether the agreement at issue is the type of contract that is usually
committed to writing.

Of Oil and Honor – Texaco-Penzoil Wars

Broad outline of agreement secured with a handshake deal between Penzoil and
Getty Oil Company. Meanwhile, Getty and Texaco have a contract exchanging
money for stock to buy out Getty. Penzoil finds out and says they have an
enforceable contract due to the handshake. Getty says no one signed anything.
Penzoil then sues Texaco for an intentional tort claim – tortuous interference with
a contract. Jury agrees with plaintiff and awards the highest damages in the
nation’s history over $10 billion. **Important to mention Tort Interference claim,
if contract is found unenforceable.

B. The Offer -- An offer is an act whereby one person confers upon another the power to create
contractual relations between them. Restatement Second § 24 defines offer as a manifestation of
willingness to enter into a bargain. Invitations and preliminary negotiations are not offers – no
intent to be bound. The power of acceptance is determined through an expression of will or
intention – an act that leads the offeree to reasonably believe that a power to create a contract is
conferred upon him. Mere price quotes are not legally binding.

Offer must have Reasonable Expectation, defined by…

1. Promise or undertaking to enter into a contract.
(a) Manifestation of Intent – Owen and Harvey -- outwardly expressed intent factors…
--words used, written or oral
--surrounding circumstances
--to whom the offer was made (targeted audience?)
--level of details
(b) objective standard (Lucy v. Zehmer)
2. Certainty in the essential terms
3. Communication

Owen v. Tunison – Price Quote -- ∆’s letter in response to an offer of $6K for his property may
have been written with the intent to open negotiations that might lead to a sale. “It would not be
possible for me to sell unless I received $16K.” Invitation for offer, not an offer itself.

Harvey v. Facey – Price Quote -- Bumper Hall Pen. The mere statement of “lowest price” at
which the vendor would sell contains no implied contract to sell at that price.

Fairmount Glass Works v. Crunden-Martin Woodenware Co. – Remember – Language

Mason Jar Case. A quotation of prices is not an offer to sell. The transaction is not completed
until the order so made is accepted. Appellant’s answer to it was not a quotation of prices, but a
definite offer (“for immediate acceptance to close the contract”) to sell on the terms indicated,
and could not be withdrawn after the terms had been accepted.

1. Addressee of Offer -- an offer can be accepted only by one whom it invites to furnish
the consideration. A vague ad or price quote protects a seller from unrealistic

8
 expectations of the buyer – rather, specific quantity of goods and clear intentions of the
seller create a legally binding contract. The statement “first come, first served” is an
explicit offer. However, few cases exemplify this principle because most offers are
addressed to a wide audience.

Boulton v. Jones – When a contract is made, in which the personality of the contracting
party is or may be of importance, no other person can interpose and adopt the contract.

Craft v. Elder & Johnston Co. -- ∆ advertises in newspaper for $26 on sewing machines
(typo on price). In the absence of special circumstances an ordinary newspaper
advertisement is not an offer, but an offer to negotiate. No contract is formed to take a
specified quantity of the goods at that price. An advertisement is merely an invitation.

*Vague ad protects seller from unrealistic expectations of the buyer – specific quantity of
goods and clear intentions of the seller create a more legally binding contract.

Lefkowitz v. Great Minneapolis Surplus Store – Scarf for “Women” Only. When an
offer is clear and there is nothing left to negotiate, it is a contract upon acceptance.
Offeror does not have the right to modify the offer after it is accepted.

* Despite newspaper ad rule, “First come, first served” is an explicit, definite offer.

2. Knowledge of Mistake. If the offeree knows of the offeror’s material mistake until the
time of acceptance, then the offeror is not bound. Difficulty arises when the magnitude
of the mistake was such that it should have been apparent from the face of the offer.

Heifetz Metal Crafts, Inc. v. Peter Kiewit Sons’ Co. -- After Kiewit accepted Heifetz’s
offer, ∆ discovered that he had overlooked some subsidiary kitchen installations required
by the plans. Since its quotation was 1/3 less, ∆ should have known there was a mistake.
Court finds the contract enforceable because in a general-subcontractor relationship, the
subcontractor’s intent is unknown to the general contractor. Sometimes a subcontractor
has a special reason for desiring to obtain a particular job (i.e. the subcontractor wanting
to establish a favorable working relationship for future work) and would submit a figure
controlled by that consideration.

C. Acceptance: a voluntary act of the offeree whereby he exercises the power conferred upon
him by the offer, and thereby creates a set of legal relations called a contract. In the beginning,
the offeror has full control in creating power for an offeree. After acceptance, the offeror is no
longer free to change his mind and nor able to withdraw from the relationship without incurring
liability. Generally, acceptance needs to be communicated within a reasonable time frame
before work commences, unless the offer (1) includes notification within the offer, or (2) offeror
invites acceptance by means of performance (method of acceptance) and not a promise --
unilateral contract.

*Note – an executory contract is when neither offeror nor offeree has performed any element of
the contract, but the contract is still binding.

9
International Filter Co. v. Conroe Gin, Ice & Light Co.-- Π manufactures machinery to
purify water in connection with the manufacture of ice. ∆ manufactures ice. Contract
states that it is binding upon prompt acceptance. Subject to change without notice for any
delayed acceptance. ∆ accepted on the same day. A few weeks later ∆ tried to
countermand the order. Court reasons that Π did accept the offer, but communication is
not required by Π when the offer includes notification within it – “contract upon prompt
acceptance.”

White v. Corlies & Tift -- Π was a builder and estimated the cost of fitting up a suite of
offices. On the same day, ∆ changed the specifications and asked Π to update his
estimate. ∆ sent note that “upon an agreement, you can begin at once.” The next day ∆
countermanded their offer. Before receipt of the countermand, Π began renovation.
Issue – whether Π has duty to give acceptance of a contract before commencing work.
Yes.

Ever-Tite Roofing Corp. v. Green -- Greens wanted a re-roof on their home. The
agreement shall become binding upon written acceptance of Π. Several days later, Π
returned to the Greens only to find someone else re-roofing. Higher court finds in favor
of Π. The contract did not specify the time within which it was to be accepted. A
reasonable time is contemplated where no time is expressed. Restatement § 54.

1. Notice in Unilateral Contracts -- when an offer proposes a unilateral contract

and invites acceptance by means of performance and not a promise.

Carlill v. Carbolic Smoke Ball Co. – IMPORTANT CASE -- ∆ offered reward

to any person who contracts influenza after using the ball a few times. The fact
that Π did not notify her acceptance was not fatal to her claim. Where a person
makes an offer expressly or impliedly intimates a particular mode of acceptance
as sufficient to make the bargain binding. Thus, buying and using the product
equates with acceptance. It is only necessary for the offeree to follow the
indicated method of acceptance (terms of the product’s contract). If one performs
the condition, notification is dispensed with.

2. Guaranty Case
Bishop v. Eaton -- ∆ wrote to Π that if Π would help his brother (Eaton) to get
money, then ∆ will see that it is paid. Π helped ∆’s brother. ∆ did not repay the
loan. ∆ is bound when he sees that action has been taken on the faith of his offer.

3. Indemnity – An indemnity agreement is one whereby a party undertakes

contingent liability for a loss threatening another. These are regularly enforced,
even when the loss envisaged is one attributable to fault on the part of the
promisee (indemnitee).

10
 Allied Steel and Conveyors, Inc. v. Ford Motor Co. -- Ford ordered machinery
from Allied. A standard provision required that Allied assumed full responsibility
not only for the negligence of its own employees, but also for the negligence of
Ford’s employees in connection with Allied’s work. On this specific order, that
provision was marked “VOID”. Ford proposed to purchase additional machinery
under the same purchase order. The supplemental form did not mark “VOID” on
the provision as the last one. An employee was subsequently injured as a result of
negligence of Ford’s employees. Ford impleaded Allied in the lawsuit on the
basis of this provision, not marked “VOID”. Rule: (1) If the offeror prescribes an
exclusive manner of acceptance, an attempt on the part of the offeree to accept the
offer in a different manner does not bind the offeror in the absence of a meeting of
the minds on the altered type of acceptance. If the offeror merely suggests a
method of acceptance, other methods are not precluded. (2) If the offer requests a
return promise and the offeree without making the promise actually does what he
was requested to promise to do, there is a contract if such performance is
completed within the time allowable for accepting by making a promise.

4. Shipment of Goods as Acceptance. Under the code, the buyer’s revocation

comes too late if the seller has promptly shipped. However, the seller has bound
him/herself to deliver goods that conform to the buyer’s order. If the seller
incurred some expenses related to preparing for the shipment, a buyer can still
revocate the order since the seller has not sent an acceptance (shipment) of the
order.

5. Silence Not Necessarily Acceptance. Silence is not acceptance, unless there is

a history of filling orders as a regular practice.

Hobbs v. Massasoit – briefly touched on this case -- ∆ received goods 4-5 times
in the past and paid for the shipment. Court says ∆’s silence on the most recent
shipment coupled with ∆’s retention of the goods for an unreasonable time
amounts to an acceptance.

D. Termination of the Power of Acceptance

1. Lapse of the Offer – If no period is specified in the offer, it lapses after a reasonable
time. If the industry undergoes fluctuates in price, the time frame will shorten. The
primary factor in determining reasonableness is based on the circumstances surrounding
when the offer was made -- how the offer was communicated and the state of the world.

2. Revocation – an offeror can terminate an ordinary offer at any time before it has been
accepted.

Option Contract. An irrevocable offer is the defining characteristic of an option

contract. An option contract is a promise made by an offeror that effectively limits the
offeror’s power to revoke. Usually this type of contract directly or indirectly expresses a

11
 fixed period within which the offeree must “pick up” the option. The expiration date of
any option contract is a principal element in determining its value.

Toys, Inc. v. F.M. Burlington Co. – Remember -- Π’s notice of intent to renew was
premised on a substantially different understanding of the prevailing rate. Court finds it
difficult to reconcile Π’s theory with their actions. The basic facts of this case are clear,
but the inferences to be drawn from the facts and Π’s intentions are not. The question
must be left to the fact-finder. One act/promise can meet consideration for two different
promises/acts. In this case, the offeror’s promises of a 5-yr lease + not revoke the option
is consideration for offeree’s single promise for payment. Bottomline -- plan ahead.

Dickinson v. Dodds – Remember. Objective, Reasonable Theory of Intent.

∆ appeared to make an offer to sell his property to Π. Offer was good until x time. ∆’s
agent told Π that ∆ was offering to sell the property to someone else. Π responded in
time, but property was sold to someone else. Court determined that ∆’s agent
communication to Π is the equivalent to withdrawing the offer (indirect revocation).
Court concludes that ∆’s promise was not binding and at any moment before a complete
acceptance, ∆ can seek other interested parties. Reliable news of another party’s interest
equals an indirect revocation. The time limit has no consideration. If offeree provided a
deposit to bind the promise + time limit, then the offer has consideration.

3. Rejection -- a rejection puts an end to an ordinary offer. Offeree loses power of

acceptance after rejecting the original offer. Presumes offeror’s reliance on the rejection
and the flexibility to proceed to other interested parties.

Mailbox Rule:

Acceptance Dispatched -- Adams v. Linsdell laid down the mailbox rule. It states that once the
offeree has dispatched an acceptance, is it too late for the offeree to reject the offer. The offeree
bears the burden to make sure their acceptance is received. Disadvantages to the Mailbox Rule
– burden on the offeror to rely on revocation and sells the goods to another buyer before
receiving acceptance.

Revocation Upon Receipt -- Under Restatement Second § 42, a revocation is generally effective
only on receipt, not on dispatch. Common law’s tendency is that the risks of transmission of
revocation are on the offeror. It makes the offeror’s duty of performance conditional upon
receipt of the acceptance. See Restatement Second § 63. Disadvantages to the Receipt Rule --
While the letter is in transit, offeree is free to watch the market and speculate while offeror is
unable to revoke.

Restatement Second § 64 states that § 63 does not apply when there’s a substantially
instantaneous two-way communication – email does not meet instantaneous standard.
Telephone probably would apply.

Precontractual Liability -- A court has some discretion in determining circumstances of

whether there has been an acceptance in borderline cases to protect the reliant party. A

12
party whose reliance has conferred a benefit on the other may have a claim to restitution to
prevent unjust enrichment even though no contract has resulted.

A. Cronin v. National Shawmut Bank holds that the benefit from a broker’s work does
not lead to liability where there has been no employment. Contrastingly, in Hill v.
Waxberg, the parties achieved the prerequisite conditions for the agreement, but they
could not finalize the agreement between them. Π sued to recover reasonable value of
services expended during the prerequisite stage. Evidence and enrichment from Π’s
efforts were submitted as evidence. Court holds that an implied contract, which entails
services being rendered to achieve the full contract, is enforceable.

B. Restatement § 45 – REMEMBER #
(1) An option contract is created when the offeree begins the offeror’s invited
performance. Promise not to revoke needs to have consideration for the contract to be
enforceable.
(2) Offeror’s duty of performance is conditional on the completion of the offeree’s
invited performance.

Brooklyn Bridge Hypothetical

Offeror offers $100, if you walk across the Brooklyn Bridge. No acceptance of the offer
until you cross. Unilateral, option contract. Half-way across, the offeror revokes.
Offeror has no obligation. Beginning to walk across meets consideration for the offeror’s
imposed promise to not to revoke (Quasi-contract).

C. Brackenbury v. Hodgkin – Moving to Maine Case – Court held that a promise in

exchange for an act is a unilateral contract. Π moved to Maine to take care of old lady
based on her promise of a place to live when she passes away.

Reliance on an Offer that Seeks a Promise – An offer for an exchange is not meant to become
a promise until consideration has been received.

Drennan v. Star Paving Co. – Spent a couple classes on this case. -- Π is general
contractor and requested bids for paving. Π used ∆’s bid as part of an overall project
budget. The next morning ∆ rescinded. Court determines that there is no evidence that ∆
offered to make its bid irrevocable in exchange for Π’s use of its figures in computing his
bid. Thus, no consideration nor bilateral contract binding on the parties. Issue: whether
Π’s reliance makes ∆’s offer irrevocable…Yes. Rule from Restatement § 90 (Promissory
Estoppel): A promise which the promisor should reasonably expect to induce action or
forbearance and which does induce such action is binding if justice can be avoided only
by enforcing the promise.” This is not a promissory estoppel case, rather it’s creating an
option contract. Court says Restatement § 90 applies to an implied promise that forms an
option contract. Offeror cannot revoke an option contract. Acting in justifiable reliance
may in some cases serve as sufficient reason for making a promise binding. The absence
of consideration is not fatal to enforcing this promise.

Class Notes:

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 Restatement §45 enforces implied promise contracts.

Unilateral allows partial performance of a promise to be enforced, while bilateral

contracts do not.

Restatement § 90 has several components – promise, reliance, foreseeable, and

detriment. Court uses 90 because the issue of revocation is not protected by 90 and the
offeror did not make a promise, but an actual offer.

The court combines Restatement § 45 and 90. 45 requires consideration which

Drennan does not achieve, but 90 replaces the consideration requirement and validates
the promise as an option contract.

Restatement § 87(2) – applies the Drennan decision in its principle. Think about the
relationship between this section and Restatement § 45. Is there overlap or intertwining?
What’s the relationship between consideration and reliance?
Implied in Fact – court supports what the parties want at the time of the deal – autonomy
Implied in Law – court does not abide by what the parties want

Channel Home Centers v. Grossman -- ∆ was in the process of acquiring ownership of a

mall. ∆ requested that Π execute a letter of intent to be shown to banks at the end of
December. After execution, ∆ says Π orally agreed to submit a draft lease within 30
days. Rule: (1) whether both parties manifested an intention to be bound; (2) whether
the terms of the agreement are sufficiently definite; and (3) whether there was
consideration. The letter of intent meets all three requirements. The letter has
consideration because it benefited ∆’s financial security in exchange for negotiating in
good faith. Court found that Π’s intent was clear in them wanting the place, but the letter
does not equate with a lease. It only assures continued negotiations, not successful
negotiations.

The Requirement of Definiteness is implicit in the principle that the promisee’s

expectation interest is to be protected. To determine a contract’s definiteness, a court must first
interpret it (trade usage and course/history of dealing) and look for implied terms supplied by
law – good faith and reasonable efforts. It is also enforceable if the agreement provides the
means for making its terms sufficiently definite by the time that performance is called for. See
Toys, Inc v. F.M. Burlington Company (1990). The court rarely finds indefiniteness the sole
reason to not enforce a contract.

THE STATUTE OF FRAUDS

Although in general oral contracts are enforceable, some contracts need to be written down to
be enforceable and signed by the party to be charged.

Contracts Required to be Written

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1. A special promise of an executor to answer damages out of his own estate.
2. A special promise to answer for the debt, default, or miscarriage of another person.
3. An agreement made upon consideration of marriage.
4. A contract for sale of real estate, or any interest in or concerning the same (see Lucy v.
Zehmer). The agreement or some memorandum of note thereof must be related to the contract.
It doesn’t have to be the actual contract -- scrawling on a napkin counts.
5. An agreement that is not to be performed within one year from the making thereof.

Some general features of the law generated by the Statute.

1. The fact that the parties have expressed an agreement in a signed writing is no assurance that
they had contracted about the matter.
2. Sometimes the Statute is a one-way street. Party 1 can enforce the agreement against Party 2,
but Party 2 cannot enforce it.

The courts have shown some disfavor towards the Statute by narrowing the classes of contract
that must satisfy its formal requirements. An oral contract is enforceable, by the prevailing rule,
if there is some possibility that it can be performed within a year.

The content of writing and the signing requirement is minimal in sale-of-goods contracts, while
more is required to satisfy other clauses of the Statute. The omission of a material term (such as
the price) may disqualify the writing.

The effect of the Statute is minimized, in varying degrees, by court-made doctrines – partial
performance doctrine and action in reliance (Restatement Second § 139).

POLICING THE BARGAIN

I. Capacity
The person executing the contract must be in a mental condition that allows he/she to be able to
comprehend the nature or consequences of the instrument he executed.

A. Minor’s Contracts -- An infant, anyone under 18 years of age, cannot enter into an
enforceable contract – Bright Line Rule. No exceptions.

B. Mental infirmity is a cognitive, volitional rule.

II. Overreaching -- Conventional Controls

A. Pressure in Bargaining
Watkins & Son v. Carrig – Cellar/9xRocks case. Halfway through Π and ∆ orally
agreed to remove the rock for 9x increase. Contract states Π is responsible for removing
all material. If Π was unwise in taking changes, his burden cannot be relieved on account
of his mistake. ∆ relies on the principle that his promise to pay more lacked
consideration since Π already began the work. Court finds that consideration is not
disregarded in spite of the net result of a promise to pay more for less, without additional

15
 obligation of the promisee. The fact of recission rather than the effect of recission
determines its legal quality. ∆ is held to the new arrangement.

Austin Instrument, Inc. v. Loral Corporation – Economic Duress/Subcontractor. The

existence of economic duress is demonstrated by proof that immediate possession of
goods is threatened. A mere threat does not constitute economic duress, but an act does
(stopped deliveries).

To make a claim for duress…

(1) Improper threat.
(2) No reasonable alternative, except to comply with the threat.
B. Concealment and Misrepresentation

1. Nondisclosure – No duty to tell because before you agree to a contract, you

should get a third-party to review the condition of the property. Nondisclosure
serves as an incentive for buyers to become knowledgeable.

2. Misrepresentation entails: (1) A false statement (2) of a material fact (3) that
the other party is reliant upon. Π has the burden to establish that ∆ made the
misrepresentation knowing it to be false or at least with reckless disregard for its
truth.

Kannavos v. Annino -- Half-truth disclosures require duty for full disclosure.

∆ converted property into a multi-family apartment building fully knowing that
she violated the zoning ordinance. She advertised the property as such. Π bought
the property – unaware of the zoning violation. Court states that if a party does
speak with reference to information, voluntarily or at the other person’s request,
the party is bound to speak honestly and to divulge all the material facts within his
knowledge. ∆ intentionally deceived Π. Because ∆ did as much as she did, she
was bound to do more.

IV. Unconscionability and Problems of Adhesion Contracts

Williams v. Walker-Thomas Furniture Co. – Spent two classes on this case. This case echoes
misrepresentation (ambiguous apportionate clause), economic duress, and capacity that
culminate into shocking the conscious. Paternalistic? Π purchased household items through
monthly installments. Unconscionability includes an absence of meaningful choice (procedural)
and unreasonable terms (substance), which is negated by a gross inequality of bargaining
power.

A. Standard Form Contracts – R. 2d § 211(3) – this restatement is inconsistently applied.

Reasonable Expectations
1. Most importantly, this type of contract excludes or controls the irrational
factor in litigation.
2. The largest disadvantage is that it may be a means by which one party imposes
its will upon another unwilling or even unwitting party…Contracts of Adhesion.

16
 (a) Bargaining over terms may not be between equals.
(b) There may be no opportunity to bargain over terms at all.
(c) One party may be completely/relatively unfamiliar with the terms.

B. Tickets, Passes, and Stubs – If a business wishes to limit its liability for negligence, it
must give adequate notice of the contract and receive the assent thereto. In the mind of
the bailor, this stub does not rise to the dignity of a contract.

C. Duty to Read and the Right to Understand – The failure of a signer to read a written
contract is not such a mistake as will ordinarily excuse compliance with it. Yet, the
requirements of a relievable mistake have been loosened over time.

D. Insurance Marketing – The Doctrine of Reasonable Expectations – When insurance is

sold in circumstances that discourage questions, the reasonable expectations of the buyer
should be honored even though the policy terms do not support them. Example -- policy
purchased through a vending machine.

*Note – Ways to regulate paternalism – Federal Trade Commission, Truth-in-Lending,

and cooling off periods. Unconscionability is not typically used in business-to-business
relationships. Rather, the disparity in the bargaining power…little guy vs. monopoly…is
more likely for its application.

Carnival Cruise Lines, Inc. v. Shute -- On cruise tickets, all litigation was to be filed in Florida
(forum selection clause). Rule: The forum clause should control absent a strong showing that it
should be set aside; and, even if the clause establishes a remote forum for resolution of conflicts,
the petitioner should bear a heavy burden of proof. Court contends that enforceability is not
always linked with bargaining. Passengers benefit from a forum clause through reduced fares.
Court finds that ∆ does not meet their heavy burden because Florida is not a remote alien forum
and ∆ can still litigate the issue.

V. Illegality/Public Policy – Public policy condones the threat of conventional criminal

sanctions of fine and imprisonment to be more effective than the threat of unenforceability of a
private agreement.

CAB, Inc. v. Ingram -- Two approaches to modify restrictive covenants. (1) “Blue Pencil” Rule
– an unreasonable restriction against competition may be modified and enforced to the extent
that a grammatically meaningful reasonable restriction remains after the words making the
restriction unreasonable are stricken. Advantage – simple and prevents the court from rewriting
private agreements. Disadvantage – the contract still fails if the offending provision cannot be
stricken. (2) Reasonableness Rule – unless bad faith on employer’s part, a court will enforce to
the extent that they are reasonably necessary. If a contract is deliberately oppressive, then the
covenant is invalid.

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 REMEDIES FOR BREACH
I. Measuring Expectation – The goal of contract remedies is to award the sum of damages that
will (through monetary extent) put the injured party in the position in which it would have been
had the promise been performed.

A. A breach of contract may affect the injured party in four ways.

1. Loss in value – The value to the injured party of the performance that should
have been received and the value to that party of what actually was received.
2. Other Loss – expenses (other than loss in value) incurred in an attempt to
salvage the transaction after breach (physical harm or property).
3. Cost Avoided – a beneficial effect through saving the injured party further
expense had the performance continued.
4. Loss Avoided – a beneficial effect through allowing the injured party to avoid
some loss by salvaging and reallocating some or all of the resources that
otherwise would have been devoted to the contract’s performance.

B. Expectancy – value of the expected performance deserves to be compensated.

Remedy = net profit + Π’s cost already invested in performing the contract.

Vitex Manufacturing Corp. v. Caribtex Corp. -- Chemically shower-proof cloth case.

Whether overhead should be considered in determining the amount of profits lost…no.
Compensation for the specific performance, not general operating costs.

C. More on Lost Life – It allows recovery for the actual or intrinsic value to the
plaintiffs, but denies recovery for any unusual sentimental value or fanciful price.

D. The Economics of Remedies – Very briefly reviewed in class -- Under the

economist’s rule of Pareto superior, a reallocation of resources in a society is considered
to be efficient if that reallocation will make some economic unit better off without
making some other unit worse off.

E. Losing Contracts
U.S. (Coastal Subcontractor) v. Algernon Blair, Inc. (1973) – restitution instead of
expectancy damages through quantum meruit. -- Blair agreed to construct a naval
hospital and breached the contract. The lower court found that since the subcontractor
would have lost $37K if it completed performance and the amount due to the
subcontractor was $37K, then the subcontractor’s damages were none. (Π entered into
really bad contract.) Issue/Holding: whether a subcontract recover in quantum meruit
the value of labor and equipment already furnished pursuant to the contract irrespective
of whether he would have been entitled to recover in a suit on the contract…Yes. While
this is a correct application of the normal rule, the appellate court believes the
subcontractor is entitled to recover in quantum meruit. Coastal, at its own expense,
provided Blair with labor and the use of equipment. Blair retained benefits without fully

18
 paying for them. Thus, Coastal is entitled to restitution. Court’s formulation…restitution
– payments already made under the contract = Coastal’s damages.

II. Limitations on Damages

A. Avoidability –The injured party is simply precluded from recovering for loss that it
could reasonably have avoided. Duty to mitigate based on Hand’s Formula B<P +L.
Restatement Second § 350.

Rockingham County v. Luten Bridge Co. – County signed a contract to construct a

bridge. After public opposition to the bridge, the county notified Luten to not proceed
any further. Luten disregarded the notice. Although the county has no right to rescind
the contract, it is Luten’s duty to do nothing to increase the damages flowing therefrom.

B. The Rejection of Constructive Service Doctrine – an injured party cannot recover for
loss that could have been avoided by taking affirmative steps to arrange a substitute
transaction.

Parker v. Twentieth Century Fox Film Corp. – Shirley MacLaine Case -- Studio offered
actress a different lead with the same terms of an earlier agreement. Rule: The employer
must show that the other employment was comparable. Court rules that the studio did
not meet its affirmative defense burden since it did not offer any evidence of similar
employment.

Voorhees v. Guyan Machinery Co. – An offer of reemployment will not diminish the
employ ee’s recovery if further association between the parties would be offensive or
degrading to the employee.

Davis Chemical Corp. v. Diasonics – Medical Diagnostic Equipment Deal. Davis says
Diasonics should mitigate the damages by selling their product to another party
(alternative transaction). Whether Diasonics would have been able to fulfill both Davis
and another party’s contract and it would have been profitable for it to have produced and
sold both...yes, however, the alternative transaction does not substitute for the original,
breached contract and does not mitigate the damages.

19
 Contracts Outline, Fall 1999
DeAnna M. Horne
Jim Mooney, Professor
I. What are Contracts?
A. Legally enforceable agreements
1. Ask yourself:
a. Is there a promise?
b. What are the consequences of that promise?
2. Assumpsit
a. Arose out of torts—money exchanged but it really ought
to be refunded (If I bought jeans from JC Penney that fell
apart in the washer, I really should get my money back).
b. Either an expressed or an implied promise
c. Broader and more enforceable concept of contracts than
was used prior to 16th century.
B. Equitable concept of contract law
1. Embodied in Portia—emphasizes mercy
2. Existed through 18th century
3. Features fairness
4. Courts would not enforce unfair contracts (i.e. a loan of money
in exchange for the “pound of flesh nearest your heart.”)
5. “Sound price doctrine”
a. Sound price warrants a sound commodity (agreement to
pay full price for hay implies the hay will be good and not
moldy).
b. This reflects the ethical standards of the day—the
community’s values were offended by price gouging and
like practices.
C. “Will theory” or “Classical theory” of contract law
1. Embodied in Shylock—literal interpretation of contract
2. 1815-ish modern markets and the commercial class developed
a. Old equitable conception didn’t really work
3. Features predictability
4. Parties must have the will to bargain
5. Court will not enforce contract without some type of
consideration—adequacy of consideration becomes less
important under this concept than previously
6. “Caveat Emptor” becomes the rule and the court becomes much
more hardened and impersonal
a. Courts are much less concerned with the fairness of the
contract
D. By the mid 20th century, Equitable concept began returning
II. Basis for Enforcing Promises
A. What is Consideration?
1. Either a benefit to one party or a detriment to the other (Note:
consideration does not have to be shown on both sides)
a. This is a very broad definition of a detriment—it doesn’t
have to be something bad for the party, just at forbearance
of a right or the like.
b. An example: I will give you a dollar if you don’t pick your
nose all day. Consideration is the promissee’s forbearance
of a legal (but disgusting) right. This agreement does
nothing for the promisor (except, perhaps, spare him the
sight).
2. There must also be a bargained for exchange for consideration
to exist.

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 a. Past action by a party generally doesn’t count as
consideration because it wasn’t bargained for.
B. Consideration as a Basis for Enforcement
1. Consideration demands some quid pro quo for the promise—a
promise that is not “paid for” in some way is not enforceable.
2. Required to form a valid contract (with a few exceptions)
a. 2 reasons for requirement
i. Cautionary policy—you are less likely to do
something ill advised if you take the time to make
sure you are getting something in return.
ii. Evidentiary policy—provides proof that a promise
was made and intended
iii. See Feinberg v. Pfeiffer
3. Hamer v. Sidway
a. “Money for nothing” case
b. Refraining from an act to which one has a legal right, at
the request of the promisor, is sufficient consideration to
enforce a contract.
c. Consideration was the nephew’s detriment in giving up a
legal right to do all kinds of “immoral” things. In
exchange, his uncle was to give him $5000.
d. There was a detriment to the nephew in exchange for the
money—detriment to promisee and a bargain.
Consideration existed, therefore a valid contract.
C. Adequacy of Consideration
1. Restatement of Contracts § 71
a. If the consideration given is a “peppercorn,” the
consideration is inadequate and the contract is invalid.
b. For instance, Dad agrees to buy a 1963 Lincoln
Continental worth $2,000 for $1. Consideration is invalid
D. Gratuitous Promises
1. Unenforceable—no consideration
2. See Hamer v. Sidway—the court found consideration, they did
not find that the uncle owed the money simply because he had
promised it.
3. Consideration must be bargained for
4. Goes to adequacy of consideration—a “peppercorn” is not
adequate consideration, makes the promise gratuitous.
E. Fiege v. Boehm
1. The “Oh, sorry, wrong guy” case
2. Agreement to forbear a legal claim, made in good faith, is
sufficient consideration for a contract, even if the claim turns
out to be unfounded.
a. This is a departure from classical consideration doctrine
3. For an invalid claim to be valid consideration 2 requirements
must be met:
a. Must be a good faith belief in the claim
i. “I really believe you are the father”
b. Claim must be reasonable
i. “Well, we did have sex.”
4. Restatement of Contracts § 76 covers this
a. “Forbearance to assert an invalid claim…by one who has
not an honest and reasonable belief in its possible validity
[is not consideration].”
F. The Problem of Action in the Past
1. “Past” Consideration
a. Past acts can not establish sufficient consideration to
enforce a contract even if the action creates substantial
moral obligation

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 i. This is “classical consideration” doctrine
ii. The court may actually create some imaginary
previous promise if a past action gives substantial
material value to the other party—see Webb v.
McGowin, below.
b. Feinberg v. Pfeiffer Co. (take one)
i. The “little old lady and her pension” case
ii. Plaintiff’s past actions did not constitute
consideration for defendant’s promise to pay her
pension. Neither was the plaintiff’s continued
service to the company valid consideration.
1 The plaintiff’s arguments did not address
the bargain issue. The pension was offered
gratuitously with out strings attached.
2. “Moral Obligation”
a. Mills v. Wyman
i. Ungrateful father case
ii. Only when the party making the promise gains
something, the person to whom it is made loses
something, is the promise enforceable.
iii. Even though this court used strong language to
describe the defendant, it stated that the moral
obligation owed to the plaintiff should not be used
to enforce the contract.
iv. Court drew a line between “legal” and “moral.”
b. Webb v. McGowin
i. Nefarious Executor case
ii. Plaintiff’s service to Defendant was sufficient
consideration for the purposes of a contract.
Where the promisor is under substantial moral
obligation because he has received substantial
material benefit, then past consideration does
count.
iii. The court tap-danced around the issue by imposing
material benefit on something that had great moral
obligation.
G. Restitution as an Alternative Basis for Recovery
1. Relatively new theory of recovery for past actions
a. Though bargained for consideration or a promise may not
exist on the facts, a party may have a cause of action on a
quasi-contract if otherwise unjust enrichment may result.
2. Theory not based on promise but on preventing unjust
enrichment
a. I.e. I pay $100 for a CZ but when I get it home, I discover
it is a 2 ct. diamond. Should I be allowed to keep it when
the jeweler discovers the mistake? Restitution says no. I
would be unjustly enriched.
3. If someone has received material benefit and been unjustly
enriched, courts may enforce payment by the enriched party.
4. Plaintiff must provide some service.
a. Plaintiff must expect to be paid and the defendant knew
(or should have known) that payment was expected.
b. Defendant had a chance to reject the services—or if he
was unconscious, a reasonable person should infer he
would have accepted the service.
c. Amount of restitution calculated—2 rules:
i. Market value of the benefit received
ii. Actual monetary benefit received
5. Cotnam v. Wisdom

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 a. Streetcar doctor case
b. Harrison, the deceased, fell off a streetcar and was
injured. Dr. Cotnam ran to his aid. Harrison died
anyway. Cotnam billed the estate for services rendered.
c. Court held there is an implied contract when a reasonable
person could infer that the defendant would have
accepted the services had he been conscious.
d. Even though such services given in an emergency are
assumed to be gratuitous, if the person is acting in a
professional capacity (like an ambulance that happens
upon an injured person in the road), that assumption may
be overturned.
6. Callano v. Oakwood Park Homes, Corp.
a. “We want a…SHUBBERY (Ni!)” case
b. Court calls restitution “quasi-contract” here.
c. Contract entered into with deceased—the defendant sold
the property and was enriched by services provided by
plaintiff who was never paid.
d. Court said, “too bad.” Unjust enrichment was not proven.
Court further says that the wrong party is being
sued—compensation should be sought from deceased’s
estate.
H. The Problem of Unsolicited Action
1. Reliance and the Requirement of Bargain
a. Classical contract law says consideration must be
bargained for.
b. What is a bargain? The law says what it is not.
c. Kirksey v. Kirksey
i. Widow and Orphans case
ii. Court said there was no bargain—“if you will come
and see me, I will give you a place to live” not a
bargain.
iii. The “if…then” statement merely gives the widow
Kirksey a way to receive the gift—not
consideration for a contract.
d. Central Adjustment Bureau vs. Ingram
i. Evil bill collectors case
ii. Terminable at will employment contract that
contained a covenant not to compete
iii. When the defendants left the employ of plaintiff,
they opened their own collection agency in
violation of the covenant
iv. A covenant not to compete requires consideration
v. Normally, future employment doesn’t count as
consideration.
1 Court said the length of employment and
the value of the training was adequate
consideration for the covenant not to
compete.
vi. Covenant not to compete in the employment
contract was too broad here, though and the court
modified.
2. Reliance as an Alternative Basis for Enforcement
a. Though bargained for consideration or a promise may not
exist on the facts,
b. “Promissory Estoppel”—a substitute for consideration.
Reliance as a basis for the enforcement of promises.
i. A promisee’s foreseeable, reasonable, detrimental
reliance may serve as a substitute for consideration

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 if failure to enforce the contract may result in
injustice.
c. For Promissory Estoppel to exist, there must be:
i. A promise that a reasonable person would think was
serious and would have relied upon
ii. Reliance upon the promise
iii. Detriment due to reliance
d. Ricketts vs. Scothorn
i. Rich Granddad case
ii. Grandfather promised $2000 and yearly interest to
granddaughter so she quit her job.
iii. Estate stops payment after grandfather’s death and
granddaughter sues.
iv. Court finds there was not bargained for condition
that she quit her job. Plaintiff did, however, rely
on the promise of money when she quit her job.
v. Detrimental reliance, even though not bargained
for, is sufficient to enforce a contract.
e. Expectation—Remedy under Promissory Estoppel
i. Puts the non-breaching party in the position
expected if the contract had not been breached.
f. Reliance interest—Remedy under Promissory Estoppel
i. See Restatement § 90
1 “Promise Reasonably Inducing Action or
Forbearance”
2 Puts the party back where they were
before reliance on the promise. NOT where
they expected to be based on
g. D & G Stout, Inc. v. Bacardi Imports
i. Liquored-Up contract
ii. Plaintiff passed on an offer to sell his business based
on a promise from defendant
1 The court found Bacardi liable for
damages. But which kind?
1. Expectation damages—lost income
from sales of Bacardi’s product
2. Reliance damages—difference
between the 1st offer and the final
price from the sale of defendant’s
business
2 Court says “Reliance it is!” Why?
1. Lost future earnings (expectation)
are not recoverable under P. E.
3 Stout rejected 1st purchase offer—relying
upon Bacardi’s product to hold out for a
while as an independent until a better offer
came along.
h. General Rule: Reliance can not exceed expectation
i. Feinberg v. Pfeiffer Co. take 2
i. Little old lady case revisited
ii. Under Promissory Estoppel, there is a happy ending
to this case.
iii. Ms. Feinberg relied to her detriment upon the
promise of the company to pay her a pension. She
is no longer able to work. She wins on reliance
damages.
I. Promise for Promise

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 1. When a promise is given in exchange for a promise, both
parties must accept some legal obligation in order for the
agreement to be an enforceable contract.
2. 2 types of contracts made when promises are given
a. Unilateral contract
i. Only one side makes a promise—“If you mow my
lawn, I will pay you $10”
b. Bilateral contract
i. Both sides make a promise—“I promise to give you
$10 if you promise to mow my lawn.”
1 Promises constitute consideration when
given in exchange for promises.
3. Strong v. Sheffield
a. Shiftless husband and nefarious uncle case
b. Defendant claims not enough of a promise was made in
exchange for her promise.
c. Court says, “you are right!”
i. Endorsement of debtor’s note as security for a past-
due debt is without consideration when the
creditor merely agrees to extend payment until he
feels like collecting.
d. Court cannot change an implied promise to an express
promise. The promise in this case was illusory.
4. Mattei v. Hopper
a. Satisfactory leases case
b. In the agreement to sell, defendant backed out stating the
provision making plaintiff’s “satisfaction” necessary to
close the deal made the promise “illusory.”
c. Court disagreed here—the plaintiff’s duty to perform and
exercise his judgment in good faith was adequate
consideration to support the contract
d. This case sets out a “reasonable person” standard for
satisfaction.
i. The buyer should be satisfied if a reasonable person
would be
ii. Satisfaction is not dependent upon the individual
“taste or fancy” of the buyer. If it had been, there
would have been no consideration.
e. Further argument by defendant: this was merely an offer
to sell and not an agreement to sell. Because the
defendant removed her offer from the table before the
plaintiff had accepted by obtaining satisfactory leases, this
is a “concealed offer.” Court didn’t think this one would
fly either.
f. Though a contract containing a satisfaction clause may
seem to impose no real obligation, courts will typically
enforce the contract by imposing a duty of good faith on
the promising party (Mattei in this case).
5. Eastern Airlines v. Gulf Oil
a. Aviation fuel case
b. Requirements contract—seller agrees to meet the
requirements of the buyer at a specific price and the buyer
agrees to buy exclusively from the seller

6 1/7/00
 c. These contracts did not used to be enforceable—not
enough predictability
i. Both the UCC and Florida law has codified them.
d. Defendant argues this contract is “void for want of
mutuality.”
i. Want of mutuality—Gulf argues that Eastern gets all
of the benefit from this contract. Court said “NO.”
Gulf’s benefit is that Eastern does not buy from the
competition.
e. Once again, the test is “good faith”—if Eastern had not
been acting in good faith in ordering aviation fuel, the
contract would have lacked mutuality and it would have
been void.
f. The court in this case finds that the contract is enforceable
in both the Florida statute and in common law.
6. Opposite of a requirements contract is an “outputs contract” in
which the buyer agrees to purchase all of the seller’s output of a
certain product.
a. Aviation fuel case is requirements contract; Glue case on
pp. 132 is Output contract.
7. Wood v. Lucy, Lady Duff Gordon
a. Titanic designer case
b. Exclusive dealing contract. Representative gets a
commission regardless of who does the selling.
i. In this case, Wood didn’t care that Lady Duff Gordon
was selling, he just cared that she didn’t turn over
_ of the profit to him.
c. Lady Duff-Gordon’s argument is that Wood is not bound
to do any work; he did not bind himself to doing anything
specific other than to account for moneys received by him.
d. Cardozo says this argument is ridiculous—if Wood
doesn’t act, he gets no money at all. His promise to work
is implied in his promise to turn over _ of the profits.
8. Termination Clauses
a. If the contract is terminable at will by one party only, the
promise may be considered illusory
III. The Bargaining Process
A. The Nature of Assent
1. Lucy V. Zehmer
a. The Farm in Jest case
b. Defendant agreed to sell Plaintiff his land—Defendant
says he was just kidding and he had no intent to sell the
farm. The court said, “Too bad.” By your actions you
showed intent to proceed with the sale despite your
drunken condition.
c. The objective words and acts of the parties became
important here. What the parties believed subjectively is
not really important.
d. Mental assent of the parties is not required to form a
contract so long as the words and actions of the parties
show a serious intent to enter into the contract. A true
“meeting of the minds” is not required.
e. If, however, one party understands the other party is
joking, no contract –see Keller v. Holderman (pp. 143,
note)
f. The law says, “You intend what you say and act.” In other
words, if the acts and the words of a party warrant a
reasonable belief that the intent is serious, there is no
backing out because you were “joking.”

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 g. The acts of the parties must lead a reasonable person to
believe that the contract was agreed upon. The price
agreed upon may be a large part of this objective test
i. Agreement to buy a farm for $50,000—pretty
reasonable
ii. Agreement to buy a watch valued at $15 for
$300—probably not a serious transaction.
2. Laserage Technology Corp. v. Laserage Laboratories, Inc.
a. In the break up of 2 companies founded by the same man,
who was to be forced out, the disagreement over whether
the deal that was agreed upon allowed Byrum (founder)
to maintain his shareholder voting rights.
b. Court found that the actions of the parties showed that
there was no intent to deprive Byrum of his voting rights
as a course of the agreement.
c. This case is very similar to Lucy v. Zehmer—the court
focus on the outward manifestations of the parties actions
to come to the heart of the intent matter.
3. Gentlemen’s Agreements
a. Problematic area of contract law.
b. If the parties go through all of the motions of contract but,
subjectively, neither intends to be legally bound, is there a
contract?
i. If both parties expressly state (i.e. in writing) that
there is no intent to be legally bound, no
enforcement by the court
ii. In such a case, parties act on the understanding that
so long as circumstances continue as expected,
everyone will perform.
c. So…if 2 guys walk up to each other in the street, make an
agreement and shake hands—Is there an enforceable
contract at that time?
4. Formal Contract Contemplated
a. What if in the same hypothetical as above, one of the 2
guys says, “my lawyers will be in touch.” Is there a
contract? If so, when is it effective?
B. The Offer
1. An offer is an expression of will or intention—it is an act that
allows the offeree the belief he has the power to enter into a
contract.
a. Hmm—kind of lofty.
2. Restatement Second §24 says Offer is the “Manifestation of
willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is
invited and will conclude
a. Traditionally, the courts will want to see an offer followed
by acceptance as evidence of a contract. There are some
cases where the actions of the parties lead the court to
believe that objectively they have entered in to an
agreement.
3. Things to keep in mind about the next 4 cases:
a. These cases are really pretty consistent in the courts’
insistence that contractual intent must be objectively
manifested.
b. The objective standard in evaluating intent to contract is
used in all 4 courts.
c. In cases dealing with land, the courts have been extremely
reluctant to force people to part with their land if there is
any question of intent to do so.

8 1/7/00
 d. There is no offer when the “offer” comes in the form of
advertising circular. The courts are loath to call this an
offer—the seller may be overwhelmed with acceptances!
i. Note: for an ad to show that is isn’t an offer, it must
not be too specific. I.e. saying there is one fur coat
available for $1 to the first customer of the day.
e. Be careful in drafting communications! If the agreement
can be redrafted to say the opposite thing in language that
seem synonymous with the first communication, the court
will usually be persuaded.
f. There must be a mirror image between offer and
acceptance; if the acceptance adds or takes away from the
offer, the contract is invalid. Fairmount Glass made this
argument—court did not find it applicable here but it may
be elsewhere.
g. The offer must be definite. This argument was made in
Fairmount Glass as well. The defendant said an offer to
sell an indefinite quantity was not an offer. The court
said, “nice try” and found sufficient definiteness in this
instance. It may work elsewhere.
4. Owen v. Tunison
a. Plaintiff asked defendant if he could buy some of his land
for $6000. Defendant responded that he could not
possibly sell for “less than $16,000. Plaintiff agreed to the
price of $16,000. Defendant did not wish to sell his land
and refused to accept the $16,000. Plaintiff sued
b. The plaintiff offered to buy the property, but the
defendant’s wish to sell was never discussed. The court
held that there is no contract.
i. The court talks about “meeting of the minds” here,
but there are bits of objective evidence that the
defendant really didn’t expect the plaintiff to
cough up the 16k.
5. Harvey v. Facey
a. Plaintiff initiated transaction by writing to defendant
asking if he would be willing to sell a piece of property
and at what price
b. Defendant answered only the price question and the not
the willingness to sell question. Court says no offer to sell
was communicated.
c. The confusion here arose over language. Even though the
parties were communicating in writing doesn’t mean they
understood what the other was saying.
d. The courts are loathe to make people part with their land
without perfect understanding—the type of item being
sold seems to matter in this type of cases.
6. Fairmount Glass v. Grunden-Martin
a. Appellant (Grunden) invited Fairmount to quote prices on
glass jars. Fairmount responded in specific language
indulging prices, discount for cash payment, and the term
“for immediate acceptance.”
b. When Grunden accepted the quote and placed a specific
order, Fairmount was unable to fill the order.
c. The court held that the quote constituted an offer and
Grunden accepted that offer.
d. Once again the language was very important. Because the
quote contained the words “for immediate acceptance,”
the document was held to be an offer. The offeror was
empowered to enter into a contract.

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 i. If Fairmount had enclosed the words, “all orders
subject to stock on hand” instead of “for
immediate acceptance,” the communication would
have been a quote instead of an offer.
7. Moulton v. Kershaw
a. Salt circular
b. Kershaw sent Moulton a trade circular with a special on
salt. When Moulton ordered, Kershaw had no salt left.
c. Court says a trade circular is not an offer it was an
invitation for offers.
C. Mistaken Bids
1. In the bidding process for contracts (usually for buildings and
the like) the contractors submit bids for jobs, these bids are
considered offers. The buyer of the services chooses the bid and
accepts one.
2. What if the contractor submits a bid with a mistake in it?
3. Elsinore Union School v. Kastorff
a. The defendant submitted a bid to the Elsinore school
district. The defendant had the winning bid. The next
day, the defendant discovered he had made a clerical
error in computing his bid and the plaintiff was informed
right away. Should the defendant be held to a contract
that resulted from a mistaken bid?
b. Court held the defendant could withdraw the offer if the
mistake was:
i. Innocent
ii. Clerical
1 An error in calculating the materials
required is not allowable
iii. Material
iv. If it is unconscionable to hold the defendant to the
offer
v. If the notice of the error and intent to rescind is
prompt
vi. If the offeree can be put back in status quo (the
position it was in before the offer was accepted).
1 The offeree must have the ability to still
accept the next lowest bid
c. Here, all of these conditions were met. The contractor’s
rescission of the bid is like it was never submitted at all.
d. Note that reformation of the contract is not allowed. If the
contractor wants to do the work, he has to do it at the
price bid.
4. Bid Shopping can contribute to these types of errors. The
contractor invites sub-contractors to bid on the job. In order to
prevent the contractor from going to other sub-contractors
asking them to beat a bid, the subs submit their bids at the last
possible moment. This contributes to a high-pressure situation
for the contractor to get his bid to the bidding on time.
5. If the offeree knows of the offeror’s error at the time of the
contract, the offeror will not be bound to perform—the offeree
knows they are taking advantage.
6. Most courts are truly unwilling to grant relief to the contractor
on these types of cases. There is a real feeling that the
contractor should be held to the deal.
7. Heifetz Metal v. Peter Kiewit Sons’ Co,
a. The Subcontractor was not released from his bid to the
contractor when it was discovered they had mis-bid on
the work for a commercial kitchen.

10 1/7/00
 b. The mistake was based on the amount of work they
thought needed to be done—there was more than they
had originally anticipated.
c. The contractor had submitted his bid based on the sub’s
erroneous bid. The contractor could not be placed in
status quo.
8. How are these 2 cases different?
a. Most of the cases when bidder is let out of a contract is
with a general contractor and not the sub—the contractor
has relied on the sub’s bid in preparing his.
b. The work had already been started in Heifetz. The
mistake was perhaps one of judgment and not a clerical
error.
D. The Acceptance
1. Acceptance is a voluntary act of the offeree creating a contract
through their acceptance.
a. Acceptance may occur by performance or through a
promise
i. Hamer v. Sidway—offer was by the uncle, nephew
accepted the offer by performance
ii. Promise—I promise to buy the goods you are
promising to sell.
2. Notice of Acceptance in Unilateral Contracts.
a. Carlill v. Carbolic Smoke
i. Guarantee of £100 to anyone using the Carbolic
Smoke Ball who comes down with the flu.
ii. Defendant argued that it wasn’t a real offer and, if it
were, the plaintiff had not notified of acceptance.
iii. Court said that the language of the advertisement
was so definite as to be an offer and in this
instance no notice of acceptance was required,
performance was enough.
iv. From the character and nature of the transaction,
notice of acceptance of an offer may be
unnecessary.
b. Bishop v. Eaton
i. This is an oddball case where action itself does not
constitute acceptance of the offer.
ii. Ordinarily, acceptance is perfectly fine but in some
cases, notice needs to be given of the acceptance
and the performance.
c. Allied Steel v. Ford Motor Co.
i. The offeror may prescribe a method of
acceptance—an acceptance in the manner
prescribed will bind the offeror.
1 Acceptance in a manner that is not
prescribed in this instance will not bind the
offeror.
ii. A method of acceptance may also be suggested by
the offeror. If the method is merely suggested,
other methods of acceptance are recognized.
1 Partial performance is one of these
methods and it is the one that got Allied in
trouble here.
iii. The court also says here that if here is no fraud or
deceit, the parties are bound by a contract that
they signed and had the opportunity to read.
iv. Allied whined that they did not read the
amendment to the purchase order—the court

11 1/7/00
 found this to be bunkum. Allied supplied the
equipment ordered, they must have read it.
3. Shipment of Goods as Acceptance
a. A contract can, sometimes, be accepted by shipping goods.
i. I.e. the buyer sends an order and in response, the
seller ships the items.
b. If the seller ships items not ordered, is this acceptance?
i. There is no mirror image between offer and
acceptance in this instance—could be breach of
contract.
4. Silence Not Ordinarily Acceptance
a. Restatement §69 says that generally, silence alone is not
acceptance.
b. Sometimes, if there is a past relationship, however, the
offeree can be held if there is only silence.
i. Hobbs v. Massasoit Whip
1 Plaintiff sent a load of eel skins to
defendant and heard nothing in return.
2 The eel skins were not returned and the
defendant did not pay for them.
3 Because of a past relationship of doing
business in exactly this manner, the
defendant was held to be in breach of
contract.
4 Also: the defendant could have been seen
to be unjustly enriched by the plaintiff’s
merchandise.
5. Termination of the Power of Acceptance
a. Power of acceptance may be terminated by:
i. Lapse of the offer
ii. Revocation of the offer
iii. Rejection of the offer
iv. Offeror’s death or incapacity
b. Lapse of the Offer
i. If no specific time is indicated in the offer (i.e. you
must accept by Friday), the offer expires after a
“reasonable time.”
ii. Of course, “reasonable” is open to interpretation.
iii. Akers v. J. B. Sedberry
1 An offer made by one to another in the
course of a conversation only remains open
until the end of the conversation.
iv. Loring v. City of Boston
1 3 years and 8 months from the date of the
advertisement of an offer was not a
reasonable time.
c. Revocation of the offer
i. The offeror may revoke the offer at any time prior to
acceptance.
ii. Exception to this rule is an option contract
1 Option contract: for consideration, the
offeror promises to hold the offer open for
a specific period of time with no right of
revocation. —There must be consideration.
d. Rejection of the Offer
i. This is the offeree’s right.
ii. The offeree cannot accept the offer after he has
rejected it.
iii. A counter offer is a rejection of the first offer.

12 1/7/00
 e. Offeror’s death or incapacity
i. Pretty self-explanatory—all bets are off.
f. Hoover v. Clements Paper
i. When is a communication a revocation?
ii. Hoover’s statement that “we have not decided, we
might not want to go through with it…” was a
revocation of the offer, Clements could not later
accept the offer.
6. Options Contracts
a. A promise, made by the offeror, which effectively limits
the offeror’s power to revoke.
b. Toys v. F.M. Burlington
i. Plaintiff entered into 5-year lease with option to
renew.
ii. Plaintiff said they would exercise the option but did
not like the price the defendant quoted for rent.
After some hemming and hawing, the defendant
listed the space for rent and plaintiff sued (after
moving out.)
iii. Court said the renewal option is more than an
agreement to agree—it was definite and contained
sufficient bargained for consideration to be
enforceable
iv. Court remanded the case for trial because there
were questions of fact as to whether the plaintiff
had exercised their option or had let the time
period lapse
1 Jury at trial found Toys to have exercised
their option but waived its right to renew
when it failed to agree before the deadline.
c. Dickinson v. Dodds (pp. 207)
i. Agreement to hold offer to sell property open for
specific amount of time did not work
ii. Court found no consideration for the agreement and
so a third party’s communication to plaintiff was
notice of revocation of the offer.
iii. A promise to leave an offer open must contain
sufficient bargained for consideration.
d. Restatement §43 allows for indirect communication of the
revocation of an offer.
i. Offeree must receive reliable information of the
offeror’s behavior.
e. Thus:
i. Offeror may revoke at anytime prior to acceptance
ii. Offeror may do so even if the offer is “irrevocable”
for a specific period of time—UNLESS bargained
for consideration is received for the promise
(Restatement §87)
iii. Revocation must be communicated in some reliable
way. Selling to someone else isn’t good enough.
iv. Communication of revocation may be indirect.
f. Ragosta v. Wilder
i. Fork Shop case
ii. Plaintiffs agreed to buy shop from defendant but
needed to obtain financing.
iii. Offer gave plaintiffs a deadline to appear with the
money at a bank. Plaintiffs appeared at the bank
before the deadline with the information on
financing.

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 iv. Defendant sold to someone else. Court said “That’s
OK.”
v. There was no consideration for the promise to keep
the offer open—plaintiffs’ argument that the
money they had spent in obtaining financing was
consideration.
7. Mailbox Rule
a. Restatement §63
i. Time when acceptance takes effect
1 Acceptance is effective when it leaves the
offeree’s possession
2 In an options contract, acceptance is
effective when it reaches the offeror.
b. Restatement §40
i. Rejection or Counter-offer’s effectiveness
1 Rejection or counter-offer must be
received by the offeror to be effective.
2 If an acceptance is also sent, the
acceptance must be received before the
rejection or counter-offer.
c. How these work:
i. Revocation must be received before an acceptance is
mailed to be effective.
ii. Acceptance is good upon dispatch; revocation is
good upon receipt.
iii. Acceptance of an offer eliminates the right to reject.
If the offeree attempts to reject after an acceptance
is mailed—too bad.
iv. If the rejection arrives before the acceptance, the
buyer may choose to enforce the contract unless
1 Seller has relied on the rejection and sold
to someone else.
2 If the seller has relied on the rejection and
sold to someone else at a loss, the seller
probably can recover from the 1st buyer for
the loss.
v. Acceptance dispatched after a rejection is effective
upon receipt if at all.
E. Precontractual Liability
1. General rules and info:
a. General rule: Neither party is bound until a contract is
entered into.
b. Courts may decide to enforce a promise in which one
party acts in reliance upon a future contract when a
benefit has been conferred upon the other party
c. Tension between the classical contract rules and the
human need to reach just results
2. Restitution cases:
a. Sometimes restitution is allowed, recovery not based on a
promise but on avoiding un-just enrichment.
b. Cronin v. National Shawmut Bank
i. Insurance agent revised proposal several times to
meet the wishes of a bank officer
ii. When another company received the insurance
contract, plaintiff sued.
iii. The bank never availed itself of Cronin’s proposals
and an invitation to submit proposals does not
(normally) lead to liability.
c. Hill v. Waxberg

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 i. Goes the opposite way from Cronin
ii. Contractor, Hill, made preparations to build on
defendant’s lot on the defendant’s promise that if
the financing could be obtained, Hill would get the
contract.
iii. Negotiations for the contract fell through and the
contract went to someone else.
iv. Court awarded restitution damages
1 Hill conferred a benefit on Waxberg and
needed to be compensated for it—the
expected profit from a contract was what
Hill undertook the expense for.
3. Wormser’s Hypothetical for Unilateral contracts
a. A promises B $100 to walk across the Brooklyn Bridge and
instead of saying, “I accept,” B simply starts to walk.
Once B gets _ way across the bridge, A yells, “I revoke!”
What is the result if B sues A?
i. Wormser initially said that the acceptance of A’s
offer is signified by the completion of the task and
not by the commencement.
1 He reasoned that B had not given A what
he had asked for—the completed walk
across the bridge and the acceptance of A’s
offer was the completed walk.
ii. Restatement Second §45 disagreed with
him—acceptance is signified by the
commencement of performance, not its
completion.
1 An option contract is created by partial
performance or tender
2 In this case, consideration for the options
contract is part performance
3 This works only in a unilateral contract:
the performer may opt out of the contract
by ceasing to perform but the offeror may
not revoke part-way through completion
b. Brackenbury v. Hodgkin
i. Ms. Hodgkin promised the family farm to her
daughter if she would move from Missouri to
Maine to care for her until her death.
ii. Problems erupted and Hodgkin threw the
Brackenburys out and they sued.
iii. The court held that since this was a unilateral
contract, a promise exchanged for action, Hodgkin
was bound by the Brackenburys acceptance
through performance
c. Davis v. Jacoby
i. This is a similar case to Brackenbury, but the letter
asked for the plaintiff to respond.
ii. The court held this to be a bilateral contract, a
promise for a promise—the performance, as
acceptance doesn't work here.
4. Reliance on an offer that seeks a promise
a. Drennan v. Star Paving
i. Sub-contractor revoked offer to contractor after the
contractor’s bid had been accepted by the client.
Contractor sued.

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 ii. Star Paving argued that they had made a revocable
offer and revoked it before plaintiff had
communicated his acceptance.
iii. Drennan argued that he had relied upon the
defendant’s offer to his detriment.
iv. Court called this an Implied Subsidiary Promise.
1 Defendant was aware that plaintiff would
be submitting his bid based on the lowest
bid received and understood this
procedure.
2 The defendant stood to substantially gain
from plaintiff’s winning the bid and as a
result, the offer had an implied promise to
remain open for a reasonable period of
time.
v. What is the consideration for the implied subsidiary
promise?
1 Detrimental reliance acts in place of
consideration in this situation
vi. Note: unlike the Elsinore School District case
above, the contractor plaintiff here could not be
placed in status quo. He had submitted his bid
relying on the bid from the paving contractor.
b. Restatement §90
i. Promise reasonably inducing action or foreberance
1 This is the promissory estoppel
restatement—see above.
2 It works here because it allows reliance to
act in place of consideration.
c. Restatement §87(2)
i. Combines §45 and §90
ii. Options Contracts are binding if
1 In writing and signed and states some
consideration
2 Made irrevocable by statute
iii. An offer, which the offeror expects to cause the
offeree to do something (or stop doing something)
which would give substantial benefit to the offeror
AND when the offeree relies on it, a binding
options contract is created.
1 Mooney can’t think of anywhere this is
used where it is not in the realm of
contracting.
5. Liability for failed Negotiations
a. If one party has conferred a benefit on the other during
the course of negotiations, the recipient of the benefit may
be required to make restitution.
b. Be careful, though, courts usually have accorded parties
the freedom to negotiate without the risk of
precontractual liability.
c. Goodman v. Dicker
i. Plaintiff was lead to believe his application for an
Emerson radio dealer franchise was accepted. He
spent money in preparation, hired employees and
lined up customers.
ii. When the franchise fell through, plaintiff sued.
iii. Court held an award of damages that the plaintiff
had spent in reliance upon the defendant’s
statements but denied damages for lost profits

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 iv. Reliance damages were awarded but expectation
was denied.
d. Prince v. Miller High-Life
i. Plaintiff entered into a contract for the distribution
of Miller beer. He spent $20,000 to build the
business and then Miller terminated the contract
and gave a profitable distribution area to another.
ii. Appellate court upheld directed verdict for the
defendant.
iii. The court stated the “Missouri Rule,” which gives
the franchisee an opportunity to recover costs sunk
into building a business IF the franchise has not
been in place a reasonable amount of time when
the franchiser takes it away.
iv. Court further said that the Missouri rule doesn’t
apply here—there was a contract that stated
“terminable at will” in the cases the plaintiff was
relying on, there were no contracts at all.
e. Grouse v. Group Health
i. This is much like Goodman v. Dicker, above
ii. Plaintiff relied to his detriment on the promise of a
job from the defendant.
iii. Court said that plaintiff could recover reliance
damages—he had not been given a good faith
opportunity to perform his duties to the
satisfaction of defendant.
f. Ragosta v. Wilder
i. See above
ii. Part 1 (above) court said no consideration for the
promise to keep the offer open
iii. Part 2 (here): court remands the case for trial on
promissory estoppel.
iv. In order to win here, plaintiff must show:
1 They relied upon the promise to their
detriment.
2 Defendant could reasonably have
inferred that the plaintiffs would incur
such a high cost of reliance
g. Hoffman v. Red Owl Stores
i. Plaintiff acted in reliance on defendant’s promise of
a franchise—sold his bakery, bought and sold a
smaller grocery store and obtained $18,000 from
his father-in-law. Defendant refused franchise
ii. Even though the parties had not finalized their
negotiations so that even an offer could be
inferred, the court awarded damages based on
promissory estoppel.
1 Should the promisor have reasonably
expected the promisee to act or forebear
based on the promise?
2 Did the promisee act or forebear?
3 Can injustice be avoided only by
enforcement of the promise?
iii. Court awarded reliance damages on the value of
the small grocery store.
h. Channel Home Centers v. Grossman
i. Mall rental case
ii. Letter of intent was a contract to negotiate in good
faith

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 1 Court held that Grossman breached that
contract.
iii. Contract was supported by
consideration—Grossman used it to get financing.
1 This issue is really a red herring, doesn’t
matter if it is present or not.
2 Court found that both parties were bound
by their obvious intent to be bound
i. Heyer v. United States
i. Court held that a cause of action exists against a
party who negotiates without serious intent to
contract.
F. Requirement of Definiteness
1. Two issues involved here:
a. Contractual intent
i. Whether a reasonable offeree would conclude that
the offeror intended to be bound
ii. Language of the offer is part of this element—vague
language is bad!
iii. If the offer is too vague for the court to conclude
that there is content, the definiteness is then a fatal
flaw.
b. Contract sufficiently definite to ascertain breach and
fashion a remedy.
2. Restatement Second § 33
a. Certainty
i. The terms of the offer and the contract must be
reasonably certain.
ii. Terms are certain when they provide a basis for
determining breach and giving an appropriate
remedy
iii. Lack of certainty may show a lack of intent to
contract.
3. Toys, Inc. v. Burlington
a. Take 2, see facts above
b. Defendant said the terms were too indefinite (an
agreement to agree).
c. Court says it is plenty definite—definite, ascertainable
method of determining price term for lease extention
d. Defendant still wins, see above
4. Lee v. Seagram & Sons, Inc.
a. Seagram argued that its promise to provide a
distributorship in another city with “a price roughly equal
to the capital obtained for the sale of their interest in
Capital City” was too indefinite to enforce.
b. Court held that the plaintiff had submitted enough
evidence at trial to show that the capital was indeed
definite.
IV. The Requirement of a Writing For Enforceability: The Statute of Frauds
A. Reasons to have the Statute of Frauds:
1. Evidentiary
a. We want to make sure these contracts exist before we
enforce them.
2. Cautionary
a. We really want people to think about these before they
enter into them.
3. Habit
a. We want business people (an others) to get in the habit of
writing things down.

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 B. Statute of Frauds Requires writing for enforcement of promises for:
1. Surety Clauses: To answer for the debt for another
a. How surety works:
i. C loans to A upon the promise of B to pay if A
doesn’t—looks like a co-signer!
ii. There are look-alikes not covered by the statute of
frauds:
1 A is not actually bound to pay
(“if you lend A money, I’ll pay it back,” says
B) but B pays anyway.
2 A&B both get benefit from C—B is a co-
principal
3 B acting to further his own economic
interests (say B is a loan-shark and covers
A’s loan in return for lots of interest).
4 New Contract (Novation)—B enters into a
new contract with C in place of A. Like the
taking over of a lease.
5 B promises A and not C—B says, “if you
buy from C, I’ll pay if you become unable
to.”
b. Party taking on the debt gets nothing so the writing is of
important evidentiary value—before this type of contract
is enforced, we want to be sure it exists.
2. Contracts that cannot be performed in a year
a. An unwritten contract may be enforceable if there is any
chance that it may be performed in a year
i. “I promise to work for you for the rest of my
life”—could be less than a year, no statute of
frauds issue
ii. “I promise to work for you for 5 years if you live
that long”—possible to perform in a year
b. Contract must be impossible to perform in a year not
simply highly unlikely or not expected.
c. Part performance in one year does not equal complete
performance—still under statute of frauds.
d. Year runs from the time the contract is made, not the time
taken to perform
i. Promise to appear 18 months from now on a 1 hour
TV program—statute of frauds issue
ii. Promise to appear 6 months from now on a 1 hour
TV program—no statute of frauds issue
e. If the contract is terminated in less than a year (by breach
or whatever) does not necessarily take the Statute of
Frauds out of the picture.
3. Convey interest in real property
a. Leases
b. Sale of Land
c. Granting of Easements
4. Sale of goods worth more than $500
a. Goods are not services
5. Agreement made upon consideration to marry
a. Not a mutual promise to marry—“Will you marry me?”
“Yes, I will marry you.” Not a statute of frauds situation.
b. An agreement to marry if a certain number of stocks are
transferred, statute of frauds issue.
i. Pre-nuptial agreements fall here
6. There are others added in some states
a. Wills must be in writing in some states.

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 C. Three questions to ask when considering Statute of Frauds:
1. Does the statute apply here?
2. Assuming the statute applies, has it been met here?
a. Can we find enough of a signed writing?
i. May be several sets of writings hiding out.
ii. Courts have accepted notes, etc. to satisfy the
Statute.
3. If it has not been met, what are the consequences?
a. Defendant wins!
b. If the court decides the defendant does not have a Statute
of Frauds defense, the case will proceed on the
merits—perhaps an oral contract existed.
D. Dispensing with the requirement of a writing
1. Monarco v. Lo Greco
a. Plaintiff relied upon verbal promise that the family farm
would be his if he stayed and worked it—he worked for
15 years.
b. Plaintiff gave up any opportunity to work and buy
property of his own. The court held that the Statute of
Frauds should not be applied because:
i. Unconscionable injury to promisee would result
ii. Unjust enrichment to promisor
iii. Detrimental reliance on a verbal promise was
sufficient to defeat the requirement of writing.
c. So: promissory estoppel prevented denial of the
enforcement of this verbal promise even though the type
of contract should have fallen under the Statute of Frauds
because of the promissee’s detrimental reliance and the
promisor’s unjust enrichment.
d. Court argued by analogy—why is investing years of work
any different than investing years of money?
e. Expectation (fair market value of the land) was seen as
inadequate damages. Specific performance (the title to
the land) was awarded.
V. Policing the Bargain
A. Capacity—A party to a contract must be the member of a group whose
promises we think should be generally enforceable.
1. Drunkenness
a. In order to get out of a contract through intoxication, the
intoxicated person must be so drunk as to be unable to
comprehend the nature or consequences of the contract.
2. Minors (infants)
a. Until a person reaches the age of majority (usually 18),
any contract entered into is voidable at his option
b. Contracts entered into by them are, however, enforceable
against the other party.
c. Statutes may prevent minors from voiding contracts
entered into for things like food, clothing, and
shelter—hopefully this encourages business owners to
deal with minors for these things.
d. Banking transactions, insurance and educational loans are
all exempt from this provision—minor cannot get out of
these.
e. Ratification is frequently an issue here.
i. If the child reaches majority and ratifies the debt,
says, “I know I owe this money and I agree to pay,”
she is bound
ii. If the child ratifies by implication—waits a couple
of months and makes a coupe of payments, she

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 cannot then revoke the contract on the basis of
capacity.
f. In order to revoke the contract, the child must return the
merchandise (or whatever)—can’t just say, “I disaffirm!”
and then keep the car.
g. Suit is more likely to succeed on the basis of incapacity if
the minor is the defendant.
B. Unfairness—the substance of the exchange may be so unfair that it
shouldn’t be enforced at all.
1. McKinnon v. Benedict
a. Trees issue
b. Oppressive contracts will not be enforced in equity.
c. Plaintiff loaned defendants money ($5,000) to purchase a
resort upon the agreement that they would not cut down
the trees that bordered his land for a time of 25 years.
d. Defendants found they needed that land some 4 years
later to make the business profitable.
e. Court found the burden placed on the defendants was
very large, they were denied use of their land, while the
burden on the plaintiff was very small—a secured loan
which was paid back early.
i. The court called it a “great hardship”
f. This agreement was found to be substantively one-sided
and the contract unenforceable.
2. Tuckwiller v. Tuckwiller
a. Parkinson’s disease case
b. In determining the fairness of the contract we must view
it prospectively (at the time it was made).
i. While Ms. Morrison did not know how long she
would live, neither did Tuckwiller—she entered
into the contract to care for Morrison to the end of
her life willingly in exchange for the title to the
farm upon death.
c. Although Morrison only lived a month, never changed her
will, and Tuckwiller only cared for her for 2 weeks; the
court held the contract was enforceable.
d. Promise was relied upon when she quit her job.
e. Specific performance was ordered: Tuckwiller got the
farm.
i. Defendants argued that she was only entitled to
restitution for the 2 weeks she cared for Morrison.
3. Black Industries v. Bush
a. Bush was a “middle-man” who contracted with plaintiff a
manufacturer to purchase items at a certain price. Bush
then turned around and sold them at a large profit to a
government contractor.
b. Plaintiff argued that the contract was against public policy
because Bush was so inflating the prices that the taxpayers
were footing a huge bill.
c. The court held that simply getting a massive profit on the
sale of goods does not create inequality of exchange.
d. Substantive unfairness issue was not created
here—plaintiff entered contract with “eyes wide open”
and tried to back out of deal when it realized it could have
been charging more for its product.
e. Very difficult to prove Substantive Unfairness when the
party crying it is a business.
4. Void as against Public Policy
a. Brought up by Black v. Bush

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 b. Only allowable under 4 situations
i. Contract for penalty in guise of liquidated damages
ii. Contract to induce public official to act
iii. Contract for an illegal act
iv. Contract for collusive bidding on public contracts
C. Overreaching: Conventional Controls
1. Traditionally this includes:
a. Fraud
b. Mistake
c. Duress
d. Innocent misrepresentation
2. Remedies for these:
a. Recision
b. Avoidance at the instance of the victim
3. Pressure in Bargaining
a. Pre-existing duty rule
i. Agreeing to do what one is bound to do anyway is
not consideration
1 Very important in classical contract
thinking.
b. Duress
i. Not very popular with the classical contract thinkers
ii. It is not duress to do what one has the legal right to
do anyway was the classical thought
1 It is not duress to threaten to fire an at-
will employee
iii. Clear legal rules are very important here,
subjectiveness in this context is not very popular.
iv. A party must act like a person of ordinary firmness
in order to later claim successfully that it should be
freed of its obligations due to duress
1 This is ALWAYS an issue in a duress case
v. Duress is often associated with unlawful conduct.
vi. Duress has been expanded significantly in the last
30 years.
c. Relationship between Pre-Existing Duty Rule and Duress
i. Duress is a far better litmus test for deciding which
modifications to a contract should be enforced
ii. Pre-existing duty rule is not very helpful in making
these types of decisions.
d. Alaska Packers v. Domenico
i. Defendants were hired to perform work on a
canning ship—when the plaintiff transported them
to Alaska, the defendants refused to work unless
the agreed upon salary was increased.
ii. The foreman agreed to increase the pay but when
the work season was over, paid at the rate of the
first contract.
iii. Under the pre-existing duty rule, the court ruled
that the only money the defendants were entitled
to was the money under the first contract.
iv. Under duress, the plaintiff argued that it was so
difficult to get workers in Alaska that it had no
choice but to agree to the worker’s
demands—therefore, the 2nd contract was entered
into under duress.
1 Still sounds like a labor dispute to me
with workers exercising their right to
strike.

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 v. The court accepted the duress argument and the 2nd
contract was not enforced
1 Mooney says this is a hard and fast case
on duress.
e. Schwartzreich v. Bauman-Basch, Inc.
i. Torn signatures case
ii. When a 2nd contract was negotiated, the signatures
were torn off 1st contract, signifying the rescission
of the first contract.
iii. The court held the 1st contract to be void BECAUSE
of the tearing of the signatures—ridiculous. The
important act was the free bargaining between the
parties that led to the new contract and the
rescission of the old one.
f. Arzani v. People
i. Subcontractor brought suit for balance due on a
contract that included money promised him by the
contractor.
ii. Court held that because the first contract had not
been rescinded, the second contract was not
enforceable and the money owed was limited to
the unpaid portion of the first contract.
iii. Pre-existing duty rule applied here
iv. Even though the sub acted in good faith and did not
attempt to extract extra money for himself—the
suit did not work.
g. Restatement Second §89
i. Modification of Executory Contract
ii. Fixes the apparent injustice in Arzani
iii. Makes the promise to modify a contract that is not
fully performed on either side binding if:
1 The modification is fair in view of
circumstances not anticipated by the
parties when the contract was entered
2 To the extent that justice requires
enforcement in view of reliance on that
promise (sounds like estoppel!).
h. Corbin urges the courts to attempt to “separate the sheep
from the goats,” by enforcing contracts by honest
contractors and by not enforcing contracts by dishonest
contractors. Matthew 25: 31-46
i. To fix contracts that may fall under the pre-existing duty
rule:
i. Rescind the old contract and make a new duty for
the new contract:
1 I promise to be at work _ hour before
every one else.
2 Extend the length of the contract by a
month
j. To fix claims of duress:
i. Write in a clause that says something like:
1 This contract has been entered into freely
and without duress.
2 In consideration of changes in market
prices…
4. Scope of the Pre-Existing Duty Rule
a. One party owes a pre-existing duty to a third party
i. De Cico v. Schweizer

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 1 Promise by bride’s father to make an
annual payment to the couple in return for
their agreement not to join in breaking the
engagement.
2 An agreement by bride’s father to pay
groom annually to not break the
engagement is not enforceable
3 This agreement, however, is to induce the
couple to not join together in rescinding the
engagement contract.
4 Cardozo said the parents were bound to
pay.
b. Accord and Satisfaction
i. Accord (party agrees to accept less on a debt owed)
is not enforceable without consideration.
ii. Satisfaction (actual payment of the lesser amount)
iii. Look for duress on these cases as well
iv. Foakes v. Beer
1 Agreement to pay judgment in
installments while foregoing interest is
without consideration
2 If Foakes had said, “I will pay you the
entire amount right now if you agree to
forgive the interest” there would have been
consideration.
v. Kibbler v. Garret & Sons
1 “Payment in full” checks
2 Defendant made partial payment of debt
with a note on the check—acceptance and
endorsement of this check represents
acceptance of payment in full.
3 Court said that the defendant did not
show that there was no communication
with the plaintiff of his intent to pay less
than billed.
4 Accord and Satisfaction requires
manifestation of assent to debtor’s offer.
5. Economic Duress
a. Austin Instrument, Inc. v. Loral Corporation
i. Plaintiff entered into contract with the Navy to
supply radar sets and entered into contract with
defendant for the manufacture of parts for those
sets.
ii. After things had been rolling along for a while,
defendant sent communication to plaintiff stating
that they would stop shipment of the parts
immediately unless the plaintiff agreed to
substantial increases in prices
iii. Plaintiff was up against the wall and had to agree
so they would not breach their contract with the
Navy.
iv. Court sets out elements of an economic duress
claim:
1 Party making the claim was forced to
agree by a wrongful threat
2 Immediate possession of needful goods is
threatened, or that one party has
threatened to withhold goods

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 3 Threatened party could not obtain the
goods from another source
v. Pre-existing duty rule does not apply here:
1 Pre-existing duty is a defense alone
2 In order to regain money already paid,
you must claim duress.
6. Victims Options
a. When thinking duress, ask:
i. Was the victim opportunistic in yielding to the
threat?
ii. Might the victim have resisted and found
satisfactory remedy for resulting injuries?
b. A threat to sue for a money judgment is easily countered
with a defense unless:
i. Mortgage foreclosure
ii. Body seizure
D. Concealment and Misrepresentation
1. Most courts will not insist upon the degree of disclosure that a
person of exceptional scruples might make.
2. In allowing bargaining advantages to be secured by persons of
little scruple, the law may attach a disadvantage to
conscientious conduct and fair dealing!
3. Swinton v. Whitinsville Savings Bank
a. Termite ridden house case
b. Plaintiff bought a home the defendant knew to be termite
ridden. The fact was not disclosed to the plaintiff. When
the plaintiff discovered the fact and that the value of the
house was actually much smaller than the defendant
represented, plaintiff sued.
c. The court says the whole thing was OK. Because all the
defendant did was conceal a fact from the plaintiff, the
court says “Caveat Emptor” and lets it go at that.
d. The court actually says: “if this defendant is liable on this
declaration, every seller is liable who fails to disclose any
non apparent defect known to him in the subject of the
sale which materially reduces its value and which the
buyer fails to discover.” Isn’t this only fair and what we
want sellers to do?
e. Therefore: So long as there is no false statement, mere
silence or “bare nondisclosure” of defective merchandise
is OK.
4. Kannavos v. Annino
a. Defendant offered a house divided into apartments for
sale as an “income property.” Plaintiff purchased the
house with the stated intent to rent the apartments out.
b. Defendant was knowingly in violation of the zoning
ordinances when she divided the home. Soon after
plaintiff bought the house, the city started abatement
proceedings
c. Court held that the defendant was bound to disclose that
multi-family dwellings were in violation of the zoning
ordinances.
5. Distinguishing Swinton and Kannavos
a. In Kannavos there is outright duplicity—brokers
misrepresented the purposes for which the homes were
suitable. Swinton is an example of “bare non-disclosure.”
b. The buyer in Swinton could not have easily discovered the
termites infecting the house but the buyer in Kannavos
could have easily run a title check and discovered the

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 zoning problem—this doesn’t work because the seller in
Kannavos openly and deliberately misrepresented the
product.
c. The law distinguishes between bare non-disclosure and
misrepresentation—the difference between keeping quiet
and openly lying.
6. Misrepresentation
a. Even innocent misrepresentation is actionable and
grounds for rescission of contract.
b. Limits:
i. Must be a material misrepresentation
ii. Misrepresentation of opinion or law is not
actionable
iii. Fiduciaries have a special duty not to misrepresent
opinions
iv. Attorneys have a special duty to not misrepresent
the law.
E. Unconscionability and the Problems of Adhesion Contracts
1. Strict Construction
a. Before unconscionability became a reasonably well-
accepted defense in contract actions, the courts would
construe the language of horrible contracts in convoluted
and weird ways to make the case come out on the side of
right.
b. 3 problems with this approach:
i. Legitimizes the efforts of fancy wall-street lawyers to
draw the language in contracts so tightly that the
courts cannot construe away the advantage the
stronger party has.
ii. Fouls up future cases—lawyers will look to the
decisions and attempt to follow precedent
iii. The real issues in the cases are not addressed; the
courts look to the language and not the principles
involved.
c. UCC §2-302 was written to try to work around
this—gives courts the power to throw out contracts with
elements that are unconscionable.
2. O’Callaghan v. Waller & Beckwith
a. Plaintiff fell on the defective pavement of the courtyard of
a large apartment building and sued defendant.
b. Plaintiff had signed a lease that contained an exculpatory
clause holding the defendant harmless.
c. Court said that the exculpatory clause was against public
policy but should be taken up by the legislature.
d. The contract term barring plaintiff from suing her
landlord was upheld.
e. Was the exculpatory clause really open to bargaining or
did the landlord during a housing shortage have more
power to dictate terms than did the plaintiff?
3. Mooney says that legislatures should address public policy and
judges should not:
a. Judges are not legitimized by elections the way legislators
are
b. Judicial actions are more limited and less systematic than
legislative action
c. Courts are less well equipped to inquire into the wide
reaching merits of a contract clause.
i. Although, judges may be better equipped than we
think—they may not be able to look broadly but

26 1/7/00
 they can look more deeply into one particular
situation without the self-interested hangers on
mucking things up.
4. Tickets, Passes and Stubs
a. Klar v. H. & M. Parcel Room, Inc.
i. Close case—the printing on the ticket for parcel
storage limited the parcel storage’s liability for loss
or damage of items
ii. Found not enforceable here because the defendant
was negligent and the “contract” did not
indemnify the defendant for negligence.
b. The enforcement of tickets with contracts on them
depends on:
i. How clearly the clause appears on the ticket
ii. How understandable the language is
iii. Whether a reasonable person would have
understood the terms on the ticket.
c. Restatement Second §211
i. Standardized agreements
ii. Doesn’t matter if the party has read the ticket
d. Henningsen v. Bloomfield Motors, Inc.
i. Steering mechanism on brand new car failed and
plaintiff was injured shortly after purchasing car
and sued on breach of the warranty of
merchanibility
ii. Defendant claimed the Henningsens had waived the
warranty by signing a contract in which the
smallest, tiniest print waived the warranty.
iii. Court said this is no good—absolutely
unconscionable and against public policy
1 Defendant had a significant power
advantage and the plaintiff could not have
bargained for or against the clause.
e. Williams v. Walker-Thomas Furniture
i. Defendant ran a rent-to-own furniture business;
plaintiff was a customer.
ii. Court said the terms of the contract here were so
unconscionable at the time the contract was signed
as to completely void the contract.
iii. Unconscionability is the absence of meaningful
choice on the part of one party with terms that are
unreasonably favorable to the other party.
1 This case is a textbook example
iv. Ordinarily one who signs an agreement without
full knowledge of its terms may be held to assume
risk that he has entered a one sided bargain but…
v. Plaintiff here had little choice in the matter—she
may have expected her stereo set to be repossessed
when she was unable to pay but every stick of
furniture she had purchased in the past as well?
vi. Test to apply:
1 Are the terms so extreme as to appear
unconscionable according to the mores and
business practices of the time?
f. Jones v. Star Credit Corp.
i. Door to door salesman sold a freezer to plaintiffs.
ii. Where extreme disparity in purchase price and
maximum retail value may constitute
unconscionability as a matter of law.

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 1 In other words, the plaintiff got hosed!
g. Carnival Cruise Lines v. Schute
i. Court found forum selection clause on passenger
ticket to be just fine.
ii. Dissent focused on the lack of bargaining power the
defendant had.
iii. The Supremes placed a heavy burden on a party
wishing to strike a clause in a contract—plaintiff
did not meet the burden
1 Must have shown the clause to be
unreasonable.
F. Illegality
1. Concern with illegality is to protect the public at large from
imposition by both parties on matters of important public
policy.
2. Court’s ideas of public policy come from the legislature and
their own feelings
3. Contracts that are entered into illegally, contain illegal
provisions, or are performed illegally are not enforceable.
4. There is a longstanding tradition that contracts arising out of
co-habitation are against public policy—we have moved away
from this type of moralism.
5. Under what circumstances are covenants not to compete
enforceable?
a. Must be written
b. Part of the employment contract
c. Based on reasonable consideration
d. Reasonable in duration and geographic limitations
e. Not against public policy
6. Hopper v. All-Pet
a. The court found that the clause not to compete here was
all right for the most part.
b. Court modified the duration of the contract from 3 yrs to
1 yr.
c. Damages were not awarded—contract damages must be
pretty definite.
d. This case is distinguishable from CAB above because of the
way the contract was imposed on the employees.
7. Over burdensome clauses and how to get rid of them
a. The whole contract can be thrown out
b. “Blue pencil rule”—the court can eliminate things it
doesn’t like
c. Modification—if the scope of the clause is too broad the
court will simply modify it.
8. Inducing Official Action
a. Aka Influence peddling
b. Most are unenforceable as contrary to public policy—i.e.
bribing a public official
c. Courts will not enforce an illegal agreement!
d. Sirkin v. Fourteenth Street Store
i. Plaintiff seller bribed the purchasing agent of
defendant. When the scheme came to light, the
defendant refused to pay for the goods that were
the result of an illegal deal.
ii. Court said the illegality of the deal barred the
plaintiff’s recovery and the importance of cracking
down on commercial bribery was too important.

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 iii. Note the tension here between the court’s ruling
and the unjust enrichment doctrine—the seller still
got the merchandise and they didn’t have to pay.
e. McConnell v. Commonwealth Pictures Corp.
i. Plaintiff entered into a contract with the defendant
to promote movies.
ii. Plaintiff turned around and bribed some people to
get his job done without the defendant’s
knowledge.
iii. Defendant refused to pay.
iv. The court held that the contract between plaintiff
and defendant was not illegal BUT bribery was
directly used to obtain the benefit so, the contract
is unenforceable.
v. The principle of refusing to enforce illegal contracts
does not apply to every minute detail of a contract,
there must be a direct connection between the
contract and some important public policy (like,
don’t bribe people).
f. Licensing Laws
i. Courts will uphold contracts entered into with
unlicensed vendors so long as the purpose of the
licensing statute is to produce revenue and not
protect public health, safety, or morals
ii. It is not significantly against public policy for these
persons to be unlicensed.
iii. Contracts with unlicensed lawyers, doctors, liquor
sellers, structural engineers, etc. will most likely
not be enforced.
iv. Courts are becoming much less concerned about
the public welfare and more concerned about
unjust enrichment—more plaintiffs are winning.
g. Degree of involvement
i. if the plaintiff’s involvement with the illegal activity
is minor, the courts are more likely to enforce.
h. In Pari Delicto
i. Equally blameworthy
ii. A defense to a claim of illegality
iii. Saying, the other guy is more guilty than me.
9. Restitution in Illegal Contracts
a. In representing an unlicensed engineer (for example)
argue:
i. Licensing statute should not preclude recovery
ii. Even if the contract is unenforceable, to avoid
unjust enrichment, engineer should recover for
benefits conferred by his service
iii. Always think of avoiding unjust enrichment, then
think, restitution.
VI. Third Party Beneficiaries
A. Some types of contracts should benefit third parties and those third
parties should be allowed to sue if the contract is breached.
1. Life insurance is such a contract—the contractor has died and
named a beneficiary who is a third party to the contract and if
the life insurance company doesn’t pay up, the beneficiary may
sue.
B. Lawrence v. Fox
1. Fox owes a debt to Holly; Holly owes debt to Lawrence; Holly
says to Fox, “don’t bother to pay me, just give the money
directly to Lawrence.” Fox doesn’t pay and Lawrence sues.

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 2. Fox argues that Lawrence was not a party to the contract.
3. Court found the money Fox received from Holly was sufficient
consideration for his promise.
4. The court says that parties to a contract have the power to
create rights enforceable by a person not a party to the original
contract and one of those rights is the right to sue for breach.
C. Restatement First §133
1. Definition of Donee Beneficiary, Creditor Beneficiary,
Incidental Beneficiary:
a. Donee Beneficiary: Promisee intends to give the
beneficiary the benefit of the promised performance; a
right against the promisor is conferred (a gift to the
beneficiary).
b. Creditor Beneficiary: Performance of the promise will
satisfy an obligation of the promisee to pay a debt to the
beneficiary (Lawrence v. Fox).
c. Incidental Beneficiary: Someone who doesn’t fall under
the Donee or Creditor umbrella but should be allowed to
hold the promisor to the contract.
D. Restatement Second § 302
1. Intended and Incidental Beneficiaries
a. Sets out the test for whether a party is a beneficiary or not
b. Is the beneficiary’s right to performance necessary to
effectuate the intentions of the parties?
E. Municipal Contract and Public Services
1. Moch v. Rensselaer Water
a. Business owner brought suit, his building burnt down and
there was insufficient H2O pressure at the hydrant to put
the fire out.
b. Plaintiff argued he was a third party beneficiary to the
contract between the city and the water company.
c. Cardozo found that there is no duty by the city to protect
its citizens against fire and therefore no additional duty
arose out of the city’s contract with the water company.
d. Plaintiff was not a third party beneficiary
2. Kornblut v. Chevron Oil
a. Plaintiff’s husband died as the result of a heart attack
while waiting by the side of the road for 2 hours for
Chevron to arrive and help him fix a flat.
b. Plaintiff argued that she was a third party beneficiary to
the contract between the highway authority and Chevron
in which Chevron agreed to provide service to a disabled
car within 30 minutes.
c. Users of the toll road were, indeed, intended beneficiaries
of the contract, but the death of motorist was not a
reasonably foreseeable result of the breach.
d. Damages from breach must be reasonably foreseeable.
3. Koch v. Consolidated Edison
a. As the result of a “blackout” in New York City, the
plaintiffs sued as third party beneficiaries on the contract
between the state of NY and the electric company.
b. The court found the third parties here were exactly the
claimants for whom the contract was entered into to
benefit and so the suit was allowed.
c. Again, damages were to have been reasonably foreseeable.
d. This case is often cited for the elaboration of negligence
law in Tort—when these cases are brought in Tort, it
doesn’t matter if the parties are beneficiaries to a contract.
F. Davis v. United Airlines

30 1/7/00
 1. Plaintiff sued UA for discharge due to his epilepsy. In a first
cause of action under the “Rehabilitation Act” the court found
Davis had no private right to action under this legislation.
2. Plaintiff now says he is the third party beneficiary of a contract
between the US government and UA.
3. Federal law looks to the Restatement Second §302 for the
guidelines allowing the plaintiff to sue and finds that:
a. Recognition of the right to performance would NOT
effectuate the intentions of the parties
b. Circumstances do not indicate the promisee intended to
give the 3rd party the benefit of the promise.
4. This case illustrates that sometimes a 3rd party claim is made in
a creative way to attempt to avoid injustice.
VII. Assignment and Delegation
A. Most contract rights having commercial value (i.e. money) are
transferable.
1. Rights are assigned
a. Like a debt or judgment owed to you
2. Duties are delegated
a. Like a debt or a judgment owed by you.
B. What rights are assignable?
1. Restatement Second §317
a. Assignment of a Right
i. If the assignment is not precluded by statute, it is
generally OK.
ii. Right to buy or sell goods
iii. Assignment must not change the performance of
the obligor in any meaningful way
1 Personal service contracts are assignable
but if what was a pleasure to do at one time
becomes drudgery, the performance has
changed.
iv. Assignment must not be precluded by the contract
2. Intent to assign a debt must be manifested either orally or in
writing.
C. When may a duty be delegated?
1. Restatement Second § 318
a. Delegation of Performance of Duty
i. If the delegation is not against public policy, it is
generally OK
ii. If the promisee still has an interest in whether the
promise is performed then it is generally OK
iii. If the person to whom the debt is delegated doesn’t
perform, the original debtor is still liable
2. Duties by physicians, attorneys, entertainers are not delegable
3. If the delegated duty is not performed, the person who
delegated is not off the hook with the exception of when a
Novation contract is entered into.
4. The promisee may sue the third party directly—third party
beneficiary.
VIII. Remedies for Breach
A. A breach may damage a party in 5 ways:
1. May deprive party of expected return performance
a. The difference between what the party expected and what
was actually received is the LOSS IN VALUE
i. I.e. you owed me $100 and I only got $50. Loss in
value is the $50 I am still owed.
2. The breach may cause other damage

31 1/7/00
 a. Additional loss like personal injury, damage to property,
expenses from trying to remedy things—OTHER LOSS
i. I.e. you owed me $100 and only paid me $50. I
owed the same $100 to Lenny the Loan Shark and
he broke my kneecaps when I couldn’t pay. Other
loss is my broken kneecaps.
3. The non-breaching party may have expected a profit
a. Profit that is lost by the breaching of a contract is
ANTICIPATED PROFIT.
i. I.e. I agree to buy 10 items from you at $5 each and I
have decided to sell the items for $15 each. You
are unable to provide them. I had anticipated
profits of $100.
4. Breach may have a beneficial effect on the injured party
a. It may save some money—this is the COST AVOIDED
i. I.e. you agreed to mow my lawn weekly at the cost of
$10 a week for a year. You came once and I paid
$10 but you never showed up again. I avoided
$510 in costs on the contract.
5. Breach may have the beneficial effect of allowing the injured
party to reallocate funds that would have gone to the contract
instead.
a. The breach may allow another use of capital—this is the
LOSS AVOIDED
i. I.e. because you breached the contract to mow my
lawn, I was able to use the $510 I saved to put in a
new hedge instead.
B. Calculating expectation damages—the fundamental damages of contract
law.
1. 2 ways to figure out the injured party’s damages:
a. Damages equals Loss in Value less Cost Avoided
i. LV-CA=Damages
1 I.e. I have agreed to do some landscaping
for the total contract price of $500. I
bought $200 worth of plants when you
breached and still had $100 worth to buy.
The loss in value is the $500. The cost
avoided is the $100 I still had to spend.
Damages=$500-$100 or $400. This
includes the money I already spent plus the
profit I expected.
b. Damages equals Cost of Reliance plus Anticipated Profits
i. CR+AP=Damages
1 I.e. same as above except to calculate the
damages, my cost of reliance was the $200
I already spent on plants and my
anticipated profit was the $200 I had
planned to make. Damages=$200+$200
or $400. Note that the end result is the
same.
2. A little damages review:
a. Note that expectation damages puts the non-breaching
party in the position he would have been in had there
been no breach.
b. Note that reliance damages puts the non-breaching party
back where they were before the contract was
breached—not where they expected to be.
c. Restitution damages avoid unjust enrichment.
C. Sullivan v. O’Connor

32 1/7/00
 1. On the breach of a patient/doctor contract, the court said that
expectation damages were impossible to calculate.
2. Reliance damages were awarded, putting the plaintiff in status
quo.
a. These damages included pain and suffering for the third
operation she was forced to undergo.
D. Vitex v. Caribtex
1. Contract entered into for the processing of wool. Plaintiff had
re-opened shop in preparation for the defendant’s wool to
arrive. Defendant breached.
2. Court awards expectation damages and uses LV-CA to
calculate.
3. Defendant argues that overhead for the operation of the factory
should be subtracted from the total of damages. Court says that
this is ridiculous—overhead is always taken out of gross profits.
It is not a part of the cost avoided on any particular contract.
a. The reason no overhead should be included—it is not cost
avoided, the plaintiff still has to pay employees, pay
electricity, etc. regardless of the defendant’s breach.
E. Loss Volume Sellers
1. In order to be a loss volume seller, the seller needs to show:
a. Absent breach, it would have sold 2 items
b. Seller could have produced the second item
c. It would have been profitable for the seller to do so
2. Davis v. Diasonics
a. Plaintiff breached the contract it made with defendant to
purchase an MRI unit. Plaintiff sued for the return of its
deposit less a penalty.
b. Defendant argued it was a loss volume seller and not only
was the plaintiff not entitled to its deposit back, the
plaintiff was also liable for the balance on the unit.
c. Even though the MRI unit was sold to a third party, the
court agrees with Diasonics that a second MRI unit may
have been sold absent plaintiff’s breach and the case is
remanded.
F. Problem of Losing Contracts
1. Other types of recovery available when the contract was one
that would have lost money for the non-breaching party.
2. US v. Algernon Blair
a. The non-breaching sub-contractor sued the breaching
contractor. Because the contract would have lost him
money before the breach, he wanted something other than
expectation.
b. The contractor argued that the sub shouldn’t get anything
because they would have lost more if the contractor
hadn’t breached.
c. Restitution damages were awarded here
i. Avoided the unjust enrichment to the contractor
(getting work he never paid for)
ii. Sub-contractor got fair value of his work.
3. Acme v. Israel
a. Court awarded reliance damages to gun manufacturer
who undertook expense to prepare to manufacture guns
for defendant.
b. When defendant breached, the court put plaintiff back in
status quo.
4. Keohe v. Rutherford
a. On a losing contract, the court awarded a Pro Rata share
to a paving contractor when the city breached.

33 1/7/00
 b. The court took the amount of money the contractor spent,
divided it by the amount of money he expected to spend
and multiplied the result by the contract price.
i. (Costs Incurred/Cost of Reliance)*Cost of Contract
ii. This results in the contractor eating the same
percentage of the loss that he would have had
there been no breach.
5. To calculate the damages on a losing contract:
a. Work out what the expectation would be
b. Then work out the other types of damages
i. Reliance
ii. Restitution
iii. Pro Rata
G. Limits on Damages
1. Non-breaching party has a duty to limit damages or to mitigate
them
a. Don’t keep going after the contract is breached. Stop.
2. Restatement Second § 350
a. Avoidability as a Limitation on Damages
i. Damages are not recoverable for loss that the non-
breaching party could have avoided without
undue risk, burden or humiliation
ii. If non-breaching party makes a good faith effort to
avoid damages and it is impossible, recovery is not
barred.
3. Rockingham v. Luten Bridge
a. Defendant was contracted to build a bridge. Plaintiff
breached the contract and informed the defendant that he
should stop building. Defendant finished the bridge and
brought suit.
b. Court found that the defendant had a duty to mitigate the
damages suffered by stopping when he was told to.
c. Injured party must do nothing to increase the damages.
4. Parker v. Twentieth Century-Fox Film Corp.
a. Shirley McLaine case
b. When 20th Century Fox breached the contract to make a
movie and offered plaintiff a role in a different movie
instead, the plaintiff refused and sued for the expectation
damages on the first contract.
c. Court found that an employee does have a duty to mitigate
damages:
i. Must make reasonable effort to obtain other,
comparable employment
ii. Must accept reasonably similar employment
d. The employment offered by the second contract was not
reasonably similar when the genre of the movie was
completely different and the terms of the new
employment contract were inferior.
e. Court awarded expectation damages.
5. Avoidability and Problems of Defective Performance
a. The performance in these cases is complete, the contract
was breached by substandard or defective performance.
b. The problem here is to determine the proper measure of
performance:
i. Do we award the cost to complete correctly (redoing
work probably involved here)?
ii. Do we award the diminishment in value by the
substandard performance?
c. Jacob & Youngs v. Kent

34 1/7/00
 i. Redding Pipe case
ii. Defendant specified the brands of almost every
component of his custom built home including the
plumbing pipe. When he discovered the plaintiff’s
use of a different brand, he refused to pay for the
balance of the contract. Plaintiff sued.
iii. Cardozo said that the difference in the pipes used
was a trivial and innocent breach and it does not
preclude action on the part of the breaching party.
iv. The court awarded diminishment of the value of
the home by the substandard performance.
1 The court ruled that the diminishment
was nothing.
d. Groves v. John Wunder Co.
i. Plaintiff leased his land to defendant for 7 years.
Defendant intended to take sand and gravel from
the land with strict conditions that the land be left
in good condition
ii. Defendant deliberately breached contract by taking
only the best gravel and leaving a hole in the
ground—the plaintiff brought suit.
iii. The court used really strong language to chastise
the defendant for his willful breach. The cost to
put the land back the way they found it was worth
more than the land itself, but the court instructed
the lower court to award “cost of performance”
greater than the cost of the land.
e. Peevyhouse v. Garland Coal
i. Plaintiff leased land for extraction of coal with the
provision that the land would be restored after the
mining was done. The restorative work was not
performed and the plaintiff sued.
ii. Court found that the provision to restore the land
was incidental to the purpose of the contract and
because the cost of restoration was so
disproportionate to the diminution of the land
value, the court awarded diminution in value.
iii. The court also said that the jury may have given the
subjective diminution in value and not the
objective but that was OK.
6. Foreseeability
a. Hadley v. Baxendale
i. Plaintiff owned a mill and when the mill broke, he
arranged for a new mill shaft and paid for delivery
by a courier in advance. An employee of the mill
communicated the urgency to an employee of the
courier company but the mill shaft was much
delayed.
ii. Plaintiff sued the courier company for their lost
profits while awaiting the new shaft.
iii. Court overruled a lower court’s award of £50 in
damages saying the damages were not foreseeable.
iv. Damages must be:
1 Fairly and reasonably considered as
arising from the breach—arise out of the
breach itself.
2 Damages must reasonably have been
supposed to be in the contemplation of the
parties—reasonably foreseeable.

35 1/7/00
 b. Restatement Second § 351
i. Unforeseeability and Related Limitations on
Damages
1 Damages are limited to those the
breaching party would have reason to
foresee when the contract was made.
2 Loss may be foreseeable because it arises
in the ordinary course of events
3 Loss may be foreseeable as a result of
special circumstances that the breaching
party knew about
4 Court may limit foreseeable damages as it
wishes
c. Spang Industries v. Aetna Insurance
i. Plaintiff was to deliver steel for a bridge but the
delivery was significantly delayed causing
defendant’s surety client to suffer damages.
1 Damages included overtime and added
shifts in order to get the work done before
winter hit.
ii. Court found that the damages were reasonably
foreseeable based on the breaching party’s
significant experience in the NY construction
business.
d. Bockman Printing v. Baldwin-Gregg
i. Plaintiff bid on printing jobs in reliance that
defendant would deliver the newly designed
“double chopper folder” machine on time
ii. Defendant was unable to make the machine work
and plaintiff sued.
iii. Court said that the defendant could not reasonably
foresee that he plaintiff would bid on jobs based on
a new, unproven design.
7. Emotional Disturbance
a. Courts are reluctant to award damages based on
emotional disturbance resulting from contract breach
b. Restatement Second § 353
i. Loss due to emotional disturbance
ii. Recovery is barred unless the breach causes a
physical harm or the emotional disturbance was a
particularly likely result from breach
c. Brown v. Fritz
i. Plaintiff sued for emotional distress over the sale of a
home when the sellers fraudulently misrepresented
the property.
ii. Court said that because the damages were sought on
a breach of contractual relationship, recovery was
barred. If the seller’s actions were sufficiently
outrageous, the plaintiff could recover under
punitive damages.
d. Lamm v. Shingleton
i. Plaintiff paid defendant to inter her first husband in
a watertight vault. During a heavy rain, the vault
rose above the ground and in the presence of the
plaintiff opened the vault and discovered the coffin
to be wet.
ii. Plaintiff suffered “considerable shock” and the
defendant refused to clean the mud out of the vault

36 1/7/00
 and said, “to hell with the whole damned
business.”
iii. The plaintiff sued for breach of contract and she
recovered for severe emotional distress
iv. The court held that because the contract was
extremely personal in nature, the contractual
obligation was connected with matters of mental
concern and the sensibilities of the party to whom
the duty is owed are concerned, this is a rare
exception to the rule against emotional damages.
8. Certainty
a. Damages need to be relatively certain to be recoverable
b. Normally, lost profits are pretty uncertain
c. Fera v. Village Plaza, Inc.
i. Defendant breached contract to provide rental space
in retail mall.
ii. Court awarded lost profits here because an
established business had records that could be
taken into evidence that shows what the expected
profits were.
iii. This is an exception to the general rule
d. Evergreen Amusement v. Milstead
i. Defendant contractor was sued for delay in opening
of drive-in theatre (scheduled June 1, opened mid-
August).
ii. Court would not allow lost profits because the loss
from a new business is uncertain.
9. Liquidated Damages and Penalties
a. Liquidated damages are agreed to by the parties at the
time the contract is signed
b. Restatement Second § 356
i. Liquidated damages must be reasonable in the light
of the anticipated or actual loss caused by the
breach and damages must be difficult to prove.
ii. Unreasonably large liquidated damages clauses are
unenforceable as against public policy.
c. Wasserman’s Inc. v. Township of Middleton
i. Plaintiff entered into lease with the city for a piece of
property and agreements were made that if the city
breached and took back the property, they would
pay a pro-rata reimbursement of the
improvements and 25% of the lessee’s average
gross receipts for a year.
ii. Defendant breached and refused to pay the agreed
upon damages.
iii. Court found that the contract was not one in which
the damages were difficult to ascertain
iv. The damages were not reasonable estimate of loss
by the parties
v. Liquidated damages are assumed to be reasonable
unless, in hindsight, they are found to be
unreasonable.
vi. Court found that the liquidated damages clause was
not enforceable but that the defendant must pay
actual damages to plaintiff.
d. Dave Gustafson & Co. v. State
i. Plaintiff entered into contract to resurface highway
that paralleled an older road. The state withheld
payment of part of the contract price for liquidated

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 damages for a delay of 67 days at $210 per day.
Plaintiff sued for the money.
ii. The court assumed the liquidated damages clause
was fair and because the damages for a delay in
highway construction were impossible to measure,
the parties had made a fair endeavor to fix the sum
for damages.

38 1/7/00
CONTRACTS
Spring 1997
Professor Mooney

I. Finding the Law of the Contract

A. Determining the Subject to be Interpreted--(PAROL EVIDENCE)
1. Gianni v. R. Russell & Co.: π agreed not to sell tobacco and
pay an increased rent in ∆’s building, but agreed because he
thought he would have the exclusive right to sell sodas. The
stipulation was not contained in the lease, and court held that
it could not be admitted into evidence. Promise to refrain was
included, so the exclusive rights should have been. Writing is
assumed to set forth the entire agreement. But see: Hatley v.
Stafford (ORS 41.470 (1864) held classical view of parol
evidence, but Or SC “wiggled” its way around by holding that
the legislature intended to enact the common law parol
evidence rule as it existed then and as it would evolve into the
future).
2. Masterson v. Sine: πs were conveyed property from brother,
who went into bankruptcy. ∆ tried to get the land, but πs said
that the land was supposed to stay in the family--even though
the stipulation was not included in the lease agreement. Court
allowed the oral evidence because contract does not explicitly
provide that it contains the complete agreement, and the case
is not one in which the parties “would certainly” have included
the collateral agreement in the deed. Burke’s Dissent:
assignability is assumed, it is a legal contention and therefore
must be explicitly listed as non-assignable to avoid the parol
evidence rule.
Construction3. Co.:
Bollinger
“Once
v. Central
a person
Pennsylvania
enters into
Quarry
a written
Stripping
agreement
and he
builds around himself a stone wall, from which he cannot escape by
merely asserting he had not understood what he was signing.” However, in
this case πs signed agreement that omitted ∆’s promise to fill in the
stripped land. Because ∆s had filled a portion, the court held that the
parol evidence could be admitted. Mutual mistake.
4. R2d § 209: Integrated Agreements : (1) writing
constituting a final expression of terms of an agreement; (2)

1
 court must first determine whether or not the agreement is
integrated before it can decide whether or not to admit parol
evidence; (3) unless other evidence shows that the writing did
not constitute a final expression, it should be considered an
integrated agreement.
5. R2d § 213: Effect of Integrated Agreement on Prior
Agreements (Parol Evidence Rule): (1) binding integrated
agreement discharges prior agreements that are inconsistent;
(2) completely integrated agreement discharges agreements
that are within its scope; (3) integrated agreements that are
voidable or not binding does not discharge a prior agreement.
It may, however, be effective to render inoperative a term
which would have been part if the agreement if it had not been
integrated.
6. R2d § 214: Evidence of Prior or Contemporaneous
Agreements and Negotiations: Parol evidence is admissible
to establish (a) that the writing is not integrated, (b) that the
agreement is completely or partially integrated, (c) the
meaning of the writing, (d) illegality, fraud, duress, mistake,
lack of consideration, or other invalidating cause, (e) ground
for granting or denying rescission, reformation, specific
performance, or other remedy.
7. R2d § 215: Contradiction of Integrated Terms: where
there is a binding agreement, either completely or partially
integrated, evidence of prior agreements or negotiations is not
admissible in evidence to contradict a term of the writing.
8. three-part test to admit oral evidence (Mitchell v. Lath):
a. the agreement must in form be a collateral one
b. it must not contradict express or implied provisions
of the written contract.
c. it must be one that parties would not ordinarily be
expected to embody in writing.
8. no-oral-modification clauses: fairly easy to get around,
especially if party can prove reliance on an oral modification.
B. Interpreting Contract Language
1. in order to show your client’s interpretation is the proper
one, change the statement slightly so the court will see it is
virtually synonymous.

2
2. ambiguous vs. vague: ambiguity will often lead to a
rescission of the contract because the courts will be unable to
determine whose interpretation is correct. Vagueness
requires courts to figure out what a certain word or phrase
means.
3. Frigaliment Importing Co. v. BNS International Sales Corp.:
The chicken case. Does “chicken” as the parties used that
term include birds suitable only for stewing? Issue is how to
determine whose definition is correct using an objective
method of interpretation of a vague contract. Court looks at
the following: the contract itself, trade usage, Department of
Agriculture definitions, the price of the chicken, the parties’
conduct. π bore the burden of proof and failed.
4. objective and subjective theories of contract
interpretation--should an objective or subjective
interpretation be used to interpret contract language?
5. Raffles v. Wichelhaus: The Peerless case. Contract to ship
goods, but there were two ships of the same name. Held that
there was no contract because there was no meeting of the
minds. The case was ambiguous. Subjective interpretation is
very rare, and usually used in “proper noun” situations.
6. Oswald v. Allen: Swiss Coin Collection or all the Swiss
Coins? “When any of the terms used to express an agreement
is ambivalent, and the parties understand it in different ways,
there cannot be a contract unless one of them should have been
aware of the other’s understanding.” Dichotomy between
ambiguous and vague.
1. rules in aid of interpretation
a. the statutory analogy: interpreting contracts can be
like interpreting statutes--look to the transactional
history.
b. purpose interpretation: look at the series of recitals
at the beginning of the contract (“whereas”) to see the
surrounding circumstances and objectives of the parties.
c. maxims: contra proferentem--levels the playing field.
When one party has very significant control, by
interpreting the language against that person, they have
slightly less advantage in interpretation.

3
 expressio unius est exclusio alterius: to express one is
to exclude the rest.
d. public interest: examine public policy interests
e. plain meaning: catching on, much to Mooney’s distress.
Invoked by the party who drafted the language.
f. one should never render a piece of contract language
meaningless. This usually only works for large contracts.
Find a way in which your adversary’s interpretation
would render the contract altogether meaningless.
2. Hurst v. WJ Lake & Co.: horse meat scraps could not be less
than 50% protein, but some tested 49.53-49.96. Court allows
evidence of custom and assign to the words their common
meaning only, even though the contract is non-ambiguous on its
face.
C. Filling Gaps--when and why will a court imply a term? What
meaning will a court give to an implied term? (“good faith” or “best
efforts”) What do these terms mean in particular? (History--in ‘70’s
implied obligation of good faith and fair dealing was becoming a
celebrity in the world of contract litigation and courts were accepting it
to level the playing field. In the ‘80’s courts became frightened, and the
legislature also stepped in.)
1. Eastern Air Lines, Inc. v. Gulf Oil Corporation: ∆s accuse πs
of fuel freighting and therefore breaching their requirements
contract for lack of good faith. Court looks at the established
course of performance and dealing among the parties prior to
litigation, as well as trade custom, to determine that there is
no breach. UCC 2-306; R2d § 204.
2. Wood v. Lucy, Lady Duff-Gordon: ∆ claimed that π did not
have to promise to use reasonable efforts to perform his
duties, but court holds that good faith can be implied so the
contract does not fail.
3. percentage leases: minimum rental plus percentage of
profits
4. Dickey v. Philadelphia Minit-Man Corp.: ∆ entered into
percentage lease with π and then decided to minimize its
operations. Court is trying to decide if there is an implied
obligation to continue to conduct their business if failing to do
so results in a diminution in profits and therefore rent

4
 payment. Court holds that the minimum rental fee was
substantial, and the ∆ used legitimate business judgment in
deciding to limit its business.
5. Market Street Associates v. Frey: π suing for specific
performance because ∆ did not give reasonable consideration
to its offer. The duty of good faith does not include a duty of
full candor, but here π was dishonest in its dealings by not
raising an issue once it realized ∆ did not remember.
6. Bloor v. Falstaff Brewing Corp.: express contract term that
∆ would use “best efforts” to promote and maintain high sales
of π’s beer. Court defines that “best efforts” are really
“reasonable efforts.” Court holds that π merely has to show
that ∆ did not care about sales volume and was content to
allow sales to plummet, burden then shifts to ∆ to show that
there was nothing significant it could have done to promote
π’s sales that would not have been financially disastrous. In
the discussion of damages, the court was sensible in not
requiring mathematical certainty. But see: R.C. Cola: best
efforts clause is not per se breached by a mere undertaking of
a competitive product line. It depends on the circumstances
and Frito-Lay: a covenant cannot be implied if the parties have
either expressly dealt with the matter in the contract or have
left the agreement intentionally silent on the point.
7. Zilg v. Prentice-Hall, Inc.: ∆ publishing company challenged
as not having used best efforts to promote π’s book. Held that
there was no breach of good faith, and best efforts need not be
applied, therefore ∆’s actions was not a breach.
8. Sheets v. Teddy’s Frosted Foods: at-will employee suing on
the grounds of wrongful termination based on implied contract
of employment. Court finds for π on the basis that he was
fired for conduct looked upon favorably by public policy.
(History--courts in the ‘60’s and ‘70’s were pro-employee, but
in the ‘80’s court moved to public policy exceptions to at-will
employment contracts, giving employers a way out.)
II. Performance and Breach
A. Conditions:(1) Have the parties made a particular event or
nonevent a condition of one party’s duty or both parties’ duties? (2) Has
the condition been satisfied? (3) If not, what is the legal effect of the

5
nonoccurrence of a condition?
1. effects of conditions
a. R2d § 224: Condition Defined: a condition is an
event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a
contract becomes due.
b. Luttinger v. Rosen: court reads the condition in the
contract very literally. A condition precedent is a fact
or event which the parties intend must exist or take
place before there is a right to performance. If the
condition precedent is not fulfilled, the contract is not
enforceable.
c. Internatio-Rotterdam, Inc. v. River Brand Rice Mills,
Inc.: December notice was a condition precedent
specifically to the seller’s obligation to proceed under
the contract. There is some concern that we have to give
dates their literal meaning so neither party is able to
take advantage of market fluctuations.
2. problems of interpretation
a. Peacock Construction Co. v. Modern Air Conditioning,
Inc.: whether or not the language in the contract
(payment by the owner) is a condition to the general’s
obligation to pay the sub’s. Courts interpret this issue
as a timing provision in cases like this one. Trade
custom that general will pay sub’s within 30 days of
when owner paid or should have paid. But see: Gulf
Construction (under no circumstances shall a general be
required to make payment to a sub until funds have been
paid by owner) and DEC Electric (same court 13 years
later held that all payment provisions between Generals
and subs that concern time of the payment shall be
construed as a matter of law. If ambiguous--reasonable
time).
b. Mattei v. Hopper: Did the buyer have a way out when
the condition of the contract was his satisfaction?
Buyer has a good faith obligation to seek and evaluate
leases. Two kinds of satisfaction conditions, each
imposing an obligation on the party whose satisfaction is

6
 required. But see: Neumiller Farms (cheaper chips shows
that the law requires a claim of dissatisfaction to be
made in good faith, rather than in an effort to escape a
bad bargain) and Devoine (cheaper cherries shows that
upon satisfaction clauses goods cannot be rejected
because the buyer found a cheaper source).
(1) if satisfaction is based on fancy, taste, or
judgment, buyer must use good faith.
(2) if satisfaction is based on commercial value,
fitness, or quality, buyer must meet reasonable
person standard.
c. Gibson v. Cranage: buyer had good faith obligation to
purchase the portrait, conditional upon his satisfaction.
This could have come out either way, but court was
probably sympathetic due to the suspicious
circumstances.
3. mitigating doctrines: conditions can sometimes cause
injustice, especially if they are one-sided.
a. prevention: ex. of prevention--home owner prevents a
real estate agent from completing a sale; real estate
agent is entitled to commission just as if the condition
had been satisfied. See: Kooleraire Serv.: general rule is
that a party to a contract cannot rely on the failure of
another to perform a condition precedent where he has
frustrated or prevented the occurrence of the condition.
But see: Sheer v. NRA: the prevention doctrine does not
apply if the contract authorizes prevention.
b. waiver and estoppel:
(1) waiver: intentional relinquishment of a known
right. Party must at least give notice that it will
insist on timely payments in order to avoid waiver.
See: Mercedes Benz (implied waiver exists when
there has been a course of dealing accepting the
waiver) and R2d § 84. Waiver is difficult to prove
intent, may be retracted if gratuitous, parties may
include anti-waiver clauses.
(2) McKenna v. Vernon: owner waived the condition
of architect’s certificates through the course of

7
performance and therefore is not allowed to require
it later.
(3) estoppel: show that party reasonably relied on
some statement or nonstatement by the other side
to its detriment.
c. interpretation and forfeiture
B. Constructive Conditions of Exchange (constructive conditions
begin their lives as promises!)
1. Kingston v. Preston: three terms were involved here--(1)
seller was to sell, (2) buyer was to pay over time, (3) buyer
was to put up some security. Buyer failed to put up security
and brought suit when seller refused to convey the business.
Court held that the terms were dependent conditions. The
buyer’s obligation to provide good and sufficient surety is a
constructive condition of the seller’s obligation to convey the
property. Absent some express statement about the order of
performance, courts will use the doctrine of constructive
condition to determine it. But remember old landlord tenant
laws which refused to recognize the covenants were
dependant.
2. Stewart v. Newbury: where a contract is made to perform
work and no agreement is made as to payment, the work must
be substantially performed before payment can be demanded.
C. Mitigating Doctrines
1. substantial performance
a. Jacob & Youngs v. Kent: owner argued that the
builder’s adherence to all the terms of the specifications
in the contract is a constructive condition of his
obligation to pay. CARDOZO answered owner’s condition
with the doctrine of substantial performance--where the
builder has substantially performed the constructive
conditions, then the owner has to pay.
b. substantial performance in context: doctrine in
commercial reasonableness which recognizes that the
rendering of a performance which does not exactly meet
the terms of the agreement will be looked upon as
fulfillment of the obligation.
c. “Wrinkles” in the doctrine of substantial performance

8
 (1) avoidance of the doctrine through careful
drafting
(2) primarily applies to building contracts
(3) applies to constructive conditions, not express
(4) willfully breaching parties cannot invoke
substantial performance.
(5) can argue that covenants are independent
d. R2d § 241: Determining a Material Failure:
following circumstances are significant: (a) extent to
which the injured party will be deprived of the benefit he
reasonably expected; (b) the extent to which the injured
party can be adequately compensated; (c) extent to which
the party failing to perform will suffer forfeiture, (d)
likelihood that the party failing to perform will cure his
failure, taking account of all the circumstances including
any reasonable assurances, (e) extent to which the
behavior of the party failing to perform comports with
standards of good faith and fair dealing.
2. divisibility
a. Gill v. Johnstown Lumber Co.: ∆ argued that contract
was a complete agreement and since π did not deliver all
of the logs, ∆ did not have to pay. Court held that
contract was severable/ divisible. “If the part to be
performed by one party consists of several and distinct
items, and the price is to be paid by the other is (1)
apportioned to each item to be performed, or (2) is left
to be implied by law, such a contract will generally be
held to be severable.” Same idea here as losing
contracts, but not in quantum meruit or restitution
claim.
b. Pennsylvania Exchange Bank v. United States: court
held that the contract was indivisible because it was a
four stage contract which admittedly had sums attached
to each stage, but it was clear that the three preliminary
stages were working up to the fourth, the result of which
was the only stage that mattered. See also: May v. Oakley
(“the case of the house divided”--where a contract is
without description, it is not severable).

9
 c. defense against divisibility: if the part to be
performed by one party consists of several distinct
items and the price to be paid by the other is (1)
apportioned to each item to be performed, or (2) is left
to be implied by law, such a contract will generally be
held to be severable.
3. restitution--this is the most useful way around the
doctrine of constructive conditions.
a. Britton v. Turner: π suing in quantum meruit to get the
reasonable value of the services rendered, but ∆ argued
that the year’s work was a constructive condition. This
case was a real turning point, because the court held that
π should get paid for the value of services rendered--
even a “mere farmworker” should. Recovery cannot
exceed the contract price, therefore π could not take
advantage of a higher market value of his worth. But see:
Algernon Blair (difference is who breaches--buyer or
seller)
b. Kirkland v. Archbold: a breaching π is entitled to
recover for services and materials unless (1) the work
that he has done has been of no benefit to the owner, (2)
the work he has done is entirely different from the work
he was contracted to do, or (3) he has abandoned the
work and left it unfinished.
D. Breach in the Course of Performance--it is often difficult to
determine who breaches first in a contract.
1. Walker & Co. v. Harrison: tomato on the dry cleaner’s sign.
Contract included an acceleration clause in it. Lessor’s
obligation to maintain the sigh was a constructive condition of
the lessee’s obligation to pay for it. Court held that ∆’s
accusation was legally correct, but we must apply the
constructive condition doctrine with common sense, so the
failure to clean the sign right away was a non-material breach.
2. condition v. promise: courts use a slightly softer standard
for constructive conditions than express conditions. Doctrine
of substantial performance does not typically apply.
3. K & G Construction Co. v. Harris: Constructive condition was
the sub’s obligation to perform the work in a “workmanlike

10
 way” in order to receive the progress payments from the
general. There was also an obligation to finish the work.
Court held that ∆ breached first when he hit the wall, and
therefore all the dominoes fall against him. This introduces an
important client counselling dilemma--try to always convince
the client to stay on the job unless it has totally deteriorated
because they will not get more in court than they would have if
they finished, and if the lose, they lose BIG.
4. NW Lumber Sales v. Continental Forest Products: Oregon
case holding that a breach by one party of one contract does
not justify the other party withholding performance on a
second contract between the two parties.
5. hindrance and prevention
E. Prospective Nonperformance
1. anticipatory repudiation
a. Hochster v. De La Tour: does π have an action for
breach if the contract was broken by ∆ before
employment began? Especially since π mitigated the
damages by getting another job. Court holds that a party
can sue early because we want to allow parties the
maximum amount of flexibility when the other party has
breached.
b. Phelps v. Herro: seller π transferred real estate and
stock to buyer ∆, ∆ was to pay in installments but only
made one payment and then repudiated. Doctrine of
anticipatory breach has no application to money
contracts.
2. periodic insurance payments--courts are reluctant to
invoke anticipatory repudiation in a situation based on “how
long will this person live” etc. Courts are reluctant to find a
complete anticipatory repudiation of the contract and will
make the person come back in every five years to reestablish
whatever is at issue.
III. Basic Assumptions: Mistake, Impracticability and
Frustration
A. Mutual Mistake
1. Stees v. Leonard: Mooney hates this case. It’s one of the
incredible old classic cases that stands for the proposition

11
 that a party must keep its contracts even in the face of
quicksand and a twice collapsed building!
2. basis of relief for mistake--the big issue here is where is
the seller safe? There are two ends of the spectrum (1)
complete ignorance or (2) bare nondisclosure. Is there a safe
harbor somewhere in between?
a. Sherwood v. Walker: ROSE THE 2D!!! Contract could be
rescinded because the “substance” of the thing sold was
different than what the parties thought.
b. Wood v. Boynton: π found a pretty rock and sold it to a
jeweler for $1. When it was discovered that the rock
was an uncut diamond, the ∆ got to keep it.
c. The Dover Pool & Racquet Club, Inc. v. Brooking:
application of mutual mistake broadly. If there is a set
of facts that fundamentally change the bargain, one of
the parties will be allowed to rescind. See also:
Kannavos v. Annino (one party knew of zoning changes and
did not disclose, so contract was voided).
d. R2d § 152: When Mistake of Both Parties Makes a
Contract Voidable: (1) When a mistake of both parties
was made at the time of the contract, and the basic
assumption has a material effect of the exchange of
performances, the contract is voidable by the adversely
affected party unless he bears the risk of the mistake
under § 154. (2) To determine whether the mistake has a
material effect, the court will look at reformation,
restitution, or other relief.
e. R2d § 154: When a Party Bears the Risk of
Mistake: (a) the risk is allocated to him by agreement,
or (b) he is aware that he has only limited knowledge but
acts as if his knowledge is sufficient, or (c) the risk is
allocated to him by the court on the ground that it is
reasonable to do so under the circumstances.
B. Impracticability of Performance: began as impossibility, but the
standard has softened. Better for πs, but harder for courts to draw the
line. The doctrine typically cuts when (1) there is a destruction or
unavailability of the subject matter, (2) there is a death of a party
who has contracted to perform or receive personal services, or (3) there

12
is a supervening prohibition by law. Impracticability comes AFTER the
contract has been made, where mistake comes before.
1. Taylor v. Caldwell: π suing for reliance, and the issue is
whether the party who was contracted to furnish a music hall
is excused from performing that contract without the fault of
either party. In a contract in which the performance depends
on the continued existence of a given person or thing, a
condition is implied that the impossibility of performance
arising from the perishing of the person of thing shall excuse
the performance.
2. loss in relation to sales
3. Transatlantic Financing Corporation v. US: Impracticability
is usually used defensively, but here it is used offensively. (1)
a contingency must have occurred, (2) the risk must not have
been allocated, and (3) the occurrence of the contingency must
have rendered the performance impracticable. π did not meet
the third criteria--it was not impracticable just because it
would have cost some more money.
4. foreseeability
5. Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.:
similar to the Rockefeller case where the parties intended
that the wood would be taken only from one particular piece of
land specified in the contract. Court held that the continued
existence on the estate was a condition and impossibility was
applied. Here, the fact that one source of molasses dried up
did not excuse performance because the molasses could have
been procured from another source since a particular source
was not named.
6. Eastern Air Lines, Inc. v. Gulf Oil Corp.: ∆ invoked a
commercial impracticability defense. A price increase to
excuse performance must be more than merely
onerous, it must be “positively unjust.” Party
invoking the doctrine bears the burden of showing
the extent to which he has suffered or will suffer.
7. Mineral Park Land Co. v. Howard: When contract was entered
into, the parties contemplated and assumed that the land
contained the requisite quantity for gravel, but a good portion
was underwater. The difference in cost was so great that it

13
 made performance impracticable and “the situation is not
different from that of a total absence of earth and gravel.”
8. Eastern Air Lines, Inc. v. McDonnell Douglas Corp.: excusable
delay clause was narrowly construed by the lower court to
include only formal requests by the government, and ∆ had only
received informal requests. Parties may contract to narrow or
broaden excuses available to a promisor. A foreseeable
superseding event may even be allowed to prove
impracticability if the circumstances causing the breach have
made performance so different from what was anticipated that
the contract cannot reasonably govern.
C. Frustration of Purpose
1. Krell v. Henry: Rental of room to watch coronation, but
coronation was rescheduled. If the essential purpose for
contracting is frustrated, each party’s duty of performance is
discharged even if the performance is not impossible. But see:
Swift Canadian Bacon (shows that a response to frustration is
that one party assumed the risk either expressly or implicitly).
2. Chase Precast Corp. v. John J. Paonessa Co.: highway
contract canceled, but π suing for anticipated profit. Doctrine
of frustration of purpose may be used as a defense when an
event unforeseeable by either party, the risk of which was not
allocated by contract, destroys the object or purpose of the
contract. When this occurs, the parties are excused from any
further performance under the contract.
3. R2d § 265: Discharge by Supervening Frustration:
Where, after a contract is made, a party’s principal purpose is
substantially frustrated without his fault by the occurrence of
an event the non-occurrence of which was a basic assumption
on which the contract was made, his remaining duties to
render performance are discharged, unless the language or the
circumstances indicate the contrary.

UNIFORM COMMERCIAL CODE

IV. Beginning the Study of Article Two
A. Introduction to the Uniform Commercial Code

14
 B. General Principles and a Few Definitions
1. Relevant Code Provisions: 1-201, 1-205, 2-104, 2-105, 2-
208, 2-403
2. Nelson v. Union Equity Co-Operative Exchange: π farmer
meets the requirements of “merchant” definition and “between
merchants” under 2-104 because he is knowledgeable about
the business of crops, and meets the statutory elements.
Because π was a merchant, the oral agreement confirmed in
writing satisfies the Statute of Frauds requirements under 2 -
201 and therefore must pay damages for breach.
C. The Scope of Article Two
1. three fundamental principles underlie Article 2
a. good faith: 1-201(19) defines it as “honesty in fact”-
-a subjective standard. But when involving merchants
add commercial reasonableness and it becomes objective.
1-203 imposes the obligation of good faith on every
party to a code transaction. Difficult, if not impossible,
to contract around.
b. commercial reasonableness: pervasive, a part of every
merchant’s duty of good faith.
c. the facilitation of actual commercial practices by
incorporating as central features of the law those
practices themselves. As shown through the course of
performance between parties, dealings between parties,
and trade usage.
2. Relevant Code Provisions: 2-102
3. Anthony Pools v. Sheehan: court must decide if a contract to
install a pool is for goods or for services. Bonebrake test:
whether the predominant factor, the thrust, the purpose,
reasonably stated, is a transaction of sale with labor
incidentally involved or vice versa. (The predominant purpose
test). Gravamen test: whether the reason for the breach is
directly related to the fault of the service or the fault of the
good. Also policy considerations. Once determined within the
scope, the next issue is one of warranty.
V. Contract Formation Under the Code
A. Agreement in General, and the Battle of the Forms
1. Relevant Code Provisions: 2-204, 2-207

15
 2. Diamond Fruit Growers, Inc. v. Krack Corp.: ∆ included a
disclaimer of liability in order acknowledgement form. Cannot
interpret 2-207 to give one party an advantage simply because
it sent the first or last form, so issue becomes what
constitutes assent. If the offeror does not give specific and
unequivocal assent but the parties act as if they have a
contract, the provisions of 2-207(3) apply to fill in the terms
of the contract.
3. Mooney’s Routes
a. Route A: 2-207(1) “before the comma”--B -(offer)->S
contract forms when seller accepts . If they send in
different terms (2) [which applies to Routes A & D] the
different terms become proposals for addition to the
contract. Occasionally those proposals can become a part
of the contract (when between merchants and the contract is
not materially altered).
b. Route B: 2-207(1) “after the comma”--contract
formed unless it is expressly conditional on offeror’s
assent to different terms--if not it is considered a
counter-offer. Contract forms on offeror’s assent to
counter-offer. Could engage in some conduct which shows
assent.
c. Route C: 2-207(3)--cannot find either route A or B on
the papers, however both parties have acted as though there
is a contract (seller has shipped, buyer has accepted, etc) so
the code will say there is a contract formed by the conduct.
Terms on which the parties agree and all the terms
provided by Article 2 gap-fillers. (implied warranties)
d. B/C Hybrid: one of the early issues in this analysis as
to whether the counteroffer is expressly conditional or
not. Offeror does something to suggest that they have
assented to offeree’s counteroffer. (Diamond Fruit)
e. Route D: Mooney’s creation, a hybrid--pre-existing
contract (often oral) and one party sends confirmation.
Analyzed in many ways like route A. Confirmations are
treated as proposals like route A. Any different term is
run through the gamut of (2).
B. The Statute of Frauds: UCC 2-201

16
 1. compare/contrast with common law: almost not included in
the UCC, only three definite requirements of the writing, four
types of situations do not require writing, definition of
signature.
2. Distribu-Dor, Inc. v. Karadanis: ∆ refused to sign contract,
stating “my word is my bond” but then decided to go with
another company after π had already ordered special mirrors.
Because mirrors were not readily resalable, the contract fits
within 2-201(3)(a). “Strict adherence to the statute of frauds
has been abandoned in favor of certain limited exceptions to
promote equity and fair dealing between parties.”
C. The Parol Evidence Rule: UCC 2-202
1. Snyder v. Herbert Greenbaum & Associates, Inc.: Multiple
issues. First, whether contract for carpet and installation is
within the scope of Article 2 (yes). Second, ∆ induced π into
contract through misrepresentation: false representations
about material facts which the rescinding party relied on and
had a right to rely on them. Misrepresentation renders a
contract voidable (no). Since the contract was not voidable
under misrepresentation, ∆s offered 5 documents that were
prior contracts. Court holds that documents were properly
excluded because the contract was intended to be a complete
and exclusive statement of contract terms. “Inconsistency”
defined as absence of reasonable harmony in terms of the
language and respective obligations of the parties. Unqualified
unilateral cancellation by ∆s not reasonably harmonious to
contract terms.
VI. General Obligations and the Concept of Title
A. “Gap Filler” Provisions
1. Relevant Code Provisions: 2-305, 2-306, 2-308, 2-309, 2-
310
2. Feld v. Henry S. Levy & Son, Inc.: output contract for all
bread crumbs produced by ∆ was breached when ∆ quit
producing. Good faith requires that party continues supplying
unless put in genuine peril (i.e.--bankruptcy); the mere fact
that the sale was not as profitable as was anticipated is not
good faith.
B. Code Warranties

17
 1. Relevant Code Provisions:2-313, 2-314, 2-315, 2-316, 2-
719, 2-318, 2-607, 2-725
2. express warranties UCC 2-313
a. five important issues
(1) whether seller has actually made a warranty;
“puffing” is a defense.
(2) at common law, π had to prove reliance. Under
UCC, warranty only has to be “part of the basis of
the bargain.”
(3) privity (2-318)
(4) express warranties cannot be disclaimed. Under
2- 316(1) courts must reconcile in favor of the
warranty.
(5) watch for a merger clause--seller may make an
oral express warranty but exclude it through
written merger clause in contract.
b. sample or model
(1) sample: comes out of the production run
(2) model: made prior to production
c. Barton v. Tra-Mo, Inc.: π purchased tanks from ∆ after
seeing models. UCC 2-313(1)(c) states than an express
warranty is created when a sample or model is made as
part of the basis of the bargain, leading the purchaser to
believe that the entire order will conform. ∆ tried to
argue that the items were not really models, but the
court does not believe its argument. π wins for breach
of express warranty by model.
3. implied warranties UCC 2-314, 2-315
a. Blockhead, Inc. v. The Plastic Forming Co., Inc.: π buyer
was experienced in plastics and the wig case industry. π
rejected improvements, and approved models and designs.
No 2-315 warranty in this case, an implied warranty for
fitness for a particular purpose did not occur because the
warranty depends upon the relative skill, knowledge, and
experience of the two parties. Only happens when buyer goes
to seller asking them to select everything. No breach of
the warranty of merchantability because it was effectively
disclaimed. 2-316(3)(b) if a buyer examines goods or has

18
an opportunity to and fails, there is no implied warranty in
the case of any defects coming up after inspection. A
subsidiary issue is whether or not the ∆ qualifies a s a
SUPERmerchant--∆ argued that he was not because he had
never made wiglet cases before, but court holds that he
is an expert in plastics.
b. Valley Iron & Steel Co. v. Thorin: Hoedad case. Buyer
requested that the hoedad be durable. They were not, and
buyer declined to pay for them. Trial court found that
buyer was at fault. Buyer’s defense was breach of
warranty. Issue 1: Is there a merchantability warranty?
Depends on whether or not the seller was a merchant in
goods of this kind. The “goods” that the statute was talking
about must be understood more broadly than just “hoedad
collars” but rather do you make things of a similar nature
out of metal? That makes seller a SUPERmerchant, and an
implied warranty exists. What about the fitness warranty?
Dicta here, but they say there is a warranty for a
particular purpose--knew what the hoedad was for and
buyer left it to seller’s expertise to choose the proper
material. Seller really was asked to select the material.
Particular purpose--where you have specially
manufactured goods, the ordinary purpose counts as a
particular purpose under 2-315.
4. limitations on warranties UCC 2-316
a. K & M Joint Venture v. Smith International, Inc.:
Machine was warranted, but accessories were not. 2-
316(3)(a) disclaimer of implied warranty through the use of
the term “as is.” Then changed terms that everything was
“as is.” a route “d” case--oral contract, and then one party
sends a confirmation with a different term. Proposal for
addition to the contract that would not become part of it
because it too materially altered it. 2-316(3)(d)--on these
facts that to a reasonable buyer the “as is” applies only to
accessories and not the machine. This is not an effective
disclaimer of warranty with respect to the machine. BUT
up jumps 2-607 to knock π out of the box (3): buyer must
notify within reasonable time of a breach. Comment #4:

19
seems to provide a minimal notice o b l i g a t i o n .
Notification need only be such as informs the seller- -
notification here was inadequate because at no time did the
buyer mention BREACH. Some courts have said that
where a party claims unreasonable delay in notification
that party has to establish that the delay somehow
prejudiced it. Did the parties think there was a warranty
at all? A lot of what the buyer did suggests that the
buyer thought the repairs were on its own account.
b. Murray v. Holiday Rambler, Inc.: motor home was
warranted to be free from defects in parts and workmanship;
seller disclaimed any other warranty. 2-316(2) implied
warranties are knocked out. Remedy limitation: repair or
replace in the case of breach. 2-608: buyer’s revocation of
acceptance of the goods. ∆ said revocation was not
available because of the remedy limitation clause. The court
does not sustain the remedy limitation because under 2-719(2)
the essential purpose here failed (repair or replace). What is
the essential purpose? “Where the seller is given
reasonable opportunity to correct the defect or defects, and
the vehicle nevertheless fails to operate as should a new
vehicle free of defects, the limited remedy fails of i t s
essential purpose.” There remained only the question of
whether or not the standard of 2-608 has been met:
legally the right thing to do is GIVE NOTICE EARLY of intent to
revoke acceptance, but at the same time allow them the
opportunity to fix the goods. 2-715 consequential damages,
reduced from $2500 to $500.
5. warranty and Restatement of Torts 2d
a. Flory v. Silvercrest Industries, Inc.: in non-personal
injury cases, courts have struggled with the relationship
between tort law and contracts. In the state of Arizona
were not going to allow a breach of warranty action
against a remote seller because of lack of privity. It
would in personal injury cases, however. The court comes
up with a theory that M wouldn’t put a lot of stock in:
although there can be no UCC warranty action, there is
perhaps a breach of warranty theory outside the code which

20
does not require privity. M doesn’t get it. If this is a
sale of goods, the code applies to this action. A sizable piece
of the warranty award was affirmed against Alamo (the
dealer) and the case is remanded for trial on the non-UCC
breach theory that apparently makes no sense at all. This
case is here to show that π’s lawyers have problems
interfacing contract and tort law. You can plead all causes
of action OR look at the authorities in your jurisdiction
and see where your state is, particularly regarding
privity requirements. (Oregon has a privity requirement in
non-personal injury actions)
6. non-UCC regulation of warranties
a. Atlas Auto Rental Corp. v. Weisberg: Everybody is lying
here. If π had taken a bad check from Schwartzman, he
would have had voidable title. 2-403(1)(b). ∆ said he
paid $900, but only a deposit of $300 to show that he had
purchased for value. There is a question about whether or
not S had voidable title, but ∆ is unable to use the voidable
title defense because he didn’t purchase for value. ∆
cannot use the entrusting defense, because π did not
entrust his goods to a merchant who deals in goods with this
kind. Definition of “value” is very broad and i n c l u d e s
anything sufficient to be consideration. The value probl em
here is a good faith problem. ∆ here was a merchant a n d
therefore must prove reasonable commercial standard.
VII. Risk of Loss
A. Introduction--at common law, title orientation governed risk of
loss. The UCC provides a much easier method.
1. an insurable interest under the code (2-501)
2. types of delivery terms (2-509, 2-510)
3. Ninth Street East, Ltd. v. Harrison: who had the risk of loss
at the time the goods disappeared? Because the FOB term was
added after contract, assume it was not a part of the deal, but
still seller wins. BUT 2-503 Comment 5--> presumption under
the code for a shipment contract. Risk passed when the goods
were delivered to the carrier. Same result if it had been a
destination contract. Buyer’s last gasp argument: π filing with
carrier, rejected by court. Seller should have written a letter

21
to buyer stating that the goods are gone and we will file a claim
and apply it to your account, but we are not waiving our rights,
etc.
B. UCC 2-509: Risk of Loss Absent Breach
1. Ellis v. Bell Aerospace Corp.: seller had not sufficiently
relinquished dominion and control. 2-509(3) case--risk remains
with merchant. Facts are close, but it does seem sensible that the
buyer did not receive the goods. What about the negligence
claims? The court pushed it aside. However, in these cases,
negligence becomes important. If risk had passed to buyer, then
the buyer may have a good claim to recover the value of the
helicopter in a negligence claim against the pilot. Possibly
negligence may trump risk of loss. It is at least possible that the
seller can recover if he can prove the buyer’s negligence caused the
crash.
2. Consolidated Bottling Co. v. Jaco Equipment Corp.: contract
included the language “f.o.b. purchaser’s truck.” Long delay in
delivery and then vandals broke in and damaged the goods. π
argued that it was holding the goods within the meaning of 2 -
503(1) and therefore the risk had passed. This argument is not a
winner in any event because if (4) does not apply, so (3) would
and because the seller is a merchant, risk remains with him. Court
decides that the resolution of this case depends on 2-509(4); the
language “f.o.b. purchaser’s truck” (2-319(1)(c)) was a “contrary
agreement.”
C. UCC 2-510: The Effect of Breach on Risk of Loss
1. William F. Wilke, Inc. v. Cummins Diesel Engines, Inc.: court
applies 2-510(1) because the goods were not conforming, and
therefore risk remained with seller and buyer had right of
rejection. 2-509(3) could have also worked here because seller was
a merchant and had not officially delivered the goods yet.
(“This is my baby.”) There is also a possible negligence overlay
for both parties. Also, there is no actual breach because under
2-607 the buyer has not given adequate notice of breach.
2. Mulitplastics, Inc. v. Arch Industries Inc.: 2-510(3) case--
buyer did not take delivery within a reasonable time and therefore
breached. Risk of loss placed on the breaching party to the extent
of the other party’s deficiencies of insurance. Seller entitled

22
to recover the contract price. On the question of whether or not it
was a breach-- court held that 2-610 (anticipatory repudiation)
does not apply. (Subrogation was also and issue
here)
VIII. Performance and Breach Upon Delivery
A. 2-507, 2-511 provide concurrent conditions; at common law
these likely would have been constructive conditions
B. Buyer’s Rights Prior to Acceptance: Inspection and Rejection
1. buyer’s right to inspect (2-513)
2. buyer’s right to reject (2-602)
a. Max Bauer Meat Packer, Inc. v. Wunderlich: 2-602(1),
2- 606, 2-709. ∆ tried to argue that the first half of the
day’s delivery was too frozen and so they could not have
reworked the whole order. Court quite sensibly looked at
prejudice and the fact that the second half could have been
fixed but for the delay.
b. Zabriskie Chevrolet, Inc. v. Smith: court held for ∆ and
declared that the buyer was not bound to the transaction.
Under 2-316--warranty disclaimer was insufficiently
conspicuous. 2-606 court declared that buyer had not
accepted the car. Court says that the attempted cure was
ineffective-- this seller will not be allowed to force the
deal onto the buyer by forcing the new transmission.
Buyer’s confidence is shattered and a reasonable buyer would
not want to proceed with the transaction.
C. Anticipatory Repudiation (2-609, 2-610)
3. Ellis Manufacturing Co., Inc. v. Brant: court held that under
2-609 the contractor had no reasonable ground for insecurity.
and its withholding the goods constituted a breach and buyer
could go out and buy new goods and sue for the difference.
IX. Seller and Buyer Remedies Under the Code
A. Seller’s Remedies
1. action for the price, UCC 2-709
2. seller’s resale remedy, UCC 2-706
3. seller’s market-contract damages, UCC 2-708(1)
4. lost volume seller, UCC 2-708(2)
a. Snyder v. Herbert Greenbaum & Assoc., Inc.: explains
why the phrase “due credit for . . . proceeds of resale”

23
 language in 2-708(2) does not apply to a normal lost-
volume seller case. Statutory history shows that it
applies to parts assemblers/sellers. Credit need not be
made against the lost profits by the proceeds of resale,
if the π/seller has sustained his burden of proving he is
a lost volume seller.
b. Nederlandse Draadindustrie NDI BV v. Grand Pre-
Stressed Corp.: π ordered cement from ∆, contractual
relationship broke down over a period of time. ∆ did not
show that items were defective under 2-607, and since
it did not do that and also requesting that deliveries
were adjusted so ∆ leaves here. π seeks damages under
2-708(2) and since π showed that it had sufficient
capacity to supply the contract items and more for
another order, it wins on this issue. See also: Davis v.
Diasonics and Vitex v. Caribtex.
B. Buyer’s Remedies
1. buyer’s right to specific performance or replevin, UCC 2-
716
a. Copylease Corp. of America v. Memorex Corp.: π seeks
specific performance as a remedy because ∆’s toner is a
better product than any other. Court recognizes a need to
balance state law against ordering specific performance
with 2-716. On remand, π must show the uniqueness or
degree of difficulty in covering against the difficulties
of enforcement which have caused courts to refrain from
granting specific performance.
2. buyer’s right to cover price-contract price damages, UCC 2-
712
a. Farmer’s Elevator Co. of Elk Point v. Lyle: ∆ tried to
argue that π had waited too long to cover, but court
holds that the purchases were made within a
commercially reasonable time. Comment: “It is
immaterial that hindsight may later prove that the
method of cover used was not the cheapest or most
effective.” There was a second purchase that may have
offended the commercially reasonable time, but since it
was cheaper than the first purchase, the court finds that

24
 ∆ was not prejudiced.
3. buyer’s market price-contract price damages, UCC 2-713
a. Cargill, Inc. v. Stafford: phone conversations that
turned into contracts--contract one was barred by the
statute of frauds (2-201), but contract two was not. The
issue then becomes when the buyer
learned of the breach--was it at the
time of the repudiation or at the time
of performance? Court finds that it
should be at the time of breach, but
then remands to determine whether or
not π should have covered. (Why would
they do this when there is no obligation
to cover?)
4. recovery for breach relating to accepted goods, UCC 2-714
a. City of New York v. Pullman Inc.: 2-714 value of goods
as warranted-value of goods delivered. What is the cost to
repair the goods? Special circumstances discussion is
over the top. Look at footnote 7--what is the more
appropriate repair procedure.

25
CONTRACTS OUTLINE, Mooney Spring 2002

PAROL EVIDENCE RULE

1. The Issue: When an agreement has been put in writing, one party claims there was also
and earlier oral or written agreement, or a contemporaneous oral agreement, that was not
included in the writing but was intended to be part of the K. In such cases, the
admissibility of the alleged additional agreement turns on the applicability of the parol
evidence rule.
2. Rules:
a. Mooney: Restatement 209 + 215: Where parties have intended a writing as the
final expression of all or part of their agreement, evidence of any other prior or
contemporaneous term is not admissible to contradict the writing.
b. Justice Traynor: When the parties to a written K have agreed to it as an
“integration” – a complete and final embodiment of the terms of an agreement –
parol evidence cannot be used to add to or vary its terms…when only part of the
agreement is integrated, the same rule applies to that part, but parol evidence may
be used to prove elements of the agreement not reduced by writing.
i. “Credibility test” – parol evidence should only be excluded if it would
mislead the trier of fact.
3. Reasons for Rule:
a. Juries may tend to favor the underdog. (Mooney doesn’t agree).
b. People might make up agreements that never happened.
c. Certainty in K interpretation.
d. Ability for people to rely on what is written to know what their legal obligations
are.
4. Integration:
a. A complete integration is where the parties intended the written K as a final and
complete statement of the agreement in writing.
b. A partial integration is where the parties intended the writing to be a final
expression of part of the agreement.
i. Formal intent: Traditional view was that a writing would be treated as
an integration if taken as a whole and on its face the writing appears to
be an instrument that complete ly expresses the parties’ agreement
(writing not only the best, but only evidence of intent). Gianni v. Russel
& Co.
ii. Actual intent: Modern view is that a writing is deemed to be an
integration only if the parties actually intended it to be an integration.
Court will consider any relevant evidence to determine intent.
Masterson v. Sine, R 209.
c. UCC comment 3 2-202: Only if the parol term would certainly have been
included in the writing, if agreed upon, then it must be kept from the trier of fact
(this likes the parol evidence rule less than the restatement).
5. Merger Clauses: Provisions in a written K that the written K is the entire K between the
parties, or is the final, complete and exclusive statement of all the terms the parties have
agreed upon.
a. Traditional approach: These clauses are determinative on the question of
whether the writing is an integration. Still the majority rule.
b. Modern courts (minority) will sometimes say it is just one factor in determining
whether it is an integration.
c. Defense can claim unconsionability.

1
 6. Defenses: Can have a D for the K itself:, even if it is completely integrated. Fraud,
duress, mistake, illegality.
7. Exceptions:
a. Separate consideration: Even if a writing is an integration, parol evidence is
admissible if the written integration and the alleged parol agreement are each
supported by separate consideration.
b. Collateral agreement: Parol evidence is often admissible if the alleged parol
agreement is “collateral” (i.e. related to the sub. matter but not part of the
writing).
c. “Naturally Omitted Terms”: Widely accepted modern rule, R216, is that parol
evidence is admissible if it concerns a term that would naturally be omitted from
the written agreement. A term will be treated as naturally omitted if:
i. The term does not conflict with the written integration; and
ii. The term concerns a subject that similarly situated parties would not
ordinarily be expected to include in the written agreement.
1. Two approaches: (1) Whether an abstract reasonable person
would have omitted the term in question from the writing, (2)
Whether the actual parties might have naturally omitted the
parol agreement from the writing. Masterson v. Sine. This is
the majority view.
8. Gianni v. Russell, 1924: P claims and oral agreement (in addition to a lease) where P
agreed not to sell tobacco in exchange for exclusive rights to sell soda in the building. D
denies the oral agreement took place. D rented another space to a drug company that sold
beverages.
a. Issues:
i. Whether the parties would have naturally included the additional term in
their K? Held: Yes, because it embraces the field of the alleged oral K.
ii. P’s argument: Whether the exclusive rights to sell soda was a separate
and ind. agreement and therefore not barred by parol evidence? Held:
No. This term would have been a part of the main agreement and there
was no consideration for the separate agreement.
9. Masterson v. Sine, 1968: P conveyed their ranch to D by a written deed. The deed
provided an option to repurchase at a designated price. There was a separate oral
agreement that the option was personal to P. P’s trustee wanted to establish their option.
a. Held: Evidence of the oral agreement is not barred by parol evidence.
b. Rule: Parties’ intent needs to be considered. Case rejects classical Gianni rule
that a writing that looks complete is presumed to be complete. Traynor says that
an agreement can’t prove completeness in and of itself.
i. Traynor also uses collateral agreement to say that the parol is parol
evidence in a partial integration case (said this is a completely separate
agreement).
10. Bollinger v. Central Pennsylvania Quarry 1967: Parties entered into oral agreement
where they agreed D would deposit his waste on P’s property, but would cover the waste
when one. Written agreement did not include clause, P did not read before signing.
a. Rule: A court can reform a K for a mutual mistake in integration. Escribinor’s
error.

INTERPRETING CONTRACT LANGUAGE

1. General Rule: Where the interpretation of an expression (words or conduct addressed

by one party to another) is in issue, the expression should be given an objective

2
 interpretation (interpretation of a reasonable person standing the addressee’s shoes). In
99% of cases, the court will look for an objective K interpretation.
a. Vague v. Ambiguous
i. Vague: When its applicability in marginal situations is uncertain.
ii. Ambiguous: Two entirely different connotations, so that it may be
appropriate or inappropriate.
2. Exceptions:
a. When an expression is susceptible of two equally reasonable meanings
i. i.e. John is married to two women. He leaves his house to his wife.
Which does he mean?
ii. i.e. Raffles v. Wichelhaus: Two ships called the Peerless. Both
reasonable interpretations. In this case, no K is formed.
b. Both parties have the same subjective interpretation (this will govern even if their
interpretation is not the reasonable meaning of the term). Theoretical, if this
happened, a dispute would most likely not arise.
c. One party knows of the other’s different interpretations: If A knows B’s
interpretation, then B’s interpretation is determinative.
3. Frigaliment Importing Co. v. BNS International Sales Corp., 1960: Young v. Old
Chickens case.
a. Issue: Whether the word “chicken” includes stewing chickens as well as broiler
chickens?
b. Use of the word “chicken” was too vague. Court found that P did not sustain
their burden of persuasion that the K used “chicken” in a narrower sense (i.e.
young chicken as opposed to all kinds of chickens, inc. old).
4. Raffles v. Wichelhaus 1864: Peerless case.
a. Parol evidence may be given for the purpose of showing that D meant one
Peerless and P another. It would be an imposition to hold P to a K he did not
enter into.
5. Oswald v. Allen 1969: Swiss coins case. P thought he was buying both D’s collections
for $50,000, P thought only one.
a. Rule: When any of the terms used to express an agreement is ambivalent, and
the parties understand it in different ways, there is no K unless one of them
should have been aware of the other’s understanding.
b. Interesting, borderline case according to Mooney.
c. Mooney would ask the client to look at the contract and see the description of the
coins – was it capitalized (indicating it was a specialized collection), or not
capitalized (indicating it was just all of the Swiss coins).
d. COASE THEOREM: Tells us the result of the litigation will not effect who
comes out with the coins. It doesn’t affect allocation, but it does effect
distribution of wealth.
i. This will effect rather dramatically how much the buyer has to pay for
the coins. If he wins the case, he gets them for $50,000. If she wins the
case, and they renegotiate, they will cost him a lot more.
6. Hurst v. W.J. Lake Co. 1932: Meat scraps case. Trade usage indicated that 50% protein
meant 49.5% or more. Meat contained 49.53-49.96%.
a. Rule: Trade usage is applicable, even when an instrument is non-ambiguous on
its face (trade usage trumps mathematical usage).
7. Rules in Aiding Interpretation
a. Plain meaning rule: Many courts apply this rule with much investigation into
what parties reasonably understood term to mean.

3
 b. Public interest: Not widely recognized. Environmental disputes often make this
argument (Peevyhouse – court upheld K to further public interest, not really to
help the Peevyhouses).
c. Expressio unius: To express one is to exclude others.
d. Nascitu a sociss: It is known from its associates.
e. Contra Proferentum: Against its author or proffer. This works for K underdog.
8. Evidence to present:
a. Evidence internal to the K
b. Dictionary evidence
c. Foreign Language Evidence
d. Evidence from Government statutes or regulations
e. Trade usage evidence, Course of dealing, Custom
f. Evidence of the likely, and almost inevitable, subjective intention of both parties.
 Ex. Chicken/Broiler - Subjectively both should have known because they
would have been operating at a loss.
 American courts in general interpret contracts objectively, so even if the
Frigaliment case showed that the plaintiff subjectively thought they were
buying fryers, the case would have come out the same.
 This prevents dissembling (fibbing) and having to find subjective intent.

FILLING GAPS

1. Restatement 205, UCC 1-203): In every K, there is an implied obligation on both

parties to act in good faith and with fair dealing on a K.
2. Rule: Good Faith obligation means that party A will not do anything to reduce the
reasonable expectation of party B and jeopardize the expectation (or fruits of the
K).
3. Reason court will find an implied term in a K: FAIRNESS, to insure the legal system
looks at what is fair.
4. Dalton v. Educational Testing Service: Implied obligation of good faith and fair dealing
imposed on the Education Testing Service (obligation to review material presented by
Dalton that exculpates him from their allegations).
a. The obligation in theory, is that A prevents B from depriving A of the fruits of
the K that is expected,
b. If the party gives discretion in someway, the implied obligation of good faith and
fair dealing prevents the party from giving discretion arbitrarily,
c. However, the implied obligation cannot be inconsistent with express terms.
i. Typical limitation
ii. If ETS form had said ETS will have total discretion in determining
whether or not to report the score, then Dalton would have a hard time
convincing the court to allow him to submit his information.
iii. In this case, the form said that the student would have the opportunity to
provide additional information.
5. Burger King v. Weaver: No implied obligation of good faith to not put a second
franchise next to the first franchise.
a. In this jurisdiction, the court will not use the implied obligation of good faith to
add a term or otherwise vary the express terms (Dalton just said you can’t
contradict a term, didn’t mentioning adding a term)
6. Eastern v. Gulf: Gulf breached K with Easter, claiming Eastern violated their K by not
acting in good faith b/c of fuel freighting practices. In reality, Gulf was trying to weasel
out of their K with Eastern because oil prices had shot up and they wanted more money.
a. Issues:

4
 i. 1st: Consideration (lack of mutuality)
ii. 2nd: Remedies: Whether Eastern could appropriately obtain specific
performance.
iii. Good Faith. Governed by UCC b/c it is the sale of goods.
b. UCC 1-201(19): Defines good faith (subjective definition) – honesty in fact
c. UCC 2-103: Sale of Goods: Merchants have a higher good faith standard, they
have to be not only subjectively operating on good faith, they have to objectively
be operating on good faith as well.
d. Throughout the entire commercial code, there is a narrow definition of good faith
e. UCC 2-208: Course of performance – how did these parties perform the K up
until the time the dispute arose.
i. In this course of performance, this fuel freighting when on for years and
years. Trade Usage.
7. Commercial leases: Often have a certain base rent per month plus a certain percentages
of gross receipts. Problem arises when tenant wants to stop the business altogether and
just pay minimum monthly rent, or it wants to cut back and the receipts go down. The
leaser argues that there is a good faith obligation on the part of the defendant. Implied
term: Best Efforts. This is similar to what is found in Wood v. Lucy Lady-Duff
Gordon.
8. Zilg v. Prentice Hall: Nature of an implied obligation on the publisher is to act in good
faith, it is not to exert best efforts on behalf of the book.
a. Trial court held that there was a bad faith decision to “privish” the book
(meaning they fulfilled technical requirements to publish, but did not do more
than that. Mooney agrees with this opinion, although the decision was reversed.
b. Court of appeals: The obligation to act with good faith in promoting the initial
promotional activities was fulfilled, and the K language dictates that a business
decision by the publisher to limit the size of a printing or advertising budget is
not subject to second guessing by the trier of fact whether it is sound or valid.
c. There are two ways Zilg could have shown breach of K:
i. Demonstrate that the initial printing and promotional efforts were so
inadequate as not to give the book a reasonable chance to catch onto the
reading public.
ii. Show that even greater printing and promotional efforts were not
undertaken for reasons other than a good faith business judgment.
9. WOOD’S RULE: If an employee was terminable at-will, then an employer could fire
her anytime for any reason.
a. Heydey of progressive contract law: Late 60’s, early 70’s - protection of
employees increased. Three grounds employee might assert:
i. Something in a conversation or in an employment manual that at least by
implication if not explicitly, gave her the right to be fired only for cause.
ii. Public Policy exception: You cannot fire someone for exercising a right
that involves some important public policy. You cannot fire a Whistle-
blower, for example.
iii. There is, in every employment K, an implied obligation of good faith and
fair dealing (employers tend to vehemently oppose this one). There has
to be some reasonable reason for firing a person.
b. 80’s and early 90’s saw all three of the above grounds wither considerably.
i. Some states passed statutes that say there is no obligation of good faith
and fair dealing in any employment.
ii. Employment lawyers began to put disclaimers in employee manuals.
iii. Even the public policy ground has been narrowed considerably.

5
 c. Sheets v. Teddy’s Frosted Foods 1980: Violation of public policy exception to
firing at-will.
i. Employee should not be put in a position whether to risk criminal
sanction or to jeopardize his continued employment.
10. Balla v. Gambro 1991: Lawyer case.
a. General rule: In-house counsel does not have a claim under tort of retaliatory
discharge.
b. Appellee was required to abide by the rules of professional conduct, so public
policy was adequately safeguarded without extending the tort of RD.
c. Extending the tort of retaliatory discharge to in-house counsel would have an
undesirable effect on the attorney-client relationship (would destroy trust).
d. Inappropriate for the employer/client to bear the economic burden their counsel’s
adhering to their ethical obligations.
i. Two influential courts – CA and Massachusetts went the other way:
Because an attorney is obliged to inform someone when clients are
engaging in illegal conduct, they should have protection.

CONDITIONS

1. In General: A K may expressly provide that a party does not have a duty to perform
unless some condition is fulfilled. In such a case, the party’s failure to perform will
normally be justified if the condition was not fulfilled.
2. Definitions: Condition means either:
a. An event or state of the world must occur or fail to occur before a party has a
duty to perform under a K, or
b. An event or state of the world - the occurrence or non-occurrence of which
releases a party from its duty to perform under a K.
3. R2d 244: A condition is an event, not certain to occur, which must occur, unless its
nonoccurrence is excused, before performance under a K becomes due.
4. R2d 217: Conditions – a reasonable well-accepted exception to the parol evidence rule.
One is permitted to use parol evidence to show the party’s agree to a condition precedent
to the effectiveness of a K.
a. The alleged parol condition cannot contradict a writing in order for the exception
to apply
5. Three kinds of questions around conditions:
a. Have the parties made a particular event or non-event a condition of one party’s
performance or both parties’ performance?
b. Has the condition, if it is one, been satisfied?
c. If it hasn’t been satisfied, what’s the legal effect of the non-occurrence of a
condition?
6. EXAMPLE: Sarah promises to carry Carl’s goods in her ship from London to Gibraltar.
Carl promises to pay her for that service $5000. In addition, the parties agree that in
some fashion Sarah will get the good there in 25 days. Two ways to word the 25 day
term:
a. Sarah could promise to get the goods there in 25 days. If she’s late, then she has
breached her promise and will be liable for damages.
b. Parties will word the term as a condition. “It shall be a condition of Carl’s
obligation to pay that Sarah get the good there within 25 days.” If she’s late, she
hasn’t breached, she just doesn’t get paid. This excuses Carl’s performance.
c. It is almost always more equitable to construe language as a promise than as a
condition.

6
7. Luttinger v. Rosen, 1972: P contracted with D to purchase property and paid deposit of
$8500. K was conditioned upon P obtaining 1st mortgage in amount of $45,000 for not
less than 20 years at 8.5% financing. P contacted one institution and was unable to get
8.5%. Offered to pay the extra, but D refused and kept the money. Court ordered that D
give back the money because P had tried to meet the condition and had been unable.
a. Hornbook rule in K law: One has to satisfy a condition absolutely. No
doctrine of substantial performance. Mooney thinks this might be collapsing.
8. Peacock Construction Co. v. Modern Air Conditioning 1977: D is a contractor who had
two subs. K contained a provision that said D would pay the subs within 30 days after
full payment by owner.
a. Court held this language was not a condition – simply a timing provision.
Meaning of language is not that subs will be paid if/when contractors are paid.
Sets a normal time for payment. If payment is not forthcoming at that time, there
is still a legal obligation to pay.
b. Arguments (for sub):
i. General Contractor is in a much better position to say know the credit
standing of the owner.
ii. Sub-contracts are almost always drafted by the gen. Language is
supposed to be construed against the party drafting.
iii. Trade usage – this is how courts intend to interpret these, and this is how
the parties in the construction business tends to construe these contracts.
9. Gibson v. Cranage 1878: P solicited D’s business, offered to paint portrait of dead
daughter. Said he wouldn’t have to pay for it if not satisfied. D was not satisfied with
the product. P re-did the picture, and D wouldn’t look at it. Court held for D.
a. Repeat of Mattei and Hopper: Condition to act in good faith.
b. Two categories of satisfaction condition:
i. Subjective (if taste or fancy is involved), so long as party exercises their
judgment in good faith, that is the only obligation.
ii. Objective: If the requirement of the party’s satisfaction has something
to do with mere economic utility, mechanical fitness, or marketability, a
condition of satisfaction is interpreted to be fulfilled by a performance
that would satisfy a reasonable person.
iii. As a lawyer, advise your client to look at the portrait and reassert lack of
satisfaction.
10. Mitigating Doctrines
a. Prevention:
i. General Rule: A party to a K cannot rely on the failure of another to
perform a condition precedent where he has frustrated or prevented the
occurrence of the condition.
b. Waiver, Estoppel, and Election
i. Waiver - R2d 84
1. Traditional definition: The intentional relinquishment of a
known right.
2. Usually waiver is not explicit. Typical scenario: If your rent
payments are due to me on the 3rd, but I accept late payments
consistently, I can expect payments on the 3rd. You can retract
the waiver, however.
ii. Estoppel, R2d 84(2), UCC 2-209(5)
1. A party that, without consideration, has waived a condition that
is within the other party’s control before the time for occurrence
of that condition can retract the waiver and reinstate the req. that

7
 the condition occur unless the other party has relied to such an
extend that the retraction would be unjust.
iii. Election: A party that chooses to disregard the nonoccurrence of a
condition is bound by an election to treat this duty as unconditional.
1. Common for insurers.
c. Impossibility: Impossibility or impracticability excuses the fulfillment of a
condition if fulfillment of the condition is not a material part of the agreed
exchange and forfeiture would otherwise result.
d. Fulfillment of the condition would cause a disproportionate forfeiture: Then
fulfillment of the condition may be excused unless the fulfillment of the
condition was a material part of the exchange.

CONSTRUCTIVE CONDITIONS

1. Constructive Conditions of Performance: Most important and common type of

constructive condition to the duty of each party to a K to render performance is that the
other party has rendered its performance or made tender of its performance.
a. Essentially, the promise is acting as a condition.
b. Example: Steve and Jim make a K under which Jim will paint Steve’s house by
May 30, and Steve will pay Jim $3,000 on June 1. It is then an implied condition
to Steve’s duty to pay $3000 that Jim shall have painted the house.
i. Dual legal effect: If Jim fails to paint Steve’s house by June 1, (1) the
failure is a breach of K for which Jim will be liable, and (2) The failure is
a nonfulfillment of an implied condition to Steve’s duty to pay on June 1,
so Steve does not come under that duty.
2. Kingston v. Preston, 1773: D hired P as an apprentice. Said that if P was to give him
sufficient security, then D would convey him the business. P failed to give good security,
therefore there was no obligation to perform.
a. Today we would say “the seller’s argument is that the buyer’s obligation to post a
surety is a constructive condition of my obligation to convey my business.”
3. Stewart v. Newbury 1917: Construction case.
a. Rule: If parties don’t provide otherwise, builder has to finish the work before the
owner has to pay.

MITIGATING DOCTRINES FOR CONSTRUCTIVE CONDITIONS

Fundamental inquiry: What sort of conduct by one party gives rise to a cause of action for
breach by another party, or gives to another party the right to withhold its own performance?

1. The doctrine of constructive conditions provides that if the plaintiff breached the
duty, provides that if the performance is a constructive condition of the other’s
duty, then the plaintiff is itself in the wrong.
a. In other words, if the P breached a duty of the performance that should
have proceeded the other performance or promise.
2. In a sizable number of instances, when a breaching P despite its own breach may
nonetheless sue on the contract. Three ways around the doctrine of constructive
conditions:
a. Doctrine of substantial performance or substantial completion (Redding Pipe
Case – even though the contractor breached its portion of the K, the owner may
not withhold its performance because the owner substantially performed) –
Jacobs & Young v. Kent.

8
 b. Doctrine of divisibility (severability): Gill v. Johnstown Lumber (agreement
to deliver logs. Lost some in a flood, sued for those delivered): If the parties in
the K provide that part performance will result in partial payment (i.e. I’m
supposed to build you two houses each for $100,000, I build one and walk away),
the P can sue on the contract to get paid for the performance they did complete.
c. Doctrine of restitution: Where a K is unenforceable for some reason (usually
mistake, impracticability of performance or frustration of purpose), but during
the course of performance a substantial benefit was conferred upon one of the
parties. Algernon Blair: The aggrieved party may (in a losing K situation) may
want something other than expectation, may want restitution.
i. Restitution for a defaulting P: This has met the most resistance from
courts. It seems wrong to allow someone who has committed a
significant breach of K to come before the court and claim anything.
Britton v. Turner (worked for 10 months of a 1 year K, then walked off
the job. Ct. held employee may recover benefit to employer less damages
employer suffers by reason of early termination).
ii. In restitution you are not suing for the K rate, but the value of the benefit
conferred.
iii. Quantum meriut – synonymous with restitution.

BREACH IN THE COURSE OF PERFORMANCE

1. Non-material breach is a 4th way around the doctrine of constructive conditions:

Yes, I breached, but I can still sue you for your later, more serious breach because
my breach was not material and did not justify your breach.
2. An actual breach of K, at the time performance is due, always gives rise to an immediate
COA for damages. However, not every breach also excuses the other party’s duty of
performance. Whether a breach by one party excuses the other party’s duty to
performance depends if the breach is “material.”
a. Example: Contractor contracts to build a $1 million building, and puts on some
of the wrong doorknobs, the Contractor will be liable for damages, but the Owner
won’t be excused from performing (paying).
b. Each case is decided on its fact of whether it is a material breach.
3. Relevant factors:
a. The extent to which the breaching party has already performed (more likely to be
a material breach at the outset).
b. Whether the breach was willful, negligent, or the result of purely innocent
behavior.
c. The extent of uncertainty that the breaching party will perform the remainder of
the K.
d. The extent to which, despite the breach, the nonbreaching party will obtain (or
has obtained) the substantial benefit he has bargained for.
e. The extent to which the nonbreaching party can be adequately compensated.
f. Hardship on breaching party if the breach is considered material.
4. Repudiation: An otherwise minor breach, accompanied by a refusal to render any
further performance, will be considered a major breach.
a. UCC 2-609: A victim of a minor breach should request assurances of adequate
performance in the future. If the other side doesn’t respond appropriately, you
can safely say they have repudiated.
5. Walter & Co. v. Harrison 1957: P sells signs. Sold one to D, with agreement P would
clean it. The sign rusted and had tomato splatters. D stopped paying.
a. Issue: Who made the material breach? Held: D.

9
 b. P’s breach was minor. D should have written P a letter that said they were
holding payments in escrow until P cleaned up the sign.
6. K & G Construction Co. v. Harris, 1960: D breached its covenant to perform in a
workmanlike manner, and P thereafter declined to make good its return covenant to pay.
D refused to perform further, causing damage to P
a. This case involves periodic payments, which involves a series of alternative
constructive conditions. Thus, P’s refusal to pay D was justified and not a
breach, since the payment was conditioned on D’s performance which was not
forthcoming.
7. Responses to the Defense “I’m not liable to you for my non-performance because you did
not complete some performance that is a constructive condition of my performance.”
a. Yes, but I substantially performed.
b. Yes, but this K is divisible and you have to pay me at the K rate for the portion I
DID complete
c. Yes, but I’m entitled to restitution of the K for the amount of the benefit I’ve
conferred on you in order to avoid unjust enrichment
d. Yes, but my breach of the constructive condition was not material, and therefore
it does not excuse your failure to act.
8. Separate K doctrine:
a. NW Lumber Sales, Inc. v. Continental Forest Products, Inc.: You cannot
breach one K because of the other party’s breach in a different K. Neither the
UCC or general K law gives a party the right to breach a K performance because
the other party has breached another K between them.
b. Seller should invoke 2-609, and said you neglected to pay for the lumber we
already sent to you, we demand an adequate performance for K #3 to make sure
you’re not going to stiff us again.

ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation (AR): If either party to a K, in advance of the time set for
performance, repudiates the K, the repudiation excuses the other party from performing.
In addition, the innocent party may generally treat the AR as a present material breach,
and bring an immediate action for the entire value of the promised performance.
2. Acts are sufficient (Stewart v. Newbury – walking off the job was repudiation).
3. Insistence on terms not contained in the K constitutes an AR.
4. Requirement of Unequivocal Repudiation: Only an express or implied unconditional
refusal to perform will constitute AR. A party’s language must be sufficiently positive to
be reasonably interpreted to mean that the party will not or can not perform.
5. Hochster v. De La Tour, 1853: P contracted with D to act as a courier during his
European vacation. D changed his mind prior to leaving, and refused to compensate P. P
sued prior to time for performance.
a. Held: The man who wrongfully renounces a K into which he has deliberately
entered cannot justly complain if he is immediately sued for a compensation in
damages by the man whom he is injured. The renunciation may be treated as
a breach of K.
b. Important point: Every jurisdiction in the US says this is still good law. You
may go out and get a new job, and sue early.
c. Damages would be his wages from June 1 (day he was to start working) -July 4
(July 4th is when he begins the job he got to mitigate the damages).
d. This rule is in UCC 2-610.
e. Principle justification: Make sure victim has freedom to reorganize their affairs
and take another job prior to the time performance was due.

10
 f. Exception to rule: Installment contracts.
i. i.e. Seller has finishing delivering tulip bulb, and all that’s remaining is a
series of installment payments by the buyer over a period of time. Most
courts hold that the seller may not sue early for all remaining
installments, but must wait until each installment becomes due.
ii. Remember when drafting an agreement such as this one to add and
“acceleration clause”: These causes state a default on any one payment
on this K shall cause all remaining payments under this K due.
iii. 2nd way to get around this situation is a declaratory judgment:
Declaration by the court that buyer breached and payments will become
due at the times stated in the K (allows you to go back to court simply on
motion without having to file new complaint every time).

MUTUAL MISTAKE

1. Definition: A mistake by both parties to a K concerning a basic assumption of fact

on which the K is based.
2. Defenses:
a. The mistake was not “basic enough” (R2nd 152). This should come down to a
question of value.
b. Argument that the parties actually considered the possibility of a major gain or
loss, and took it into account for the sell. This is an extremely common response.
Assumed risk by virtue of trade usage.
c. It’s not a mutual mistake because I had an inkling that this was an authentic
Picasso painting. I didn’t know it, but I had an inkling.
i. Spectrum: No knowledge------------ Perfect knowledge
• If you have perfect knowledge, you have a duty to tell the
person. The K will be undone.
• If you have no knowledge, the K will be undone on a basis of
mutual mistake.
• The middle might be protected ground – no duty to tell with just
a hunch, but also is not exactly a mutual mistake.
3. Restatements Second
a. 151: Defines mistake as “a belief that is not in accord with the facts.”
b. 152: For a mistake of both parties at the time the K was made, as to a basic
assumption, has a material effect on the aggrieved exchange, the K is voidable
unless parties seeking to void it bore the risk of that mistake.
c. 154: Party bears the risk where the party is aware at the time of K that she has
only limited knowledge with respect to the facts, but treats her limited knowledge
as sufficient. A type of conscious ignorance.
i. i.e.(a) I don’t think these paintings are very valuable, although I know
they might be, so I’ll just go ahead and sell them for not very much. (b) I
know I should have them authenticated, but that’s time consuming at
costs a lot of money, so I won’t do it. (c) The court allocates the risk to
one party on the ground its reasonable to do so.
d. 158: Provides that either party may have a claim for restitution following a
rescission on the ground of mistake. A slightly more progressive, or forward
looking, Subsection 2 of 158 says the court may grant relief on such terms as
justice requires to protect a party’s reliance interest.
i. ex. Brenner v. Kehl.
e. 153: Unilateral mistake.

11
 i. ex. Elsinore – K made an innocent clerical error, owner should be put in
status quo, would be unconscionable to hold contractor to mistaken bid.
4. Estate of Nelson v. Rice 2000: Rice bought two paintings for $60 at an estate sale.
Turned out they were worth $1 million.
a. Held: By selling the paintings, the seller assumed the risk they were much more
valuable. (R2nd 154)
5. Stees v. Leonard 1874: P and D enter into K to build a building. Every time
construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c
the building was on quicksand.
a. Held: D contacted to “erect and complete the building,” meaning he was bound
to do so no matter what the circumstances.
i. Performance Specification: Requires a contractor to product a specific
result with specifying the means for achieving the result.
ii. Design specification: Specifies the design, materials, and methods, and
impliedly warrants their adequacy.
b. This case embodies older, harsher view, that parties must always perform
agreements they enter into.
c. Defenses:
i. Fundamental defense: Both parties made a mutual mistake as to a matter
that is fundamental to the performance of the contract. Court holds that
anything the person agrees to do, promises to do, the person must do it
no matter what.
ii. 2nd defense: D followed the specifications and they were faulty. Party
agreed fundamentally to just follow the expectations, so it’s not their
fault. While this didn’t work in this case, this can be a successful
defense. Especially true in government contracts
iii. 3rd argument: D said there was a prior agreement that the owner would
excavate the land. Court refused to admit this evidence because of the
parol evidence rule (just like Gianni and Russell). This is a very bad
ruling.
d. Legal doctrines on behalf of the owner to assist your argument that
rescission is inappropriate:
i. Assumption of risk is a typical response to a claim of mutual mistake.
ii. The argument would be this is the kind of risk that builders assume.
Sometimes construction turns out to be less expensive than anticipated,
and sometimes more. But, agreeing to build a building for $100,000 the
builder assumed that risk.
iii. A common instance of this type of case occurs where the parties knew
that the relevant assumption was doubtful.
6. Brenner (Renner?) v. Kehl 1986: P contracted with D to buy land. P made it clear they
wanted to grow jojoba, D thought their was plenty of water. There wasn’t. Seller’s
appeal award of consequential damages on grounds of mutual mistake:
a. Rule: Absent fraud or misrepresentation, a party who rescinds a K based on
mutual mistake may not recover consequential damages. However, when a party
rescinds on a K on the ground of mutual mistake he is entitled to restitution for
any benefit he has conferred by way of part performance or reliance.
i. Reliance is a slightly more progressive remedy. Sub. 2, Rnd 158.
7. Older test: Mutual mistake was a D if the mistake concerned the “substance” or
“identity” of the K’s subject matter (K was then voidable). If it was only an accident or a
collateral attribute, K was no voidable.
a. Example: K to sell cow both parties believed to be barren. Prior to delivery,
seller realized cow was pregnant, and thus more valuable. Under the older test,

12
 the K would be rescinded b/c the parties made a mutual mistake as to the
substance of the K’s subject matter (cow was a breeding cow rather than a barren
cow).
8. Modern Rule: If the K is entered into under a mutual mistake concerning a basic
assumption of the fact, the K is voidable by the adversely affected party if the mistake
has a material effect on the agreed exchange and the adversely affected party did not bear
the risk that the assumption was mistaken.
a. Example: On May 5, seller contracts to sell her famous race horse. The horse
died on May 4, unbeknownst to either party. The K is voidable by the buyer b/c
both parties were mistaken as to a basic assumption that the horse was alive. The
mistake is material.

IMPRACTICABILITY OF PERFORMANCE

1. General Rule: Performance of a K will normally be excused if the performance has

been made impracticable. The impracticability must involve the occurrence of an even
whose nonoccurrence was a basic assumption on which the K was made, and the
adversely affected party must not have assumed the risk of that K occurring. R2d261
2. SELLER’S DEFENSE
3. Taylor v. Caldwell, 1863: D contracted with P to rent a music hall for four days for
entertainment. The music hall burned down at not fault of either party prior to the rental
days. P sued for breach.
a. Held: The music hall, having ceased to exist, without fault of either party,
excuses both parties from K.
b. Remedy P was seeking: (1) Reliance - out of pocket expenses, put us back to go,
(2) Expectation – profits expected to make on series of four concerts. Did not
sue for expectation b/c there is no way to prove what the receipts would have
been.
c. If D made a promise to absolutely perform at the music hall, there would be
a K; but if the court finds an implied condition (such as, the music hall must
be there), and the condition is impossible to fulfill, then the parties are
excused.
4. Transatlantic Financing Corporation v. US 1966: P, chartered by D, contracted to a
ship a full cargo of wheat from TX to Iran. Shipment was contemplated to go through the
Suez Canal, but a war broke out, closing the canal. P had to go 3000 extra miles.
a. Held: K was not impossible (or impracticable).
b. Definition: A thing is legally impossible (or impracticable) when it is not
practicable and can only be done at an excessive and unreasonable cost.
c. Impracticability Test:
i. A contingency – something unexpected – must have occurred.
ii. The risk of the unexpected occurrence must not have been allocated
either by agreement or by custom.
iii. Occurrence of the contingency must have rendered performance
commercially impracticable.
d. Analysis of Transatlantic under the test:
i. An unexpected contingency did occur in this case.
ii. At the time they entered into the K, we knew Egypt had nationalized the
canal, and it was very foreseeable that the canal would be closed.
Circumstances indicate that P was willing to assume abnormal risks.
iii. Sometimes a very great increase in cost will cause a court to say that a
contract is impracticable. This doesn’t apply here, because this was only

13
 a fraction of the K price – no nearly enough to declare something is
commercially impractical.
5. Note on Forseeability: Though anticipating a possible turn of events, “the parties may
not have thought it sufficiently important a risk to have made it a subject of their
bargaining.” Should be factor in whether or not the party now claiming the D should
have assumed the risk.
6. Force Majeure Clauses: When, during the negotiation of a K, a party anticipates on a
more evens that it cannot readily prevent and that might impede its performance, it may
introduce this generic term intended to excuse it from performing if the impediment
arises. These clauses must be drafted very carefully.
7. UCC 2-615: Doctrine of Commercial Impracticability.
a. Eastern v. Gulf (our old friends!): Gulf used impracticability D.
b. Held: Ct. thought the events of the oil crisis were reasonably foreseeable, and
the fact it occurred was not an unexpected contingency. Even beyond that, if it
WERE unforeseeable, increased cost alone is not enough. The court can’t even
tell from the evidence if Gulf has experienced any real economic problems.
c. Rules:
i. The unforeseen cost increase that would excuse performance “must be
more than merely onerous or expensive. It must be positively unjust to
hold the parties bound.”
d. Unprofitable does not mean impossible. A mere showing of unprofitability,
without more, will not excuse performance of a K.
8. Typical impracticability subject matter:
a. Supervening prohibition by law (what you contracted to do is now illegal).
b. Death of one party in a personal services K (excuses performance of both
parties).
c. Destruction of the subject matter of availability of something in the K (Taylor v.
Caldwell).
9. Example: Farmer makes a K with grain elevator to sell his wheat crop. Grain elevator
makes 2nd K with Wheaties to resell the wheat. Draught occurs, no wheat. Is farmer
liable for breach b/c grain elevator had to purchase at a higher price?
a. Farmer’s D: Impossibility of performance or commercial impracticability.
b. Issue for court: Was K for a particular quantity of wheat, or specifically for the
farmer’s wheat.
c. If its for the farmer’s wheat, then performance is impossible and D works. If it is
for a specific quantity, performance is not impossible and then farmer is liable for
breach.

FRUSTRATION OF PURPOSE

1. General Rule: Performance may be excused under the doctrine of frustration where the
purpose or value of the contract has been destroyed (or substantially frustrated) by a
supervening event that was not reasonably foreseeable at the time the K was entered into.
R2d 265
2. Slippery slope – courts reluctant to invoke this D.
3. BUYER’S DEFENSE: This is b/c it is always possible for the buyer to fulfill his
promise to pay, even if he will essentially gain nothing for his money.
4. Krell v. Henry 1903: D paid deposit to P for the use of his apartment so he may watch a
coronation. The King became ill, delaying the coronation. D refused to pay balance, P
sued. D counterclaimed for his money. D wins on frustration of purpose grounds.

14
 a. Rule: Where the object of one of the parties is the basis upon which both parties
contract, the duties of performance are constructively conditioned upon the
attainment of that object.
5. Remedies: In general, any benefit one party has conferred on another will be returned (D
will get his deposit back).

UNIFORM COMMERCIAL CODE

ARTICLE I

1. UCC 1-102: The Code is to be liberally construed and applied to promote its underlying
purposes and policies:
a. To simplify, clarify, and modernize the law,
b. To permit the continued expansion of commercial practices by validating trade
custom and usage as well as parties’ express agreements,
c. To make the law uniform among the various jurisdictions.
2. Three fundamental principles underline much of Art. II:
a. Good Faith
b. Commercial Reasonableness (pervasive, a part of every merchant’s good faith
duty).
c. Facilitation of actual commercial practices through the incorporation of course of
performance, course of dealing, and usage of trade.
i. Course of performance (2-208) – how you and I actually perform under
this K.
ii. Course of dealing (1-205)– how you and I performed under prior K’s.
iii. Usage of trade (1-205)– how others in the industry understand K
practices
3. Good Faith
a. 1-201 (19) Honesty in fact:
i. Subjective Test
ii. No matter how absurd a person’s contention is, if they really believe
their contention is true, they made the assertion in good faith.
b. 1-203: Imposes the obligation of good faith on every party to a transaction
governed by any portion of the UCC.
c. 2-103: Supplements the general UCC Good Faith definition, by stating under
Art. II, Good faith for merchants includes not only honesty in fact, but also the
observance of reasonable commercial standards of fair dealing in the trade.
i. Merchant defined in 2-104.
ii. Can parties get rid of a good faith obligation?
iii. While generally code provisions are variable by agreement, you cannot
disclaim good faith or commercial reasonableness. You can set
standards by which you just good faith, provided that the standards set
forth in the K are not manifestly unreasonable.
4. Nelson v. Union Equity 1977: Court held defendant farmer meets the requirements of
“merchant” definition under 2-104 because he is knowledgeable about the business of
crops, and meets the statutory elements. Because D was a merchant, the oral agreement
confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and
therefore must pay damages for breach.
a. 2-104 A person is a merchant if:
i. They deal in goods of the kind, OR
ii. By his occupation he holds himself out as having knowledge or skill
peculiar to the practices involved in the transaction

15
 1. SUPERMERCHANT: You have to be a merchant by the goods
prong of merchant (i.e. Blockhead (wiglet case): D was a
merchant, not because he had ever made wiglet cases, but
because the “goods” he dealt with were blow-molded items).
Look for the broadest definition of the goods you are talking
about (i.e.
iii. Cmt.2: For purposes of dealing with the statute of frauds (2-201), firm
offers, confirmations, and modifications, a merchant is deemed to be
almost every person in business (even a university). Mooney thinks the
merchant standard should be held to someone who answers his mail.
iv. For purposes of 2-314 (implied warranty of merchantability) or cases of
merchant good-faith (2-103), they are talking about supermerchants.
b. Merchants (lower level): When the code says merchants or between merchants,
this is what they mean.
c. Merchant who deals in goods of this kind is a supermerchant (higher level).
d. Courts are widely split on whether farmers are merchants under the UCC.

THE SCOPE OF ARTICLE II

1. UCC 2-102 states the general rule that Article Two applies to “transactions of goods.”
a. This applies to all transactions and goods, not just those by merchants.
b. Only Super-merchants make merchantability warranties, only they can transfer
an entrusters title in an ordinary course of business, but a code GENERALLY
applies to everyone (Joe Schmo sells Jack Black his golf club)
2. 2-105(1): Defines “goods” as all things…movable at the time of identification to the K
other than money, investment securities, and things in actions.
3. Anthony Pools v. Sheehan 1983: P built a pool for D, which D claims had a defective
diving board. The K between the parties had been a hybrid transaction, meaning part
goods and part services.
a. Predominant purpose test: Whether the predominant factor is a transaction of a
sale of goods with labor incidentally involved or vice versa.
b. Gravamen test: Whether the reason for the breach is directly related to the fault
of the service or the fault of the good.
c. Policy considerations: If the test results in classifying the transaction as a K for
services there would be no UCC based, implied warranties on the diving board
and this would be contrary to the legislative policy. §2-316 (1) declares a seller
of consumer goods may not contractually disclaim implied warranties.
i. Holding: K in goods, implied warranty applies. 2-316: Two
functions: 1) This is a K in goods, and the implied warranty applies, 2)
knocks down disclaimers on implied warranties.

CONTRACT FORMATION UNDER THE CODE

1. K formation is generally simpler than under common law.

2. UCC 2-204(1): A K for the sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a K.
3. The Code constitutes a single, broad inquiry (as opposed to the offer/acceptance):
Whether the parties have, in a reasonable manner, demonstrated agreement.
o An offer may be accepted “in any many and by any medium reasonable in the
circumstances unless the offer unambiguously states otherwise. UCC 2-
206(1)(a).

16
 o A “unilateral” K may be accepted by a mere promise to perform the requested
act.
o Under certain circumstances an option K is enforceable without separate
consideration. UCC 2-205.
o 2-204 still requires an agreement of a meeting of the minds between the
negotiating parties.
4. Mirror Image Rule: Unjust results:
o Sometimes permits a party to renege entirely on an agreement, on the ground that
the K documents did not match exactly
o “Last shot doctrine” gave the party sending the last communication sole control
over the K terms (receiving it would infer acceptance). This permitted sellers to
disclaim all warranties with accompanying invoices.
5. UCC 2-207: Eliminates the mirror-image rule. (KNOW 2-207 – TESTED HEAVILY)
6. Three routes to K formation under UCC 2-207:
a. A definite and seasonable expression of acceptance.
b. Written confirmation sent within a reasonable time.
c. Conduct by both parties which recognizes the existence of a K is sufficient to
establish a K for sale although the writings of the parties do not otherwise
establish a K.
7. Conditional Nature of the assent must be “directly and distinctly stated or expressed
rather than implied or left to inference.”
a. Does UCC 2-207 apply to “different” as well as “additional terms? Courts and
commentators disagree.
8. Diamond Fruit Growers, Inc. v. Krack Corporation 1986: KC manufactured cooling
units that contained steel tubing. Bought its tubing from DFG for 10 years. KC would
send a purchase order, and DFG would send back an acknowledgement that included a
disclaimer for all liability. P sued KC for a leaking cooling unit. KC brought 3rd party
suit against DFG.
a. Held: Because KC’s conduct did not indicate unequivocally that KC intended to
assent to DFG’s terms, their conduct did not amount to the assent contemplated
by 2-207.
b. Reasoning: Public policy of the Oregon’s adoption dictates that the last-shot
rule is to be abolished. The section is to be interpreted so as to give neither party
to a K an advantage simply because it happened to send the first, or in this case,
the last form. UCC 2-207 was designed to abolish that rule, and to allow D2’s
argument to prevail, though it is compelling, would go against public policy.

STATUTE OF FRAUDS

1. UCC 2-201: A K for the sale of goods for the price of $500 or more is not enforceable
by way of action or defense unless there is some writing sufficient to indicate that a K for
sale has been made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker.
2. UCC drafters concluded the benefits requiring a writing would outweigh the detriments.
a. Contributes to the business habit of requiring a writing.
b. Prevents fraud by deliberate overreaching.
c. Prevents innocent mistakes.
3. All the UCC requires for enforcement is that a writing provide “a basis for believing
that the offered oral evidence rests on a real transaction.”
4. UCC 2-201 dispenses entirely with the writing requirement in four types of situations:

17
 a. Between merchants, if a confirmation is received within a reasonable time and is
sufficient against the sender, it is also sufficient against the party receiving it,
unless that party objects within 10 days.
b. When a seller has mad a substantially beginning in the manufacture of “specially
manufactured” goods, or has committed itself to buy goods from a 3rd party, it
may enforce an oral K for them if it cannot resell them in an ordinary course of
business.
c. If a party judicially admits the existence of the alleged K (pleading, pre-trial
discovery, or in live testimony), she may be held to it. UCC 2-201(3)(b).
d. To the extent that the seller has received and accepted payment, or the buyer has
received and accepted the goods, the Statute is no bar. UCC 2-201(3)(c).
i. Generally, however, partial payment of acceptance does not remove the
entire K from the Statute, only the portion paid for or accepted.
5. STATUTE OF FRAUDS REQUIREMENTS:
a. Must evidence an existing K.
b. Must be signed (1-201(39)) – any name, mark, or symbol adopted with the
intention to authentic a document.
c. Writing must specify a quantity (though not necessarily a price) – this is because
a court can always find a price out of the market price.
6. Comment 1 – indicates which was the court is to tilt.
7. Sub. (2)- Farmer case….a writing good against the person who sends it is good against
the person receiving it if they don’t object.
8. Distribu-Dor, Inc. v. Karadanis, 1970: Sale of certain mirrors and tub and shower
enclosures for Tahoe Inn. Tub enclosures not specially manufactured, but mirrors and
shower enclosures are spec. manufactured..
a. Held: An express K existed for the sale of the mirrors, recovery for breach of
which, under UCC 2-201 3(a), is not barred by the statute of frauds.
b. Reasoning: This was a K for specially manufactured goods, not suitable for
resale in the ordinary courts of the seller’s business, and the seller had already
started in the manufacture of the attempt to procure the goods.
c. Tub enclosures: Court found these enclosures did not fall under the specially
manufactured exception – but once a part of a K is taken out of the statute by
3(a), then the whole K will be taken out.
i. 3(c) contemplates that only the goods which have been accepted, or for
which payment has been made.
ii. But, 2-201 3(a) has different language – if the goods have BEGUN to be
manufactured, the statute of frauds defense is lost. Therefore, 3(a) is an
all or nothing deal.
9. In all of these cases, there are two distinct defenses:
a. I never entered into a K – never considered myself bound, etc.
b. Even if we did enter into the K, there was no objective meeting of the
minds…the K is unenforceable because there is no signed writing.

THE PAROL EVIDENCE RULE

1. UCC 2-202: A writing intended by the parties as a final expression of all or part of their
agreement may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement; however, such a writing may be “explained or
supplemented”
a. by the course of dealing, usage of trade, or performance,

18
 b. where it is only a partial integration (i.e. not intended as a “complete and
exclusive” statement of the parties agreement), by evidence of consistent
additional terms.
2. By and large, the UCC analysis is virtually identical to the common law analysis:
a. Is the writing integrated?
b. Is it integrated in whole or in part?
c. If its not, the rule doesn’t apply.
d. If it integrated completely (enforceable understandable merger clause, for
example), then Subsection A says it can still be explained or supplemented (by
course of dealing or usage of trade or course of performance). In addition, under
2-203 (supplementary principles of law and equity), the 2-214 evidence can come
in (evidence of fraud, duress, mistake, etc).
e. If it is a partial integration – parties intended this is as a final, if not complete
statement – then consistent additional terms can be introduced, Subsection B.
3. Snyder v. Herbert Greenbaum & Associates: Contract for carpet and installation. 3
issues:
a. Whether D was entitled to rescind the K b/c P has misrepresented a material fact,
which D relied on in forming the K. (held – no – estimate was not a fact, but an
opinion).
b. Whether court should have allowed into evidence certain documents as proof of a
prior oral agreement that all K’s between the parties could be cancelled
unilaterally prior to performance. (held – no – this clause would have been
written into the K, K was a complete integration). Mooney thinks this is a shaky
interpretation.
c. Whether damages should be 2-708(2) – lost profits – or 2-708(1) – K/market
differential formula. (2-708(2)) is appropriate b/c P may be a lost volume seller,
and part of the K is for services, so he may not otherwise recover for those
services). Mooney likes this assessment.
4. Additional class notes:
a. 2-107: Helps draw the line between goods and real estate.
i. The code only applies to goods. Well, what about minerals in a mind, or
standing timber? Are those goods?
ii. Certain kinds of things are goods if they seller severs something and
turns it over. If they buyer has to sever something, it is reality (i.e. if the
seller chops down the tress, it’s a good, if the seller does it, it’s realty).
b. 2-205: In some contexts, it reverses the rule of Dickensen v. Dodds: An offer by
a merchant in a signed writing that says it will remain open for a period of time,
does remain open even without separate consideration. (Firm offers)
c. 2-207: Additional terms in offer and acceptance.
d. 2-209(1): A modification does not need consideration to be binding. These
modifications need to be made in good faith to be enforceable. 1-103: Duress
argument against it.
i. Oral modifications are ok, unless it falls under the statute of frauds, or is
not made in good faith.
ii. A modification, if it fails for either of these two things, a modification
can operate as a waiver (i.e. agreeing to a modification can be considered
a waiver of a written no oral modification clause).
e. 2-210: (1) is most important part – a party may DELEGATE its duty unless the
other party has a substantial interest in performance by that party itself.
(Virtually identically to the Restatement section on delegation). (2) A party may
assign a right unless doing so would materially change the duty of the other

19
 party, or increase materially the burden or risk imposed on him by his contract, or
impair materially his chance of maintaining a return performance.

GENERAL OBLIGATIONS AND THE CONCEPT OF TITLE

1. “Gap Filler” Provisions: Express agreements often include common omissions such as
K duration, payment, delivery date, and price.
a. UCC 2-204(3): “Even though one or more items are left open a K for sale does
not fail for indefiniteness if the parties have intended to make a K and there is a
reasonably certain basis for giving an appropriate remedy.
b. 2-305: When parties fail to agree of price, 2-305 provides one.
i. How do we know there is a K when the price term is missing?
ii. Intent of the parties. (1) Parties if they so intent can conclude a K for sale
even though the price is not settled.
iii. (3): When a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one party the other may at his
option treat the K as cancelled or himself fix a reasonable price.
c. UCC 2-306(1): No quantity unreasonably disproportionate to any stated estimate
or in the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements may be tendered or demanded.
i. An outputs seller may not tender an unreasonably disproportionate
quantity (outputs contracts), and a requirements buyer may not
demand an unreasonably disproportionate quantity (requirements
contracts).
ii. Reasoning: No great hardship on the seller to give her whole output to
the buyer. This protects the buyer in an output K from having huge
amounts dumped on him.
d. UCC 2-306(2): Best efforts requirements for exclusivity requirements.
e. 2-311 states that, unless otherwise agreed, the buyer has the right to specify the
assortment of goods.
f. 3-308 (a): Unless otherwise agreed the place for delivery of the goods is the
seller’s place of business or if he has none, his residence.
g. 2-309: Termination of a K by one party requires that reasonable notification be
received by the other party. Hamilton v. Delta
h. 2-307-2-310: Requires parties to comply with ordinary, reasonable commercial
practices.
i. 310(a): Buyer pays where buyer receives shipment.
1. Need to understand difference between delivery and receipt. A
party receives goods when the party actually touches them (they
arrive). A delivery depends on the term of the K, usually when
the seller gives the goods to a carrier.
i. When a party asserts a “gap filler” claim, other party may raise defense of trade
usage, course of dealing, or course of performance.
j. 2-311: K does not fail for definiteness when a party can specify certain
particulars for performance (argument used in Fairmount Glass).
2. Hamilton Tailoring Co. v. Delta Airlines, Inc. 1974: P contracted with D to make all of
their uniforms (requirements K – i.e. Eastern v. Gulf). D changed their uniforms, and
gave P a year notice that they would not longer buy from them.
a. Court held that the notification was not reasonable under 2-309(3). There was
little, if any chance, that P could obtain a substitute agreement in that time, plus
D kept ordering shorter uniforms and canceling orders.

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 b. Trade usage can be introduced under 2-309, cmt. 1 to show agreement for time.
P used trade usage here to show that in the uniform industry, it is customary for
the customer to make a settlement wit the manufacturer on a reasonable basis for
the leftover inventory at hand.
3. Feld v. Henry 1975: P contracted with D to sell bread crumbs. Provision of right to
cancel with 6 month notice. It became unprofitable for D, so he said he’d continue if P
would give 1 cent more a pound. P refused, D dismantled machine.
a. Issue: Whether the outputs K carried an implication that the seller has to
continue its business throughout the term of the K, or may it cease production.
b. Holding: Under 2-306, an outputs seller has a good faith obligation to continue
to have output, but that’s all.
c. Who is going to win on remand? Probably the P buyer, because (1) the K did
contain a 6 month termination provision, therefore the seller is not locked in
forever, (2) the seller’s failed effort to extract a price increase.
4. Output or requirements contract: Feld v. Henry S. Levy & Sons
a. Seller has good faith obligation
b. Buyer did not give up right to buy elsewhere.
c. 2-306(1)
d. The party the statutory language is seeking to protect is the buyer. The seller has
the good faith obligation to continue (producing bread crumbs) in this case.
Buyer already has obligation under K to buy those bread crumbs.
5. Exclusive dealing K: Wood v. Lucy Lady Duff Gordon
a. Seller gives up right to sell elsewhere.
b. Buyer must use best efforts (in this case, to market Lucy’s fashions.
c. 2-306(2).
d. Comparable to requirements K - statute attempts to protect seller. Places on
buyer an obligation to operate in good faith.
6. Requirements K: Eastern v. Gulf, Hamilton v. Delta
a. Seller did not give up right to sell elsewhere
b. Buyer must purchase in good faith

CODE WARRANTY

1. Code Warranty (UCC 2-312-2-318) litigation arises typically in two contexts:

a. Commercial - where the loss often is purely economic,
b. Consumer – where the loss also commonly includes personal injury from a
defective or otherwise substandard product.
2. To prevail in an action for breach of warranty, a buyer must:
a. Establish that the seller warranted the goods under 2-313, 2-314, or 2-315
b. Prove that the goods delivered did not conform to the warranty, and that, as a
result, it suffered damage.
3. A seller will respond by invoking some combo of:
a. 2-316 (Authorizing certain warranty disclaimers),
b. 2-719 (permitting certain remedy limitations),
c. 2-318 (requiring a measure of “horizontal” privity,
d. 2-607(3) (requiring that the buyer give reasonable notice of the breach, and 2-
735 (the Art. 2 statute of limitations).
4. Express v. Implied warranties:
a. Express (UCC 2-313), created by:
i. Affirmation or promise,
ii. Description,
iii. Providing a sample or model.

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 b. Implied:
i. Merchantability (UCC 2-314)
1. (1) applied into every sale of goods by a “merchant with respect
to goods of that kind.”
ii. Fitness for a particular purpose (UCC 2-315)
1. Arises when a seller had reason to know of a buyer’s particular
purpose for the goods AND hat the buyer is relying on the
seller’s skill or judgment to select the goods.
2. One important rationale for imposing implied warranties on
certain sellers is the likelihood that parties themselves, had they
considered such terms, would have included them in their
agreement.
5. Keith v. Buchanan 1985: P purchased boat from D, after seeing brochures claming it
was seaworthy. P had own friends look at it, who pronounced it seaworthy as well.
Turned out it wasn’t seaworthy. Held:
a. The representations regarding seaworthiness in the brochure were affirmations of
fact relating to the quality or condition of the vessel. This created an express
warranty.
b. The representations regarding seaworthiness were part of the basis of this bargain
(old rule was that buyer had to rely on seller’s warranties).
c. There was no implied warranty of fitness for a particular purpose because P did
not rely on the skill and judgment of D in selecting a suitable boat, but relied on
his friends.
6. Rules:
a. Fact/Opinion: Statements made by a seller during the course of negotiation over
a K are presumptively affirmations of fact unless it can be demonstrated that the
buyer could only have reasonably considered the statement as a statement of the
seller’s opinion.
i. Factors that indicate opinion are: (1) lack of specificity in the statement
made, (2) statement made in unequivocal manner, (3) statement which
reveals the goods are experimental in nature.
b. Reliance: The buyer’s demonstration of reliance on an express warranty is not a
prerequisite for breach of warranty, as long as the express warranty involved
became part of the bargain.
i. Reliance is not altogether dead – some states interpret the UCC to follow
the Uniform Sales Act which required the buyer to rely upon the seller’s
interpretation.
7. Express warranties 2-313, five issues:
a. Whether seller has actually made a warranty, “puffing” is a defense.
b. Reliance (see above)
c. Privity (2-318)
d. 2-316(1): Express warranties cannot be disclaimed.
i. Cmt. 1: The disclaimer drops out when the disclaimer is inconsistent
with the express warranty.
ii. Autzen v. John Taylor Lumber Sales (note case): Buyer is not
completely barred from recovering if express warranty happens after the
K, it is just extremely difficult.
e. Watch for merger clause – seller may make an oral express warranty, but exclude
it through written merger clause in K.
8. Warranty v. “Puffing”
a. Whether the representations compared goods to other goods
b. The specificity of the representations

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 c. Whether they related to the goods’ quality
d. Whether they were “hedged”
e. Whether the goods were experimental
f. The buyer’s actual or imputed knowledge of the goods’ condition
g. The nature of the claimed defect
h. Whether the statement was written or oral.
9. Barton v. Tra-Mo, Inc., 1984: P purchased tanks from D after seeing models. 2-
313(1)(c) states that an express warranty is created when a sample or model is made as
part of the basis of the bargain, leading the purchaser to believe that the entire order will
conform. D tried to argue that the items were not really models, but the court thought
they were retarded. P wins for breach of express warranty by model.
10. Sample v. Model
a. Sample: Actually drawn from the bulk of the goods which is the subject matter
for the sale.
b. Model: Offered for inspection when the subject matter is not at hand and which
has not been drawn from the bulk of goods.
11. Blockhead, Inc. v. Plastic Forming Company, Inc. 1975: P buyer was experienced in
plastics and the wig case industry. P rejected improvements and approved models and
designs.
a. Warranty of Fitness: No 2-315 warranty in this case. An implied warranty of
fitness for a particular purpose did not occur because the warranty depends upon
the relative skill, knowledge, and experience of the two parties. Only happens
when buyer goes to seller asking them to select everything.
b. Warranty of Merchantability: No breach of warranty of merchantability
because it was effectively disclaimed. 2-316(3)(b) if a buyer examines the goods
or has an opportunity to and fails, there is no implied warranty in case of any
defects coming up after inspection.
c. Subsidiary issue: Whether or not the D qualifies as a supermerchant for
purposes of 2-314?. D argues that he was not because he had never made wiglet
cases before, but the court holds that he is an expert in plastics.
12. Valley Iron & Steel Co v. Thorin: D asked P to make iron collars. P said they could,
and indicated they would have to be made out of a strong material in case they hit rock.
D bought a whole bunch, and 80% of them broke. D declined to pay. P sued for
restitution (value of benefit of goods provided), D’s defenses were breach of implied
warranties of merchantability and fitness.
a. Warranty of Merchantability: P breached, because he was a merchant
(merchant of products of similar metals, even if they have never made the
collars) – for determining who is a supermerchant, need a broad definition of the
goods.
b. Warranty of Fitness: P breached. When you have specially manufactured
goods, the ordinary purpose of such goods may be equivalent to their particular
purpose for purposes of warranty. Crucial judgment turned on seller saying,
“well, these might hit rock, so they need to be made of strong material.” Buyer
made intended purpose known, material was left to the discretion of the seller.
c. Interesting 3rd issue: Trial court found the buyer was at fault somehow.
Appellate court gently points out that fault is irrelevant in most warranty
litigation.
13. Delano Grower’s Cooperative Winery v. Supreme Court Wine Co., Inc. Rotten sweet
wine case.
a. Was a breach of merchantability warranty here (8000 cases of sweet wine were
unmarketable).

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 b. 2-208 – interesting statutory argument: Even if there had been a trade usage that
buyers of this wine should add sulfur, these parties course of dealing would
trump this trade usage.
c. 2-607(3) – Introduction into notion that a typically seller’s D is that buyer did not
give notice of alleged breach of warranty in required reasonable time.
d. 2-308 – Buyer’s supreme effectively revoked its acceptance of the 8000 cases, so
it was no longer responsible for the K price.
14. ISSUES TO FOLLOW ON TEST:
a. Is the seller a supermerchant? Does he deal in goods of this kind? 2-104.
b. Are the goods merchantable under 2-134(2)? This is never an easy
determination (“fair average quality, pass without objection into trade”).
c. Did seller breach warranty of merchantability?
d. Is the item being used for its ordinary purposes, or for a particular purpose? Is
item specially manufactured (there, its ordinary purpose is its particular
purpose)? Warranty of fitness 2-315.
e. Did seller breach warranty of fitness?
f. What defenses are available?
i. Warranty disclaimer 2-316? Was it conspicuous? Remember, can’t
disclaim an express warranty under sub. 1.
ii. Remedy limitation 2-719? Will warranty fail of its essential purpose if
this is enforced.
iii. Trade usage (2-208)? Can buyer come back with course of dealing
response (such as in Delano)?
iv. 2-607(3): Did buyer give effective notice of the alleged breach in
required reasonable time?
g. Damages: Formula A: Loss in value (K price) – Cost Avoided

SELLER DEFENSES TO WARRANTY LIABILITY

1. Warranty Disclaimer: UCC 2-316 (major defense)

a. (1) A seller may not disclaim an express warranty
b. (2) A disclaimer of the merchantability warranty must mention merchantability
and be conspicuous (if in writing), a disclaim of the fitness warranty must be
conspicuous and in writing.
2. Remedy Limitation: UCC 2-719 (major defense)
a. (2) Invalidates any remedy limitation that causes a warranty to fail of its essential
purpose.
b. (3) Provides that a limitation of PJ damages in a sale of consumer goods is
“prima facie” unconscionable.
3. Notice Requirement: UCC 2-607(3)
a. Requires a buyer to “notify” a seller within a “reasonable time” of any claimed
warranty breach, or be “barred from remedy.” Buyer bears the burden of proof
(4).
4. Cate v. Dover 1990: P purchased from Beech Tire Mart 3 lifts manufactured and
designed by Dover. They never worked property.
a. D’s defense: Warranty disclaimer.
b. Ct’s response: Disclaimer was not conspicuous to a reasonable person under 2-
316(2).
c. Rule: The Code appears to recognize that actual knowledge of the disclaimer
would override a question of conspicuousness.
5. Moscatiello v. Pittsburgh Contractors Equipment Co. v. Curbmaster: Paving machine
case. K has disclaimer of implied warranties which was one the front of the K and

24
 referring to terms and conditions on reverse side. Also has a clause the limited remedies
to incidental and consequential damages.
a. Held: Disclaimer of implied warranties was inconspicuous, as well as
misleading. 1-201(10) – defines conspicuous.
i. Rule: A term is conspicuous when it is “so written that a reasonable
person against whom it is to operate ought to have noticed
it…language in the body of a form is conspicuous if it is in large or
other contrasting type or color.”
b. Held: Remedy limitation is not enforceable b/c it is unconscionable (2-719(3),
2-302).
i. A clause in a K is considered unconscionable and unenforceable if there
is “an absence of meaning choice on the part of one of the parties
together with K terms which are unreasonably favorable to the other
party. (Skelley Wright – from William’s and Walker Thomas…..most oft
repeated description of unconscionability).
6. These cases are a-typical. Generally, warranty disclaimers challenged as inconspicuous
will be upheld, and less that 10% conclude on facts before them that K provisions are not
enforceable.
7. Review 2-316(3)(a)-(c): Prob,6, pg. 164 – review for test.
8. Cox v. Lewiston Grain Growers, Inc., 1997: The seeds that failed to germinate.
a. Held: Warranty disclaimer is unenforceable.
i. The rule states that disclaimers are disfavored in the law and ineffectual
unless specifically negotiated between the buyer and seller. (The “Berg)
rule. The Berg rule should apply due to the specific requirements of the
sale. No negotiations occurred regarding the disclaimer or exclusionary
clause contained in the delivery ticket.
b. Held: The exclusionary clause was unconscionable.
i. In determining conscionability the court must consider:
1. The manner in which the K was entered (formation)
2. Whether the parties had a reasonable opportunity to
understand the terms of the K, and
3. Whether important terms were hidden in fine print.
c. Held: Insurance payments could not reduce the damages award against D.
i. Rule for Collateral Source: Payments received by the injured party
from a source independent of the tortfeasor will not reduce recoverable
damages by the tortfeasor.
9. 9. A progressive minority of courts not that UCC 2-316(2) applies to either exclusion or
modification of the merchantability warranty, and so require both warranty disclaimers
and remedy limitations to be in writing and conspicuous.
a. A majority of court will enforce an inconspicuous remedy limitation.
10. What attack can a buyer make on a remedy limitation under 719(3)
a. Unconscionability
b. This court concluded that the remedy limitation on these facts, even though it is a
commercial case, is unconscionable. (Cox)
11. Issue of limited remedies must often arises in cases of repair or replace.
a. If you’ve taken your car back time and time again to have the steering wheel
fixed and it doesn’t work, you have a pretty good argument that the remedy has
failed of its essential purpose. Therefore, the remedy should be to replace the
car or give you compensation for having to drive a car with a broken steering
wheel.

25
 b. In this case, the court decided that the remedy limitation in the delivery ticket
fails of its essential purpose because it deprives buyer of a substantial value of its
bargain.

NOTICE

1. UCC 2-607(3) requires that a buyer notify the seller of any alleged warranty “within
a reasonable time.”
a. Comment 4 allows a retail consumer somewhat more time to notify, but for a
merchant a reasonable time may by very short indeed (some courts say 10 days
for perishable products).
b. Notice given immediately upon discovery of breach ordinarily satisfies the
requirement.
c. Manner and content can be important – oral notice is ordinarily sufficient, may
have to specify “breach.”
d. Occasionally, direct notice from buyer to seller is not required at all: When seller
has actual knowledge of the defect of the particular product, or is deemed to have
been reasonably notified by the filing of the buyer’s complaint.
2. Warranty and Restatement of Torts: A careful attorney in product liability cases will
join a warranty claim with claims for negligence and SL, perhaps to avoid either a statute
of limitations defense or the “economic loss” doctrine (many courts bar tort recovery for
mere economic loss, as opposed to PJ or property damage).
3. Magnuson-Moss Warranty Act of 1975 requires that every consumer goods seller
making a written warranty disclose that warranty fully and conspicuously in simply and
readily understood language. It does not, however, compel a seller to make a written
warranty. If a seller DOES make one, whether full or limited, it may not disclaim any
implied warranty (if it only makes a limited warranty, it may restrict the duration of the
implied warranties).
4. 2 kinds of cases when filing the lawsuit satisfies notice:
a. When seller has actual knowledge of the problem.
b. If it is a consumer sale that has resulted in PI.
5. When considering if buyer gave adequate notice for breach, think about:
a. Prejudice test: Would the seller been able to fix the problem if they had found out
earlier, has the car been driven too much to recognize the problem, etc.
b. Effective policy argument: Even if we had given notice two weeks earlier, it
wouldn’t have mattered.
c. If consumer is actually a merchant (i.e. using a car for business purposes, getting
tax breaks), that person should be held to a higher standard.

TITLE

1. When does title pass?

a. Only parties interested in this are insurance companies and taxing authorities.
b. 2-401(2): Unless otherwise explicitly agreed, title passes at the time of delivery
to the seller.
c. 2-308: GAP FILLER – unless otherwise agreed, delivery is at the seller’s place
of business.
2. When does good title pass to a buyer?
a. 2-403: Voidable title (sub. 1), Entrusting (sub. 2)
3. Problems – Pg. 180 Problems 8-11 (KNOW THESE EXAMPLES)
4. Voidable title is created by bad checks – can be transferred to good faith purchaser for
value.
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 5. Difference between a good faith purchaser for value (voidable title analysis) and an
ordinary course of business (entrusting analysis):
a. A good faith purchaser for value can buy from anybody. Two requirements:
You be in good faith (1-201(9)), and you have to give value (1-201(44))
b. If you are in an entrusting analysis, you have to buy from a merchant who deals
in goods of this kind. A buyer in the ordinary course of business is only buying
from a supermerchant.
c. GOOD TITLE CANNOT EVER BE TAKEN FROM A THEFT.
d. UCC allows good faith purchasers to obtain title more than the common law did.
This is because 1) The seller or entruster is in a better position to judge the merit
of the intermediary than the purchaser, and 2) Stream of commerce. We don’t
want buyers from supermerchants worrying all the time about whether they are
going to get good title.
6. Heinrich v. Titus-Will Sales Inc. 1994: P contracted with Wilson, an unlicensed broker
(held himself out as being a licensed broker) to sell a truck. Wilson negotiated with D for
the purchase of the truck. Wilson paid D with a bad check. They accepted it and gave
him a truck. Check bounced, demanded truck back. Wilson told P it needed repairs, took
the truck back to D. P asked D to give it back and D refused.
a. D’s arguments/Ct response:
1. Wilson is not a merchant b/c no inventory, nor a license. [not necessary
under UCC to have either).
2. P was not a buyer. [P was a buyer b/c he acted in good faith. Wilson’s
illegality does not taint status].
3. Truck was entrusted to Wilson after P had already paid Wilson (timing
issue). [Req. entruster to retain the burden of the risk, even when the
entrustment occurs after a 3rd party purchase for value, supports
underlying policies]
b. Policies:
1. Protects the buyer who relies on the merchant’s apparent legal ability
to sell goods in the merchant’s possession.
2. D was in a better position than P to protect itself against another
dealer/broker who may fail to pay for the goods.
3. Flow of commerce – a timing requirement would cause some delay.
c. Voidable Title - For P to prevail under this section, P must establish that
1. D delivered the truck to Wilson under “a transaction of purpose.”
2. Wilson paid D for the truck with a bad check.
3. Heinrich was a good faith purchaser for value. [req: good faith 1-
201(9), give value (any form of consideration) 1-201(44)]
d. Entrusting theory: Court says you need three elements:
1. Entrusting 2-403(3)
2. Intermediary needs to be a merchant who deals in goods of this kind.
3. Buyer needs to be a buyer in the ordinary course of business.
e. This will be on the exam – always do both voidable doctrine and entrusting
theory analysis.

RISK OF LOSS

1. At CL, and under the Uniform Sales Act, risk of loss or destruction typically rested o the
party holding “title” to the goods when casualty occurred.
2. Under the UCC, risk of loss rules are both more flexible and more functional.

27
 a. In general, the UCC places risk of loss on the party most likely to take
precautions against loss (usually the one with possession or control of the goods
or the one most likely to insure.
b. 2-509 (Risk of loss absent a breach), 2-510 (Effect of breach on risk of loss)
3. Insurable Interest Under the Code
a. Under UCC 2-501, buyer obtains insurable interest in goods upon their
“indentification” to the contract. At that point, they buyer may insure the goods
(even if its long before delivery)
4. Types of Delivery Terms (2-309, 2-320)
a. Shipment contract – free on board (FOB), place of shipment
i. Under a shipment K, the buyer pays the shipment cost and the risk
passess to the buyer when the goods are duly delivered to the carrier
b. Destination contract – FOB place of destination
i. The seller pays the shipment cost, and the risk does not pass to the buyer
until the goods are “duly so tendered at the destination as to enable the
buyer to take delivery.”
c. C.I.F. and C. & F Terms:
i. CIF: price includes in a lump sum the cost of goods and the insurance
and freight to the named destination. C&F: Price inc. cost and freight to
the named desination.
d. Examples.
i. FOB seller’s plant: Risk passes when goods go into carrier’s hands.
(Shipment K).
ii. FOB buyer’s plant: Risk passes when goods are duly so tendered at the
destination as to enable buyer to make a delivery. (Destination K).
iii. FAS USS Iowa, Portland, OR: Shipment K. [319(2)] – goods delivered
alongside the vessel.
iv. FAS RR car at seller’s plant: Inside the RR car.???
v. CIF Buyer’s plant: Shipment K, don’t be misled by the term “buyer.”
[2-320, cmt 1)
vi. Ship to buyer’s plant: Shipment K [2-503, cmt. 5 – ambiguous terms].
vii. No delivery term: Not explicitly a destination K, code preference for
shipment K when there are ambiguous terms.
5. Windows Inc., v. Jordan Panel Systems Corp. 1999: Contract for specially made
window, to be “shipped to NYC.”
a. Appellate court held the buyer had assumed the risk of the loss because of the
ambiguous terms in the K.
i. The K must expressly specify a particular form of shipment. There is a
strong preference for shipment K’s, so if you want it to be another type
of contract, you have to have specific terms (such as FOB seller’s place),
or some other terms that say the seller will assume the risk until the
goods are in the seller’s hands.
ii. Just specifying the address of where to be shipped does not do this.
6. Cook Specialty Company v. Schrlock 1991: Press brake fell out of truck during
shipping. Insurance purchased by seller was not adequate to cover cost.
a. Goods are being transmitted to the buyer by common carrier, so it is a 2-
509(1)(a).
i. This is FOB place of shipment, so this is a shipment K.
ii. Where does it seems as though the risk of loss is going to be?
o Buyer (once item is in carrier’s hands).
b. Buyer’s 2nd argument about why it shouldn’t bear the risk:

28
 i. 2-504: In a shipment K where the risk of transit will be on the buyer, the
seller has certain obligations towards the goods…particularly obligations
having to do with the K it makes with the carrier.
ii. Because the seller breached its 504 obligation, risk remains on the seller
(2-510).
c. Issue boils down to whether or not the seller made a proper K under 2-504?
i. Court found that the seller made an adequate K.
ii. Risk, therefore, was on the buyer when the item was damaged.
d. 2-504, cmt. 3 states that it is improper for the seller in a shipment K to agree to
an inadequate insurance. Why did the court find the insurance to be proper?
i. It is NOT improper for the seller to fail to investigate the extent of the
insurance.
ii. Here, the seller did not agree to a $5000 policy, it simply failed to
investigate the insurance.
7. Bill of lading – receipt (“document of title” -warehouse receipt is also a document of
title) indicating what the goods are, the consignor of the goods, where they are supposed
to be delivered, etc.
8. Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc 1985: Fire in warehouse that burned
all of D’s ribs. P transferred the ribs on 1/13, bailee clerk mailed receipt to D on 1/17 or
1/18. D received receipt on 1/24. Ribs burned on 1/17. Court held risk of loss had not
passed b/c acknowledge of the bailee of the buyer’s right of possession occurs when the
acknowledgement has been given to the buyer (509(2)(b)).
a. Court reasons by saying this was the intent of the drafters of the UCC, because
otherwise the code does not explicitly say that the acknowledge has to be to the
buyer.
9. Schock v. Ronderos: Mobile homes case. Risk had passed to buyer b/c they had
prepped the home for removal.
a. 2-509(3) case: Appellate court affirmed that the risk was on the buyer, because
the seller was not a merchant. Risk passed to buyer on TENDER of delivery.
b. Tender of delivery occurred on payment for and acceptance of the mobile home.
Sellers had disconnected the electricity and prepared the mobile home to be
moved. Their failure to remove the sofa and piano did not result in an
uncompleted tender of delivery.
c. Side note: Seller cannot be a bailee.
10. 2-510: Effect of breach on risk of loss
a. 2-510 shifts risk of loss to breaching party, who but-for the breach would not
have had the risk of loss.
b. 2-510 (1): If tender or delivery of goods so fails to conform to the K as to give a
right of rejection, the risk of their loss remains on the seller until cure or
acceptance.
c. SIDE NOTE: Wild card of negligence here and in a lot of cases. Even if a party
bears the risk of loss through 2-309 or 2-510, if that party can show that the other
party’s negligence caused the damage, then negligence will trump the risk of
loss.
11. Wilke v. Cummins Diesel Engines, 1969: Government generator case. Delivered it
way before due, did not run specified field tests. Did not constitute and effective
delivery, risk of loss remained on seller.
a. The delivery of the generator to the job sit, while identifying the goods to the K,
did not amount to a delivery of the goods or the performance of obligations
conforming to the K.
b. UCC 2-206(2) provides that “goods or conduct including any part of a
performance are “conforming” or conform to a K when they are in accordance

29
 with the obligation under the K.” Non-conformity cannot be viewed as a
question of the quantity and quality of goods along, but of the performance of the
totality of the seller’s contractual undertaking.
c. Mooney thinks this should be a 2-509 (3) case: Seller was a merchant and
hadn’t officially delivered the goods yet (“this is my baby”) T here is also
possible negligence overlay for both parties (trumps UCC Risk of loss). Also,
there is not actual breach b/c under 2-607 the buyer has not given adequate notice
of breach.
12. Muliplastics, Inc. v. Arch Industries, Inc 1974: P and D contracted for P to make
pellets for D. D refused to release purchase orders. P continued to house the goods from
8/20-9/22. There was a fire, and the goods were destroyed.
a. Under 2-510(3): Risk passes to the breaching buyer for a reasonable time.
b. There was a breach, and 8/20-9/22 was a reasonable time.
c. 2-709(1): Seller is entitled to recover K price.
d. Subrogation also an issue here.
i. HYPO: B owes S the price of the destroyed goods under 2-709
(Multiplastics). 2-709 says one instance in which the buyer has to pay
the price is when the goods have been lost or destroyed after risk of loss
has passed (reasonable time).
1. What if seller is insured, and the insurance company pays the
buyer’s obligation to the seller. Can the insurance company use
subrogation to step into seller’s shoes and have a COA against
B?
2. No, in cannot. 2-510, cmt. 3 says that the rules of (2), (3), that
shift risk of loss only to the extent of insurance deficiency (of the
other party), are not intended to be disturbed by subrogation
principles

PERFORMANCE AND BREACH UPON DELIVERY

2-507(1): Delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise
agreed, to his duty to pay for them.
2-511(1): Tender of payment is, unless otherwise agreed, a condition to the seller’s duty to
tender and complete any delivery.
• Comment 2 says explicitly these are concurrent conditions
• Practical effect: Neither party may sue for breach without properly tendering his own
performance.
• Check bounces = no payment 2-511(3)

1. Buyer’s Right to Prior Acceptance: Inspection and Rejection

a. A buyer may inspect goods to make sure they conform to the K 2-513(1).
i. In general, a buyer of goods has a right to inspect the goods prior to
paying for them.
ii. A buyer may, however, agree explicitly or by including in their K a
method of payment inconsistent with prior inspection, contract away
their right. 2-513(3).
b. If inspection reveals a non-conformity to the K, buyer may reject the goods. 2-
601 He may also refuse to pay the K price and invoke a variety of Art. 2
remedies (2-711)
c. By accepting the goods, the buyer loses his rejection right, obligates itself to pay
the K price and assumes the burden of proving a breach (2-607).

30
 d. In some cases, acceptance can be revoked – but the standard is stricter than for
initial rejection. 2-608.
e. Payment required BEFORE inspection does not constitute an acceptance of
goods or impair the buyer’s right to inspect or any of his remedies. 2-512(2).
i. Even if buyer relinquishes pre-payment inspection right, the buyer
can still reject the goods after payment (2-601) (question is just who
will be plaintiff in the lawsuit).
ii. OUTLINE PRE-PAYMENT EXPECTION PROBLEMS – PP. 228.
2. Buyer’s Right to Reject
a. 2-601: If the goods or the tender of delivery fail in any respect to conform to the
K, the buyer may reject.
i. This differs from CL, there is no substantial performance doctrine
(Jacob & Kent v. Young). This is a nearly perfect performance.
ii. 2-103: There is a good faith obligation to perform
iii. 2-508: Seller’s right to cure.
iv. 2-612: A buyer may not reject a shipment under an installment K unless
the non-conformity “substantially impairs” its value.
v. 2-504: Obligation of seller in the shipment K to make an adequate K to
the carrier. Buyer may reject the goods ONLY if material loss or delay
ensues – the fact that the seller did not insure does not allow seller to
reject the goods without material loss.
b. Limitations:
i. Good-faith obligation: UCC 1-201(19), 1-203 (cmt. 19), 2-103.
ii. Subject to the provisions of 2-612, which provides that a buyer may not
reject a shipment under an installment K unless the non-conformity
“substantially impairs” its value.
iii. A buyer may not reject goods if (1) it already accepted them, or (2) the
seller has a right to cure non-conformity. 2-607, 2-508.
3. International Commodities Export Corp. v. North Pacific Lumber Co. 1991: Moldy
beans case. Buyer attempted to reject goods 9 months after receipt.
a. Buyer could not reject the goods because they had accepted them. They accepted
them in three ways:
i. After an opportunity to accept signified acceptance of the goods. Said
they would retain them despite non-conformity and would try to sell
them.
ii. Failed to make an effective rejection of the goods (2-606(2)).
iii. Buyer exercised dominion over them. It tried and ultimately did resell
these beans
b. What is the most important legal effect of the buyer’s accepting the goods?
i. Once the buyer accepts the goods, under 2-607, it bears the burden of
establishing that the tender was defective at the time risk passed.
ii. If the seller DID breach, the aggrieved buyer has to keep the goods, but
can sue for breach – Value of good beans minus the value of moldy
beans
4. Bowen v. Foust 1996: Heating and cooling unit case. P pled that after paying D the
agreed sum, they discovered that the equipment D installed was not the equipment
specified in the bid and did not work.
a. Buyer revoked its acceptance under 2-608.
b. Court accepted that P acted quickly upon discovery of non-conformity.
c. Buyer has right to throw goods back on seller by revocation of acceptance and
recover money (2-711).

31
 d. Seller claims they wanted to cure under 2-508, but ct. held that seller never
offered to cure.
e. Side note: Argument in response from the seller saying “it’s too late” to revoke:
Doesn’t matter…it would not have changed anything if we had started this suit
from day 1: No prejudice on the seller (goods would not have decomposed or
been overused).
5. Zabriskie Chervrolet, Inc. v. Smith 1968: Lemon car case.
a. Right to cure is not limitless. 2-508 Court held that attempted cure in this case
was ineffective. Seller will not be allowed to force the deal onto the buyer by
forcing the new transmission. Buyer’s confidence is shattered and a reasonable
buyer would not want to proceed with the transaction.
6. Right to cure 2-508 analysis: Two issues:
a. Does seller have a right to cure?
b. If so, what constitutes an effective cure?

ACCEPTANCE AND RECOVATION OF ACCEPTANCE

1. Buyer’s Acceptance of the Goods, UCC 2-606(1) provides that acceptance occurs
when:
a. After a reasonable time to inspect, the buyer signifies acceptance to the seller,
b. The buyer fails to make an effective rejection, or
c. The buyer does any act inconsistent with the seller’s ownership.
i. Buyer can still sue for damages under 2-714, even if they are stuck with
the goods.
ii. Auction – moving from auction yard to own house constitutes
acceptance. Miron v. Yonkers Raceway.
2. Buyer’s Revocation of Acceptance
a. Upon acceptance, a buyer loses its right to reject. UCC 2-607
b. However, it may still revoke its acceptance, and following an effective
revocation it has approximately the same rights and duties as if it had rejected. 2-
608
c. 2-608 Requires that:
i. The non-conformity “substantially impairs” the value of the goods and
that
ii. The buyer accepted the goods either (a) without discovering the defect
because discovery was difficult or (b) assuming reasonably, but
incorrectly, that the seller would cure the defect.
d. Revocation must occur within a reasonable time, as described in sub. 2.
3. 2-605: Under some circumstances, a rejecting buyer has an obligation to specify what it
thinks is wrong with the goods
4. Kesner v. Lancaster: K to sell a tractor. Seller assured buyer that the equipment was in
good shape. Seller gave cursory inspection, seemed fine. Turned out the tractor was
defective. The tractor needed a lot of repairs. P had successful revoked because the
defect substantially impaired the value of the goods under 608.
a. No perfect tender rule with revocation, you have to find substantial impairment.
b. Buyer has to show substantial impairment, has to accept goods without discovery
of the defect, and revocation has to be within a reasonable time (608 allows more
time than 601).
5. 2-610: Anticipatory repudiation.
a. If your client has reasonable insecurity about the performance, it can demand a
reasonable assurance of adequate performance by the other side. If the other side
does not do it, then without much risk you can declare anticipatory repudiation.

32
 b. Hornell Brewing Co. v. Spry: Canadian beverage distribution case:
1. A K did exist (even without a distributorship agreement). 2-206: K can be
made in any manner to show agreement, 2-207: K can be shown with
conduct.
2. Three issues under 2-609:
a. Did Hornell have reasonable ground for insecurity?
b. Did Hornell make a 2-609 demand for adequate assurance or did it
just call up and say what are you going to do (this is often the most
litigated point).
c. Were the assurances given, adequate under the circumstances?
3. HELD: Adequate assurances were not forthcoming, so D had created an
anticipatory repudiation under 610, so P was free to leave the K.

REMEDIES

Code Remedies – 2 goals:

1. Aggrieved party may be put in as good a position as if the other party had fully
performed (no consequential or special or penal damages except as specifically
provided). 1-106(1)
2. Encourage a non-breaching party to minimize its damages by obtaining substitute
performance. Thus, the Code places few restrictions on an aggrieved sell attempting to
resell (706) and encourages an aggrieved buyer to mitigate losses through “cover” (712).
a. Code permits seller to recover the difference between the resale price and the K
price together with any incidental damages…but less expenses saved in
consequence of the buyer’s breach. 706(1)
b. Seller need not establish a specific market price for the goods.
c. Cmt 2: Failure to act property under this section deprives the seller of the
measure of damages here provided and relegates it to that provided in Sec. 2-708.
d. If seller cannot recover the entire K price under 2-709 or the price minus a resale
under 2-706, the appropriate damage measure will likely be the “difference
between the market price at the time and place for tender and the unpaid K price
together with any incidental damages….but less expenses saved in consequence
of the buyer’s breach.” 2-708(1).

2-703: Catalogue of seller’s remedies

2-711: Catalogue of buyer’s remedies
Issues:
1. When and where to measure the market price
2. What items to inc. in the damage measure?
3. When do we have a lost-volume seller?

SELLER REMEDIES

Three remedies for seller:

1. 2-709 Full K price
a. Most often involves seller efforts to demonstrate that the goods are not
marketable at any price.
b. 2-709 provides that a seller may recover full K price in three instances:
i. When the buyer has accepted (2-606) and retained the goods
ii. When conforming goods have been lost or damaged after risk of loss has
passed to buyer (2-509)

33
 iii. When the seller has tried and failed to resell the goods, or “circumstances
reasonably indicate that such efforts will be unavailing.” (i.e. potato case
where the market was bad and the seller couldn’t be expected to resale).
c. Question whether buyer has accepted the goods for purposes of 2-709:
i. Buyer who makes a “procedurally effective” rejection does not accept.
ii. Buyer making a procedurally ineffective rejection, regardless of
substantive merit, does accept the goods under 2-606.
iii. Buyer revoking acceptance (2-608) likely must be correct both
procedurally AND substantively.
d. Advise your client (seller) to resale (706) because it is easier to prove difference
between K price and resale price + incidental fees then it is to show you
reasonably attempted to resale.
2. 2-706 Resale – difference between K price and resale price
a. Most sellers will invoke 2-706
b. If non-breaching seller resales the goods in good faith and in a commercially
reasonable manner, and in accordance with fairly minimal statutory obligations,
then than aggrieved seller may recover the difference between the K price and
the lower resale price + incidental damages, minus damages saved.
i. Incidental expenses (allowable under 2-710)
ii. Don’t forget shipping costs
c. (2) If seller makes profit on the resale, he does not have to share with the
breaching party.
d. Advise client to act as if its their own money (this will make it a commercially
reasonable care).
e. Goods resold has to be the exact same goods you were going to sale to breaching
party.
f. If seller is going to resale privately, the only notice it has to give is the intent to
resale privately. You don’t have to give notice of particular sale or date. If seller
is going to resale publicly (i.e. auction), notice of time and place has to be givern
g. If seller resales unreasonably (for way below market price), can’t get remedies
under 2-706, but can get them under 2-708.
3. 2-708 K market penalty (seller is entitled to recover difference between K price and
market price at time and place of tender).
a. (2): Lost volume seller
i. 2-708(2): If the damages measure of 2-708(1) is inadequate to put the
seller in as good a position as performance would have done, the seller
may proceed under sub. 2 and recover “profit (including reasonable
overhead),” that it would have made from seller’s full performance, plus
incidental damages, and minus payments or proceeds of resale.
ii. Lost P seller: On whose sales volume declined because of the breach.
b. (1): Third major remedy (although Mooney thinks this should be used rarely –
seller should resale under 2-706, or if it cannot, recover the K price under 2-709).
c. Place of tender: Shipment K: Buyer’s city, Destination K: Seller’s City.
d. The statutory formula will not always yield an amount equal to the seller’s actual
loss.
4. Conflict: 2-706(6) says that seller doesn’t have to share windfall from these statutory
formulas. This conflicts with 1-106, where it says if the seller is not damaged at all,
damages should be minimized.
1. 2-706(6) arises more in case of resale. It says seller doesn’t have
to give money to the buyer, but doesn’t say anything about
taking money from the buyer.

34
 5. 2-704: Permits a reasonable completion of ½ finished goods. Risk: Can lose even more
money if you are unable to resale goods after you have finished. You want to notify the
buyer of your plans to resale.
6. Nederlandse v. Grande 1979: Concrete manufacturing case with steel strand. D
wouldn’t pay for the strand they ordered. Issue: Was P a lost volume seller? YES.
Could recover under 2-708(2).

BUYER’S REMEDIES

Buyer’s Right to Specific Performance or Replevin 2-716 (2-709 parallel this remedy for the
seller)
1. 2-716: Specific performance shall be granted where the goods are unique or in other
proper circumstances.
2. Cmt. 1: Without intending to impair the court’s sound discretion in the matter, this article
seeks to further a more liberal attitude than some courts have shown in connection with
specific performance of K’s of sale.
3. Cmt. 2: Output and requirements K’s involving special markets or sources are now the
“typical commercial specific performance situations.”
a. One strong indication of other proper circumstances for awarding specific
performance is the buyer’s inability to recover.
b. Eastern v. Gulf (Eastern couldn’t cover because fuel prices had shot up).
c. Copylease v. Memorex (claimed it could not reasonably cover by obtaining an
alternative source of toner because other brands of toner are distinctly inferior to
the Memorex product – goods were unique or “noncoverable”).
4. Sub. (3): Authorizes a buyer to replevy the K goods in two situations:
a. When they have been identified to the K and the cover is unavailable and
b. When they have been shipped under reservation and the buyer has tendered full
payment.

Buyer’s Right to Cover Price – K Price Damages UCC 2-712 (2-706 parallels this remedy
for the seller)
1. 2-712: Authorizes a buyer whose seller has breached to “cover” by “making in good
faith and without unreasonable delay any reasonable purchase of goods in substitution for
those due from the seller.”
2. Sub (2): If buyer does so, he may recover from the seller the “difference between the
cost of cover and the K price together with any incidental or consequential damages…but
less expenses saved in consequence of the seller’s breach.”
a. Good Faith:
b. 1-201(19): Honesty in fact
c. 2-103 (merchants): Req. they observe reasonable commercial standards of fair
dealing in the trade.
3. Cmt. 2: The test of proper cover is whether at the time and place the buyer acted in good
faith and in a reasonable manner, and it is immaterial that hindsight may later prove that
the method of cover used was not the cheapest or most effective.
a. Buyer must also make a reasonable purchase. Considerations inc. time
constraints, market fluctuations, and available supply (was buyer purchasing as if
it was with their own money?)
b. Farmers Elevator Company of Elk Point v. Lyle (Doctrine of equitable estoppel
to prevent a party to an oral agreement from invoking the statute of frauds).
c. Most courts agree that uncertainty under 2-712 should be resolved against
breaching sellers.

35
 d. Hardest case is when the buyer covers by purchasing somewhat better, somewhat
more expensive goods. If no other substitute goods were available, the buyer
should still be permitted to use the cover price-K price formula.
e. A non-covering buyer can get damages from other remedies (i.e. a market price-
K price damage computation), but they may not recover consequential damages
that cover would have prevented.

Buyer’s Market Price-Contract Price Damages 2-713 (2-708(11) – parallels this remedy for
the seller).
1. 2-713: Permits buyers who do not cover or seek specific performance to recover “the
difference between the market price at the time when the buyer learned of the breach and
the K price together with any incidental and consequential damages provided by this
article.
a. Computing damages: (1) Determine the property date and place for fixing
damages.
b. Date issue: If the seller’s performance is due by a specific date, use that date. If
the buyer does not learn until later, use the second date. Most difficult case is if
the seller repudiates earlier. The sounder position is to use the date of the breach
(the later date).
i. Cargill, Inc. v. Stafford 1977: Wheat case, seller repudiates. Holding:
A buyer may urge continued performance for a reasonable time. At the
end of a reasonable period he should cover if substitute goods are readily
available. If sub. goods are readily available and buyer does not cover
within a reasonable time, damages should be based on the price at the
end of the reasonable time rather than on the price when performance is
due. If a valid reason exists for failure or refusal to cover, damages may
be calculated from the time when performance is due.
1. Statute of Frauds exception to confirmation
2. 2-201 Merchant exception (Trial court said this doesn’t apply for
2 reasons: 1) Wasn’t received within a reasonable time, 2) seller
objected to its terms within 10 days – weak argument)
3. Trial court decided there was no enforceable K under 1st K.
4. Court decided 2nd K would be enforced.
5. DAMAGES: MOONEY SAID THIS CASE COMES OUT
WRONG.
c. Location issue: Sub 2: Market price is to be determined as of the place for
tender or, in the case of rejection after arrival or revocation of acceptance, as of
the place of arrival.
i. Cmt 1: Market price should be determined at the market in which the
buyer would have obtained cover had it sought relief.
d. Time for measuring relevant market price is when the buyer learns of the breach.
708 is time and place of tender.
e. Of buyer rejects the goods following delivery, then the time and place is the
place of delivery.

Recovery for Breach Relating to Accepted Goods 2-714

1. 2-714: A buyer who accepts defective goods, and does not revoke acceptance, may
nonetheless sue for breach.
2. Sub. (1): B may recover damages “as determined in any manner which is reasonable.
3. Sub (2): The most common such case, a breach of warranty regarding the goods, the
measure of damages will normally be the “difference at the time and place of acceptance

36
between the value of the goods accepted and the value they would have had if they had
been as warranted.”
a. “Value of goods as accepted”:
i. Actual value to the particular buyer (which is usually $0, so the judgment
rescinds the K), or
ii. Their market value sold “as is.”

37
 Contracts Outline
I. Contract is an agreement between 2 parties to do something the law will
enforce
A. Applicable law
1. Common Law
a. Restatement – persuasive rather than mandatory
2. UCC
a. Movable Goods
3. When a K has mixed goals, UCC or Common Law?
a. Predominant purpose:
i. Goods  UCC
ii. Services  Common Law

B. Types of Ks
1. Bilateral
a. Exchange of mutual promises
2. Unilateral
a. The offer requests performance rather than a promise
b. Promise to pay upon completion of the requested act
c. Once act is complete, K is formed
3. Option K

II. Pre K Liability

1. Detrimental Reliance
a. Acting in justifiable reliance on an offer may be enough to
make it binding
b. Absence of Condisderation is not fatal
i. Reasonable reliance = consideration
c. Misrepresentation
2. No offer / acceptance, but still remedy
a. If 1 party confers a benefit on another, restitution
i. Example: Down payment

III. Offer and Acceptance

A. Nature of Assent
1. Assent – manifest intent to be legally bound
a. Objective Theory: Bound by the intention corresponding to
the reasonable interpretation / understanding of the words
/ actions
b. Mental assent is not required for the formation of K
c. No manifestation of intent if just downloading (Specht)
2. Knowledge of Offer Necessary

-1-
 3. Volitional Acceptance required (Carbolic Smokeball)
4. Some degree of motivation by the offer
5. Agreement or mutual assent is required
a. To avoid obligation, at least 1 party must express intention
of not being bound until a writing is executed
6. Obviously ludicrous offer is not an actual offer (Pepsi Harrier Jet)
7. Mirror Image Rule
a. Acceptance must be on offeror’s exact terms
i. NOT Last Shot Rule
b. ANY variation would be a counter-offer
c. Problems:
i. May be incentive to work the market
ii. Once performance begins, may be a dispute over
terms
8. Last Shot Rule
a. Last version of K prevails
9. Mailbox Rule
a. Acceptance begins as soon as letter is sent
i. UNLESS offer stipulates that acceptance is not
effective until received
b. Revocation effective upon offeree receiving info

B. Power of Acceptance
1. Conferred by the offer
2. Master of offer can dictate what the offer says
a. How or when master wants acceptance
3. Termination of power of acceptance
a. Lapse of the offer
i. If expressly limited in original offer
ii. Reasonable time depends on the transaction
 Nature of price fluctuation, industry standards,
relationship between parties, type of thing being
offered
iii. Ordinarily an offer made in face to face conversation
only stands until the conversation has ended
b. Revocation of offer
i. Any time before acceptance
c. Offeror’s death / Incapacity
d. Offeree’s rejection
i. Effective when received by the offeror
ii. Rejecting counter-offer
4. Must make an effort to reach offeror to let him know of
acceptance (in manner set forth in K OR:)
a. Communication

-2-
 b. By acting / beginning performance
c. EXCEPTION I: Do not have to give explicit acceptance if it
is obvious or reasonable to think that offeror does not
expect explicit acceptance
d. EXCEPTION II: If it is a situation where completion of a
duty is enough to satisfy acceptance, no explicit acceptance
is necessary
i. UNLESS – the offeror is very far away and won’t hear
of completion of duty for a while, acceptance must be
explicitly communicated
5. Silence as Acceptance
a. Conduct / performance can be construed as acceptance
b. Usually only allow if only offeror has benefited from full
performance
c. OR if offeror tells offeree that silence will be acceptance
and offeree relies on that statement
d. Long-standing relationship  understood acceptance

6. ACCEPTANCE MUST BE:

a. Definite
b. Unequivocal
c. Unchanged from the offer
i. Usually any changes are considered rejecting counter-
offer
d. Unconditional
i. “Subject to…” maybe promise, but not acceptance

C. UCC 2-206 – offer may be accepted by any medium reasonable in the

circumstances
1. If offeror wants to limit acceptances, may still do so, but must
do so unambiguously
2. May be accepted by either performing the requested act or by a
timely promise to do so

D. Gentleman’s Agreements
1. Parties to an agreement, by express provision prevent courts
from enforcing their promises

E. Terms
1. Open terms – not yet agreed upon
2. Closed terms – agreed upon
3. When a K has mixed goals, UCC or Common Law?
a. Predominant purpose:
i. Goods  UCC

-3-
 ii. Services  Common Law

F. UCC
1. Designed for quick, easy transactions
a. Shipping equals acceptance
2. Does not have to have ALL details to be sufficient offer
3. UCC 2-206(b)
a. Shipment of non-conforming goods does NOT constitute
ACCEPTANCE if seller sends as accommodation to buyer
b. As long as seasonable
c. Counter-offer
4. Revocability
a. UCC 2-205
i. ‘Firm offer’ makes offer irrevocable
ii. Only merchants can make irrevocable offers

G. Preliminary agreement
1. Agree to agree
2. When there are negotiations back and forth and one party
changed their mind
3. Formal K Contemplated – intent to be legally bound
a. Expressed reservation about not being bound in the
absence of writing
b. Is there partial performance of K?
c. Whether all terms of alleged K have been agreed upon
d. Whether agreement at issue is usually committed to writing

H. Pre K Liability
a. Detrimental Reliance
i. Acting in justifiable reliance on an offer may be
enough to make it binding
ii. Absence of Condisderation is not fatal
 Reasonable reliance = consideration
iii. Misrepresentation
b. No offer / acceptance, but still remedy
i. If 1 party confers a benefit on another, restitution
 Example: Down payment

I. Offer
1. Restatement § 24
2. Manifest intent to be legally bound
a. Offeror dictates terms of the offer
3. Master of offer can dictate what the offer says
a. How or when master wants acceptance

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 4. Promissory
a. CAN revoke any time before acceptance under common law
i. Time restriction on offer does not make it irrevocable
within that limit unless there is consideration for
keeping offer open
b. Cannot change offer after acceptance
c. Quoting prices is NOT an offer
i. Catalogs, advertisements MUST have an affirmative
promise to be considered an offer – fur stole case
ii. Invitation / solicitation for offers by buyers
5. Definite and Certain
a. Leaves nothing to negotiate
b. Not an offer if just replying to offer for negotiations
6. Completeness of Terms
a. If general language – not offer
7. # of offerees
a. If parties are specifically named  offer (in general)
b. If parties are indefinite  NOT an offer (in general)
8. Revocation
a. Direct revocation
i. Effective when received
 Contrast with mailbox rule
b. Indirect revocation – Restatement § 42
i. Definiteness of information
ii. Reliability of source

J. Irrevocable offers:
1. Consideration
a. Required to keep offer open (deposit)
2. Option Ks
a. Separate consideration req’d to keep option open
3. Reliance
a. Detrimental Reliance
b. When offeror could reasonably expect that the offeree
would rely to her detriment on the offer, it will be held
irrevocable as an option K for a reasonable length of time
4. Firm Offers – without consideration by merchants
a. UCC 2-205
b. May not exceed 3 months
5. Unilateral Ks
a. Seller not looking for promise  looking for performance
b. Partial performance  irrevocable
i. Example: Reward

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 ii.If performance has begun – detrimental reliance
 Preparation to perform is not applicable
c. Acceptance = complete performance by offeree
i. As opposed to Bilateral K where there are 2 promises
and 2 performances

IV. Deviant Acceptance

A. Battle of the Forms – UCC 2-207
1. (1) Definite & Seasonal expression of acceptance or confirmation
operates as an acceptance of offeror’s terms even if it has
different / additional terms
a. If unmatching terms are wildly unmatched, may be not an
acceptance
b. Proviso – does acceptance fall within UCC proviso?
i. Acceptance expressly made conditional on assent to
additional or different terms
ii. Must track proviso language almost EXACTLY
 Language of proviso – is it a rejecting counter-
offer?
 Is there performance? If no, no K [STOP]
 if performance, GO TO (3)
2. (2) Additional terms are proposals for addition to K
a. Actual acceptance is required [otherwise it would be ‘last
shot rule’]
b. K Between Merchants – terms are considered proposals for
addition to the K and are automatically included in K
unless:
i. Offer expressly limits acceptance to the terms of the
offer
ii. OR Material alteration
 Consent to it can’t be presumed
 Limits warranties or limits time for recourse
 Burden of proof on the party introducing the
additional terms to show that it is not a material
alteration
 Surprise or hardship
 Not an industry standard
iii. OR Objection
 ‘We object in advance to any terms on your form
that are different from our terms’
[STOP]
3. (3) If no K under (1), but parties act as if they have K,
performance = K, and terms of K are whatever matches plus
UCC gapfillers

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 4. Look to modified terms under 2-209
a. (1) – Modifications
i. No additional consideration necessary
ii. Must be in good faith
5. Mirror Image Rule does not necessarily apply – Restatement §
59
a. Can accept different terms than offered
6. Last Shot Rule does not necessarily apply
a. K formation and K terms do not necessarily happen at the
same time
b. Favors a “first shot rule”
7. K could form from conduct
a. Writing not necessary
b. Terms & gapfillers
c. If party has conditional terms, can refuse to perform until
terms are met
i. If he performs, may not get conditional terms
8. Different vs. Additional Terms (Litronic):
a. Majority Rule – Knockout Rule
i. Replace different terms with UCC gap fillers
 This is rule in IL – holding on this case
b. Minority Rule –
i. Use the original terms of the offer and ignore the
different terms
c. Preferred Rule (Judge Posner)
i. Treat different terms like they were additional terms
and perform 2-207(2) analysis
 This is rule in CA
B. Mirror Image Rule
1. Acceptance must be on exact terms of the offer
C. Last Shot Rule
1. Once performance begins, the last K offered stands

V. Validation
A. Works as a Seal
1. Evidentiary – proof that there is a K
2. Cautionary – show that the promisor gave it some thought
3. Channeling – instant enforceability

B. Consideration
1. Bargained-for exchange – agreement is motivated by the
exchange AND
2. Legal benefit to the promisor

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3. OR Legal detriment to the promisee
a. Did the person really want this, or was it a sham?
b. LOOK FOR unequal bargaining power  unfairness
4. Definite and Substantial reliance
a. Must be definite
i. Time – Not just ‘until I no longer want to’
ii. Price – ‘Prevailing Rate’ is definite enough
b. Illusory promise is no consideration
i. Promise conditioned on satisfaction is not illusory since
one cannot reject them unless dissatisfied
 Good faith is necessary – UCC § 1-304
c. Partial consideration is no consideration
d. Past consideration is no consideration
i. Material benefit is exception to past consideration
e. Gift is NOT considered “legal” detriment
i. Not all conditional gifts are consideration
ii. Act or forbearance by the promisee must be of benefit
to the promisor
f. Conditional promises can be consideration
i. Homeowner’s insurance – only get $ if house is
damaged
g. Courts don’t want to judge the value of promise
i. Peppercorn
ii. Offer something for $  YES
iii. Offer $ for something  NO
iv. Offer $ for $  NO
h. Output K
i. However many you make, I’ll buy them
ii. No quantity requirement
iii. There is Consideration because the buyer has to buy
ALL of output and the seller has to sell ALL output to
buyer
5. Consideration is whether the bargain was adequate at the time
the promises are made, not whether there has been adequate
performance after the fact (Tuckwiler)

6. Pre-existing duty rule

a. If you have a preexisting obligation, promising to do it does
not amount to a legal detriment (Alaska Packers)
b. BUT – if parties modify something and it is signed, then
that is fine
c. If there is additional consideration, then it is okay
d. UCC § 2-209(1) – parties can modify an agreement in
good faith

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 i. Does not need consideration
e. If there is an unanticipated problem in the K, which the
parties in good faith decide to modify, then it’s fine as long
as the modification is fair and reasonable
f. Rescission & Modification
i. If both parties rescind and modify for a new K, then
preexisting duty is gone

C. Consideration in at-will employment Ks

1. At-will employees can be fired at any time for any reason (good
or not)
2. If K is adjusted, both sides have to gain from change for it to be
enforceable
a. Raise  additional responsibilities***
b. Retirement pkg.  cont’d work
3. Rescission and Modification
a. Employee has agreement to work for $90/wk
b. Ee gets offer from another for $115/wk
c. Er then says, I’ll give you $100/wk if you stay
d. Both rescind original K  removes preexisting duty for $90
e. Enter in a new K for $100/wk

D. Detrimental Reliance – sometimes a substitute for consideration

1. Promisor foresees reliance
a. Promisor must know facts
b. Must intend that his conduct is to be acted upon or acts
must be such that other party has the right to believe it is
so intended
2. Promisee actually relies
a. Promisee must be ignorant of true facts
b. If both parties know true facts, will not be detrimental
reliance
3. Promisee relies to his/her detriment
 Results in an injustice whose only remedy would be the court’s
action

E. Moral Obligation
1. Not usually enforced
2. Material Benefit Rule
a. If promisor gets a huge material benefit, even if there is no
bargained-for exchange, can still be enforceable
i. Not all states agree

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VI. Formation Defects
A. Indefiniteness
1. Usual terms
a. Parties
b. Subject Matter
c. Quantity
d. Time for performance
e. Price
2. Agreements to agree – too indefinite
3. “A fair share”

B. Statute of Frauds – unenforceable if oral

1. Ks within the Statute of Frauds
a. Executor
b. Suretyships
i. When both debtor and surety/guarantor are obligated
to creditor/guarantor AT THE SAME TIME (collateral)
ii. Main purpose exception
 If guarantor’s main interest is to benefit his
interest, K does not need to meet the statute
 Not as concerned with the suretyship when the
guarantor gets something out of the deal
iii. Novation
 Guarantor removes debtor’s obligation’s entirely
 No longer a suretyship
c. Marriage
d. Land
e. 1 year
i. Interpreted very liberally
ii. If it COULD be performed within 1 year, given
unlimited resources, may not fall within SOF
iii. Death
 Not full performance
 Early Termination
iv. At-will employment
 Could get fired or quit within a year
 If either party COULD stop performance within a
year, does not fall within SOF
v. Lifetime Ks not within SOF
f. Goods > $500
UCC § 2-201 – 106 & 7 SOF for goods ONLY must
include:
i. (1) Evidence a K  confirmation, acceptance
 Signed by promisee

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 - Signature is any authorization that
identifies the party to be charged
 Quantity
 Writing sufficient to indicate that a K was formed
ii. (2) Between merchants – if wrong party signs
 If receiver of goods knows contents & satisfies
(1)
 Has 10 days to object or it will stick
iii. (3) If no (1), but in other respects would be
enforceable, would be enforceable (orally) if:
 (a) Specially manufactured good which can’t be
resold to someone else and it’s already begun to
be made (reliance)
 (b) OR ∆ has testimony that K was made 
judicial admissions
 (c) OR if K otherwise valid but there’s no writing,
enforceable with respect to goods, if [partial]
payment has been made and accepted, or
delivery has been made and accepted  full or
partial performance [expectation]
g. Others (vary by statute)

2. Satisfying the Statute of Frauds

i. Writing
 Under Common Law, ALL terms & essential
elements must be in writing
 Identity of the party sought to be charged
 K’s subject matter
 Recital of consideration (in most states)
 Signature of party to be charged or his agent
ii. Performance
 Full
- Generally full performance removes bar
of SOF
 Partial
- Services
- Land
- Goods
iii. Judicial admission
iv. Detrimental Reliance

3. Other issues
a. Modification
i. Must satisfy SOF

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  Example: in UCC price is not required, so if
modified, price would not fall within SOF
ii. NOMO – No oral modification clause can say that any
changes, modifications, etc. have to be in writing and
signed by both parties
 UCC § 2-209(2)
iii. Waiver & Retraction – did parties intend to waive their
rights under NOMO or others
 UCC § 2-209(4) & (5)
 If waiver is relied upon, it is irrevocable
iv. Authorization
b. Remedies
i. Usually the reasonable value of the services or part
performance rendered or restitution of any other
benefit that has been conferred
 Reliance or restitution

C. Capacity to K
1. Infant in the eyes of the law
a. Infant can K for necessities
b. Even if emancipated, still may not be able to K for non-
necessities
c. Remedy: Usually Restitution
i. Equity is the issue
2. Person with mental disabilities
3. Intoxicated individuals
4. Women (back in the day)

D. Duress & Undue Influence

1. Duress
a. Can be physical, emotional or economic
b. Impermissible pressure during the initial bargaining or
attempted renegotiation (look to preexisting duty rule for
renegotiations)
i. “threat” must be unlawful
ii. Baseless claim issue
iii. Wrong party is the one pressuring
 If 3rd party is the one doing the pressuring – no
duress
iv. Partial payment
c. No duress if you are just threatening to sue for some legal
claim
d. K is voidable when free will is precluded
2. Undue Influence

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 a. Over-bargaining or over-pressuring in the bargaining
process
i. Not necessarily unlawful
b. Usually in a confidential relationship
i. Power relationship
c. Elements:
i. Discussion of transaction at an unusual or
inappropriate time
ii. Consummation of the transaction in an unusual place
iii. Insistent demand that the business be finished at once
iv. Extreme emphasis on untoward consequences of delay
v. Use of multiple persuaders on the dominant side
against a single servient party
vi. Statements that there is no time to consult financial
advisors or attorneys
d. Not very common

E. Fraud & Misrepresentation

1. Fraud
a. Misstatement or omission with duty of fact
b. Scienter or materiality
i. They knew it, and it was material
c. Justifiable
i. Did the person justifiably rely on untruth or 1/2 truth
d. Reliance
2. Duty to disclose
a. Generally, no duty to disclose if at arms length (buyers and
sellers)
i. POLICY: encourage people to seek info & can’t hold
sellers responsible for disclosing every possibility
ii. Caveat emptor
b. Some jurisdictions say that if there is a latent defect (not
visible) that there is a duty to disclose
c. In OR, you have to give the buyer a list of disclosures – say
that you know or don’t know x, y, or z about the house
d. Prenuptial agreements
i. Not at arm’s length, so there is a duty to disclose all
financial info
ii. Still a duty to read
e. Opinions can be material when not dealing at arm’s length
i. Dancing case – teacher knew more

F. Duty to Read

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 1. When it does not actually appear to be a K, not obligated to read
it
a. Circle of assent does not cover if doesn’t look like a K
2. Misrepresentation

G. Unconcionability
1. Procedural
a. How the K was negotiated
b. Was there fraud
2. Substantive
a. Where the terms of the K are grossly unfair
3. CA requires both Procedural and Substantive  sliding scale
4. Usually extreme cases
5. In commercial cases it doesn’t usually work
a. BUT franchisees are more sympathetic because of the
unequal bargaining power
i. Power to de-brand them
ii. Gas station franchisees are more protected
6. Remedy
a. Could void entire K
b. Sever unconscionable part

H. Illegality & Public Policy

1. Disfavors negligence waiver
2. Assent does not cover what’s on the back of ticket if it doesn’t
look like a K
3. Against public policy to advance business interests of people that
are involved in ‘bad things’ (ie drug paraphernalia)
a. Hiring a hit man
b. Paying the mob
c. Hiring someone to commit a tort
d. Clean hands doctrine
i. “He who comes into equity must come with clean
hands”
ii. Examples: agreements in restraint of trade, gambling
Ks, usurious Ks, agreements obstructing
administration of justice, relating to torts
4. In Pari Delicto – if both parties are equally at fault with regard to
the contractual dispute
5. Public Policy for licensed workers
a. No license – illegal K
b. No permit – legal K
6. Covenant not to compete
a. Ancillary to employment

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 b. Ancillary to sale
c. Blue pencil rule
d. Rule of reason
i. If it’s REALLY unreasonable, won’t be enforced
ii. But there’s an incentive to make it especially
restrictive since the courts will just fix it
e. All-or-nothing
i. If any term is unreasonable, the whole thing is
unenforceable

VII. K Terms
A. Ks of Adhesion
1. Standard form K on a take it or leave it basis
2. Not usually negotiable
3. Policy
a. If duty to read allows party to absolve themselves from
negligence, may be unenforceable (close to
unconscionable)
4. Doctrine of Reasonable Expectations
a. If K is vague, unintelligible or ambiguous, will be
interpreted favorably to what the weaker party expected it
to mean
5. Must look like a K
6. Circle of Assent / Blanket Assent
a. Assent to every term that might not be outlandish

VIII. Remedies (Preview)

A. Limitations on Damage Awards
1. Foreseeable
2. Unavoidable
a. Duty to mitigate damages
3. Certain
a. Losses were certain and not speculative
4. Compensatory
5. Caused by a breach
B. Restitution
1. “Does justice require enrichment to be disgorged?”
a. Disgorge profits, fees, deposits, etc.
2. Not only relied on promise, but conferred a benefit on promisor
(payment or profit usually)
3. Least common
4. Usually when there is no K but benefit is conferred in pre-
contractual stage when parties believe K is imminent
C. Expectation

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 1. Try to put injured party in the position as if there were no breach
(looking forward)
2. Meant to fill expectations that arise
3. Usually $, but could be specific performance IF product is unique
or rare (land)
4. Usually the most substantial
5. “Cover” – If had to go elsewhere to buy another widget – would
be the difference between negotiated price and price paid
elsewhere
D. Reliance
1. Looking back, to put the person in the position from BEFORE the
promise
2. Incurred expenses in preparation for the K, missed opportunities
– out of pocket loss
3. Now worse off than if the promise had not been made
4. Usually only remedy for breach of agreement to negotiate in
good faith
E. Equitable Relief – Specific performance / Injunction
1. Success on the merit
a. Or likelihood of success on the merits for injunction
2. Irreparable injury
3. Satisfy balance of the equities
a. Hardship on the ∏ is greater than the hardship on the ∆
4. Public Interest Balancing Test

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Contracts Outline
I. Applicable Law
A. Common Law
1. Restatement – persuasive rather than binding
B. UCC
1. For Movable goods
C. If the K has mixed goals, UCC or CL?
1. Predominant Purpose
a. Goods  UCC
b. Services  CL

II. Formation Defects

A. Mistake
1. Definition
a. Belief that is not in accordance with the facts
b. The facts at the time of K are misunderstood
i. NOT the same as a bad prediction
2. Mutual Mistake
a. Elements
i. Mistake has to go to a basic assumption on which the K was made
ii. Mistake has to have a material effect on the exchange
iii. Avoiding party cannot bear the risk of the mistake
- K allocates risk to 1 party
- Party has a chance to be informed, and treats lack of
information to be sufficient
- Circumstances suggest that the party bears the risk
- Custom puts risk on party
· If seller undervalues something, custom says that the
risk of undervalue is borne by the seller
· If a buyer overvalues something, custom says that the
risk of overvalue is borne by the buyer
- If BOTH parties bear the risk and mistake – can rescind the K
· If both parties hire an expert to do an appraisal and
that person’s opinion is relied upon by both, neither
took on the risk
3. Unilateral Mistake
a. Above elements Plus
i. Enforcement of the K would be unconscionable
 ii. OR non-mistaken party knew / caused the mistaken party to be
mistaken
4. Ways around Mistake
a. ‘As Is’ clause
i. K in which both parties assume that the place is fit for human
habitation / merchantable
- Buyer bears the risk of the loss
5. Restitution
a. Result of a mistake is that the K is voidable
b. BUT, if a party has paid $ on reliance
i. Down payment – party gets down payment back
ii. Unjust enrichment

III. K Terms
A. Doctrine of Reasonable Expectations – Rest. § 211(3)
B. Parol Evidence
1. Rest § 213 – 216
a. A binding integrated agreement discharges prior agreements to the extent
that it is inconsistent with them
b. A binding completely integrated agreement discharges prior agreements to
the extent that they are within its scope
c. An integrated agreement that is not binding or that is voidable and avoided
does not discharge a prior agreement
2. Rule
a. Is there a final expression of one or more terms of the agreement [writing]
i. If yes  go on
ii. If no  no PER
b. PE is not admissible to contradict one of those terms
c. Is this a complete integration? Writing is complete and exclusive of the
terms of the agreement
i. If yes  PER disallows adding, varying, or contradicting
3. Compare with SoF
a. Must have a final writing
i. If no writing, no issue
4. Evidence of prior or contemporaneous agreements & negotiations
a. Agreements & negotiations prior to or contemporaneous with the adoption of
a writing are admissible in evidence to establish
i. That the writing is or is not an integrated agreement
 ii. That the integrated agreement is completely or partially integrated
iii. The meaning of the writing, whether or not integrated
iv. Illegality, fraud, duress, mistake, lack of consideration, or other
invalidating cause
5. Rationales
a. If the extra promise were so important, it would be in the final writing
b. Guards against fraud
6. Tests for integration
a. Appearance
i. Does the writing look like it’s complete?
- This one has been largely rejected
b. Separate consideration – Rest.
i. If there is separate consideration to support the extrinsic
c. Natural omission – Rest.
i. Would it be natural to leave the term out?
ii. Family Ks – tend to be more squishy, so might be more likely to leave
terms out of a K within family
d. Certain inclusion – UCC
e. Writing - Wigmore

Extrinsic Evidence UOT COD COP

Not integrated All Parol Evidence is OK Consistent OK
Partially integrated – complete Consistent Add’l Terms OK – Consistent OK
as to one or more terms may not vary on extrinsic
evidence though
Complete Integration No Parol Evidence Consistent OK (unless carefully
negated by merger clause)
UCC § 2-202(b) § 2-202(a)

7. PER – UCC
a. Express Language
i. Language of the K
b. Course of performance
i. UCC § 1-303
ii. Same parties, same K
- How have the parties interpreted course of performance
c. Course of dealings
i. UCC § 1-205
ii. Same parties in an earlier K
- Last time they K’ed, that is a relevant, good indication of what
they meant this time around
 d. Usage of Trade
i. Different parties, different K, but same trade industry
e. Consistent or Inconsistent?
i. Some courts consider terms consistent unless the extrinsic evidence
flatly negates or contradicts an express term in the K
ii. Other courts take a more holistic approach, considering proffered
terms consistent if they are “reasonably harmonious” with the
language and the respective obligations of the K parties
8. Ways around PER
a. Interpretation
b. Formation Defect
c. Reformation
d. Subsequent modification
e. Where PER doesn’t apply

C. Interpretation
1. In General
a. Plain meaning from the document
b. Objectively discernable meaning
i. Objective manifestations tend to be favored
2. What were the parties intending?
a. Rest § 201 – when both parties mean A, if they make a valid K, the K will be
for A, even if there is ambiguity
b. When there are 2 different parties subjectively thinking two different things,
then there is no K
3. Two-step Process:
a. Is the K clear enough? Is there a plain meaning?
i. Are there any terms of art? Interpretive maxims?
b. If the language is ambiguous, look at extrinsic evidence for explanation and
questions of interpretation will go to the jury
4. General Rules of Interpretation
a. Purpose of the parties
i. Read the K language looking for the purpose of the parties
b. Consistency
i. Words used more than once should be interpreted the same each time
c. Terms of Art
i. Respect terms with established legal meanings, or established
meanings in trade usage settings
 d. Reasonable / Lawful interpretations are preferred over unreasonable and
absurd ones
i. Drafters intent & public policy
e. Public Interest
f. Handwritten is preferred over typewritten, if there is a conflict
g. K should be read consistently throughout
h. If there is general language & specific language
i. Usually specific controls
ii. BUT – atty general and wiretapping – he says that it should be
general
5. Other rules
a. Pacific Gas (CA Rule) – every word is naturally ambiguous and if we don’t
look at extrinsic evidence, we are relying on a judge’s personal experience
and definitions
i. To bring in extrinsic evidence, you have to show relevance to prove a
meaning to which the language is reasonably susceptible
ii. Problem: this holding essentially makes all Ks liable to attack through
extrinsic evidence – but it is still a minority rule
b. Sometimes a party might want to make something intentionally vague so
that it can be interpreted however you want later – but it is bad drafting to
use something that can have two different meanings
c. ∏ usually bears the burden of proof
6. Maxims of K Interpretation
a. Read things against the drafter
i. Contra preferentem
ii. Ks of adhesion – uneven bargaining power
b. Read different parts of a K as a whole, giving effect to each
i. In pari material
c. Matters of the same kind should be treated similarly
i. ejusdem generic
d. The expression of one thing is the exclusion of another
i. expression unius est exclusio alterius
ii. If K says, you may have cats & dogs – may not have hamster
e. It is known from its associates
i. noscitur a socils
IV. Special K Terms & Gap Filling
A. Arbitration
1. K determines
a. How to define dispute
b. Who decides the dispute
c. On what basis
d. With what procedure
2. Enforcement
a. Federal Arbitration Act – courts will enforce arbitral awards
b. Courts give great deference to the arbitration provision in Ks
i. To the extent that there is any ambiguity  K law applies
3. Ways around Arbitration
a. Public Policy Argument
i. Still pretty hard to overturn arbitrator’s decision
4. Usually considered an independent agreement, so if a party repudiates, usually
cannot repudiate as to the arbitration agreement
B. Good faith & fair dealing
1. Elements
a. Inherently subjective
i. Credibility
ii. Guesswork about what the outcome should have been
b. Not bad faith
c. Must cooperate with K partner – must not do something to prevent them
from enjoying the K
i. Deprivation of something that they are entitled to under the K
d. Good faith does NOT trump terms that are explicit in the K – it is a gap filler,
not a K creator
2. Rules
a. Brother’s Keeper Rule – must act as though you’re the other party’s keeper
and act accordingly
b. Law of the jungle – anything goes
c. In the middle (Posner) – can’t exploit someone’s ignorance, but can take
advantage sometimes Market Street v. Frey
3. Remedy
a. Breach of K
b. Some jxs will not hear the case if this is the only breach
 4. Good faith and the UCC § 1-201(19)
a. Definition
i. “Honesty in fact in the conduct or transaction concerned” 1-201(9)
b. Express terms
i. Implied covenant of good faith and fair dealings is present in all Ks as
if it was written there by the parties 1-203(3)
ii. Good faith, diligence, reasonableness and care may not be disclaimed
by agreement, but parties may by agreement determine the
standards by which performance such obligations are to be measured
as long as the standard is reasonable
c. Course of Performance
d. Course of Dealings
e. Usage of Trade
f. As long as implied terms do not flatly negate the K terms
i. UCC allows considering UOT, COD, COP, wty, GFFD in implied terms
as long as they don’t negate express K terms
ii. Alternate standard – reasonably harmonious
C. Best efforts
1. Default rule that K implies good faith provision
a. Use such efforts as would be made by a reasonable person under the same
circumstances
b. Best efforts are really just adequate efforts
i. COD, COP, UOT – apply as to what is ‘best efforts’
- As long as they are consistent with K terms
c. So, basically just adequate efforts and good faith are all that’s req’d
i. Some courts say that it should be the same efforts as if it were your
line of work
ii. Others say same efforts to another customer that you don’t hate
2. Express terms always trump implied terms
D. Terminable-at-will
1. Woods Rule – unless parties to employment Ks specify a specific amount of time or
if they specify that termination must be for cause, then relationship is terminable at
any time for any reason or no reason at all
2. Distributorships and franchises are usually explicit as to duration and termination, if
not, then courts will decide
3. Exceptions
a. Public Policy
i. Perjury
 ii. Jury Service
iii. Union
iv. Worker’s Comp
v. Whistle Blower
- OSHA
- Sarbanes Oxley
- Title VII
b. Good Faith & Fair Dealing
i. Not gotten a lot of play in at-will employment cases
ii. Usually watered-down
iii. UNLESS – opportunistic firings or uneven application of rules
c. Implied K (modification)
i. Off-hand or casual remarks
ii. Employee handbook

E. UCC Warranties
1. Madison Moss Warranty Act – If you say warranty, it means a full warranty unless it
says specifically ‘limited warranty’
a. Applies to consumer goods
2. Title
a. § 2-312
i. Warranty for title is in the K that the title is good and transfer rightful
and that it is free from liens or encumbrances
ii. The buyer can’t have reason to believe that the seller does not claim
title
b. § 2-403(1) – good faith purchaser for value gets good title if transferor has
voidable title
i. Voidable title is title that is not good because of a bad check or
something like that
ii. Void is different – it is bad like stolen
iii. Nemo dat qui non habet – can’t give what you don’t have
c. § 1-205(2) – Usage of Trade
i. A usage of trade is any practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the transaction in
question
- So, no wty for watches bought in the bathroom at the bus
station
3. Quality
a. Express – § 2-313 – representation about the quality of a product
i. Affirmation of fact/promise
- Not puff, opinion or commendation
ii. Relate to the goods
iii. Basis of the bargain (reliance on express wty)
- If statement has any substance that might have played some
part in the buyer’s decision to buy, the burden is on the seller
to prove that the buyer did not rely
- If oral  jury decides
- If written  judge decides
b. Implied – automatically in the K unless the seller does something to get rid
of them (disclaimer)
i. Not express – oral or written
ii. Merchantability § 2-314
- At a minimum goods will work: must be fit for the ordinary
purpose for which it is used
- Seller must be a merchant with respect to those goods
- Food –
· Some say that if it is a natural substance as opposed to
a foreign object – no liability
· Others permit recovery if the biter’s reasonable
expectation is that it would have been removed
iii. Fitness for a Particular Purpose § 2-315
- Buyer relies on the seller’s j’ment or skill in deciding
4. Disclaiming §§ 2-316(2) and 2-316(3)
a. Express warranties are nearly impossible to disclaim § 2-216(1)
i. The proper way to avoid liability for an express warranty is no to
make it in the first place
ii. Ways around it:
- Incomplete integration, parol evidence
- If there is complete integration, prior oral disclaimers should
be excluded
- BUT – this usually doesn’t work
b. Must be conspicuous and easily explained
c. Must mention the word merchantability
d. Warranties of title can’t really be disclaimed
5. Damages
 a. § 2-719 – may limit damages
i. (2) – excluding consequential damages is okay unless exclusive term
falls in its essential purpose
ii. (3) fine unless it is unconscionable & personal injuries are by
definition unconscionable
b. Most jxs require any remedy limitation to be conspicuous in order to be
effective

V. Conditions
A. Definitions
1. An event not certain to occur, which must occur, unless its nonoccurrence is
excused, but before performance under a K becomes due, to activate an existing K
duty
a. K is formed and then one party’s performance is dependent upon the
condition happening or not
b. Can be anything except TIME
c. Conditions should be very clear to be enforceable
2. Examples
a. Sale of a house
i. Passing inspection
ii. Getting the mortgage
b. Life Insurance
i. Loss within the policy
B. Kinds of Conditions
1. Subject matter
a. A condition cannot be something like Time or something that is certain to
occur
2. Promise vs. condition vs. promissory
a. Promissory condition – not a condition at all, it is a promise
b. Because law does not like forfeitures, if there is a question whether there is a
promise or a condition, the court will err on the side of promise
i. For promises, can get $ damages
ii. For conditions, you are relieved of your duty to perform
3. Express Condition
a. “If” “provided that” “on the condition that”
b. When there is ambiguity, courts prefer to find things as mere promises
rather than conditions  less hardship
 i. Ex/ subcontractor getting paid upon the completion of pool is mere
promise – even if not finished, should probably be paid at least part of
what is owed
ii. Someone asking to open a mine, and getting paid upon opening might
be conditional because there is more of a risk that it might not
happen
- Look to intentions of the parties
4. Implied Condition
a. May not be in the K, but it can be reasonably surmised that one party’s
action would be dependent on the condition occurring
5. Constructive Condition
a. Opposite of express conditions
b. Can be implied
c. Constructive – implied in law, created by courts to make a K work
i. Analysis
- Performance – independent or dependent (conclusory)
- Breach – material or immaterial
- Has there been substantial performance?
· If yes, then that constructive condition has been
satisfied
· But, there may be a claim for damages if the
substantial performance is not complete
6. Condition Precedent
a. Event that has to occur before performance becomes due
b. If one end of the bargain takes substantially more time to do (like painting a
house vs. payment for the painting) you should make this a condition
precedent
c. Can bargain around this
7. Condition Subsequent
a. Extinguishes a duty that has already arisen
b. Event that terminates a duty
c. Most common – insurance company  relieved of duty to pay if you quit
paying your premium
8. Conditions Concurrent
a. Events that must occur simultaneously
b. Very common
C. Issues
1. Interpretation
 2. Conditions of satisfaction
a. Depends on how subjective the beholder has to be
i. Painting/literature (more subjective) – beholder can decide on his/her
own whether satisfaction condition is met
ii. Painting a barn (more objective) – there is an objective acceptability
b. 3rd Party Satisfaction
i. Typically in the construction context
ii. Contractor gets paid as long as the architect says that the work was
done or completed to specs
iii. As long as architect is unbiased, good faith is the standard, but it is
still subjective – more discretion
iv. NY – it is objective – could bring in other architects to judge whether
it was a good job
3. Excusing conditions (Prevention)
a. Good faith and fair dealing is part of every K
i. Cooperating and not preventing a party from getting what they are
entitled to under the K
ii. If on prevents a condition from happening, the court may excuse it
- Ex/ seller backed out, prevented the condition (sale) from
happening; brokers can say that seller prevented the
condition, so they don’t owe him money, but he still has to pay
commissions
- Ex/ life insurance – some guy applied in the a.m. for life
insurance, obligation to insure him was conditioned on getting
the okay from the actuarial algorithm; in the p.m. he dies.
Insurance co says that he would not have met the condition,
but they didn’t even run it, so since they prevented him from
meeting the condition, they lost the benefit of the condition
4. Satisfying conditions
5. Waiving conditions
a. If condition exists only for one party’s benefit, that party can waive that
condition on performance and go ahead without it
i. Party does not have to insist on a condition that would only benefit
them, they may waive that condition
ii. Must be voluntary
iii. Can unwaive or retract waiver so long as the other party has not
relied on the waiver
D. Mitigating Doctrines
 1. Prevention
a. If one prevents the occurrence of a duty, one will be precluded from
asserting the non-occurrence of the condition
2. Waiver
a. Excuse of non-performance – if one wants to waive a condition, that’s fine
i. As long as waiver happens before the condition fails
ii. Election happens after
E. UCC Conditions
1. Perfect Tender Rule § 2-601
a. Whether delivery is perfect or not
b. If not perfect, then the buyer can send it back on delivery
c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t
have to perform
i. NOT substantial performance
ii. Buyer can
- Reject
- Accept & sue for damages
- Accept some and reject others
iii. If time of performance hasn’t yet arrived, the seller has until the time
of the K to cure/fix any mistakes
2. If buyer has already accepted the goods, and only later buyer discovers defect, then
§ 2-608
a. If there is non-conformity, then goods have to substantially impair their
value to the buyer
3. Larger, multi-delivery K  installment K § 2-612
a. As policy we want to encourage long-term relationships
b. If there is a nonconformity with regard to one shipment, buyer can only send
it back if the goods substantially impair the value of that installment
c. Buyer can only claim breach of the whole K when there is a breach that
substantially impairs the value of the whole K

VI. Substantial Performance

A. If something is completed, if the deviations are trivial and insignificant, the K is fine
B. If someone substantially performs, you are not relieved of your obligations to perform, but
you can get damages for the difference between the K and performance
C. Applies only to Constructive Conditions – if something is expressly a condition of the K, it
usually must be satisfied exactly
1. Specifications in building Ks are not express
 2. Every sings specification is a condition precedent to my obligation to pay  NOT
allowed
D. Willful deviation can preclude a finding of substantial performance

VII. Breach
A. At common law
1. Maybe the time of performance hasn’t come, but there might be something that
suggests that the party will not perform
2. Materiality
a. Not entitled to damages unless the breach is material
i. Similar to substantial performance – did you get substantially what
you bargained for? Did the breach destroy the value for you?
b. Rest 2d § 241 – Circumstances significant to determine whether a breach is
material
i. Has there been substantial performance or not?
ii. The injured party would be denied benefit of what he expected
- Departure from K trivial or significant
iii. Can injured party be compensated?
iv. Failure to perform = forfeiture?
v. Likelihood of cure
vi. Good faith
3. Substantial Performance
4. Restitution for breach
a. Divisibility and Restitution
i. If one did not breach on ALL terms, and it can be divided, person
should be compensated on the ones where there was performance
ii. Sort of Prorate the K price according to where there was performance
B. Under UCC
1. Perfect Tender Rule (old rule)
a. Whether delivery is perfect or not
b. If not perfect, then the buyer can send it back on delivery
c. If goods or tender of delivery are imperfect in any way, the buyer doesn’t
have to perform
2. Perfect Tender Rule (old rule) – if there is any deviation, material or immaterial,
buyer could reject
3. New Rule § 2-601 – allows buyer to
a. accept fully
b. reject fully or
 c. accept some and reject others
4. § 2-501 allows seller a chance to cure the defect
a. If time of performance hasn’t yet arrived, the seller has until the time of the
K to cure/fix any mistakes
5. Revocation of acceptance – If buyer has already accepted the goods, and only later
buyer discovers defect, then § 2-608
a. If there is non-conformity, then goods have to substantially impair their
value to the buyer
6. Installment Ks
a. If breach is made after performance and only payments are required in
installments, repudiation does not accelerate those payments
b. In general, breach of one K in a series of Ks does not mean breach of all
c. But, could cause acceleration of installment payments

VIII. Excuses for Non-Performance

A. Formation Defect (see above)
1. Mistake
B. Suspending Performance
1. Is there an uncured breach by the other party?
a. Was it a breach of duty of an exchange of promises of performance
(dependent/independent)
2. Is the breach material?
a. Does it justify self-help?
i. Termination
ii. Suspension by the party
- As opposed to seeking a remedy from the court
b. If the breach is material
i. Injured party’s obligations are then lifted  can suspend
c. If the breach is immaterial
i. Injured party still has to perform – cannot suspend
ii. But, may still have a claim for damages
d. Rest. § 241 – Materiality
i. Is the injured party going to obtain a substantial benefit which
he could have reasonably anticipated?
ii. Can the injured party be compensated by damages?
iii. Had the party failing to perform made preparations for
performance?
iv. Hardship in terminating the K
 v. Motivations of the Parties
- Willful breach
- Negligent
- Innocent
3. If the breach is immaterial, but you guess that it is material & suspend
performance, you are the one that has breached, probably materially
a. Should tread lightly
4. Usually have to give the other party a chance to cure – can’t just suspend
performance immediately
a. JX split as to after-suspension-acquired facts

C. Anticipatory Repudiation
1. Elements
a. Before the time that performance is due, someone repudiates by doing
something in their language, being sufficiently positive to be reasonably
interpreted that they cannot or will not perform
i. Language is construed broadly
- Written
- Oral
- Actions
b. May not have to wait until they actually breach to sue
i. If 1 party repudiates and their end of the bargain is dependent on the
other performing, can be treated as a present total breach
- Depends on whether other party would have been able to
perform (material)
ii. Might be better to mitigate or seek relief immediately because if you
don’t, repudiator may not be liable for excess damages
c. Anticipatory repudiation, must be by clear, unequivocal, and voluntary
expression of intent to discontinue K § 2-611
2. After Repudiation
a. Repudiating party can retract or renounce repudiation up to a point
i. Can no longer retract once the recipient relies on repudiation OR
accepts repudiation
ii. Receiver of repudiation has right to create a window within which the
repudiator has to retract
- Locus Poenitentiae – window of time where one has to retract
repudiation
3. NOT repudiation
 a. Failure to take required preparations is not anticipatory repudiation – even if
it makes performance impossible
b. Expressing doubt about performance is not enough for repudiation
c. Repudiation does not relieve someone of an arbitration clause
4. One-sided K – repudiation doesn’t apply
5. Recurring payment
a. Missing a payment doesn’t necessarily create a breach of the whole K
b. May kick in an accelerated payment – term in K that creates an obligation to
pay the whole rest of the K upon missing a payment
6. UCC § 2-713
a. If seller breaches, buyer can learn of breach when
i. There is a repudiation
ii. Repudiation plus a commercially reasonable time
iii. When performance is due under the K
iv. Buyer is responsible for mitigating damages
b. If buyer intends to repudiate § 2-610
i. Must notify seller of intent to repudiate
ii. Resale – seller gets difference between K price and resale price plus
incidentals & consequentials less mitigation
iii. Hypo Resale
c. 2-713, 2-723, 2-611

D. Demanding Adequate Assurances

1. UCC § 2-609
a. Must be reasonable grounds for insecurity
i. Then there is the right to demand adequate assurances
- 2d version requires demand to be in writing, but no one has
adopted it yet
ii. May suspend performance, if commercially reasonable, until
assurances are given
iii. If there are no adequate assurances given within a reasonable time,
constitutes repudiation
2. MUST have reasonable ground
a. May not use the demand to rewrite the K
b. UOT
c. COD
d. General K interpretation
E. Damages for Repudiation
 1. CL – at the time of the breach
2. UCC – whatever is a commercially reasonable time
a. Between repudiation & failure to perform
b. For non-delivery
i. Incidentals
ii. Consequentials
3. Exception: if breach is made after performance such that only duty is to finish
paying in installments

F. Impossibility, Impracticability, & Frustration of Purpose

1. Issue – Excuse for non-performance
2. Impossibility
a. Subject matter is no longer there
i. Fire
b. Failure of the agreed upon means of performance
i. If both parties depend on a 3rd party & the 3rd party goes under (if
goods are unique enough)
c. Death or Incapacity
d. Intervention of law
e. Delay by action of law
3. Impracticability
a. Changed circumstances
b. If due to those changed circumstances performance would be unbearable
from a commercial perspective, one is excused
4. Frustration of Purpose
a. If before performance is due, party’s purpose in entering into the K is
destroyed, courts will sometimes discharge one from performance
5. History
a. Traditional Rule – basic assumption that performance will be possible
b. Force Majeure Clause
i. Expressly excuses performance by Acts of God, labor unrest, etc.
ii. Largely redundant now given the modern law
- Only purpose they might serve is that it might be clearer and
enlarge upon the situations where performance is not possible
6. Modern analysis
a. Transalt. Freighting v. US
i. Suez Canal closed, transatlantic had to go around the Cape of Good
Hope; cost $43K more
 ii. Shipper asked for more $$ in attempt for good faith modification of
the K
b. Analysis (UCC 2-615 & CL)
i. An unexpected contingency occurs
ii. Non-occurrence was a basic assumption on which the K was made
iii. Party seeking to invoke excuse cannot have assumed the risk
 Promisor not being able to perform
7. Compare with Mistake

Mistake Imposs/Imprac/Frustration
Belief not in accordance with the facts Contingency – something unexpected
Basic assumption of the K Non-occurrence was a basic assumption of K
Material effect of the risk Render performance ‘commercially impossible /
impracticable’ (or frustrating party’s purpose)
No assumption of risk No assumption of risk

8. Frustration of purpose
a. Excuse for non-performance
b. When something out of the party’s control happens that sort of defeats the
purpose of them performing
 no longer of value to the promisee
9. Rarely successful
a. Narrow K excuse for non-performance
b. Cannot have been caused by the party seeking the imposs/imprac defense
10. Total excuse or equitable reform
a. Commercial imposs/imprac – not that it is totally impossible to perform, just
that performance has little or no value remaining

IX. Third Party Issues

A. 3rd Party Beneficiaries
1. History
a. Privity requirement – no longer req’d
b. Lawrence v. Fox
i. Holly owes Lawrence; Holly gives $$ to Fox for Lawrence; Fox doesn’t
pay; Lawrence sues Fox
ii. Court says okay even though he is not a signatory
2. Modern Analysis
a. Intention to benefit
i. Both parties intend the 3rd party to benefit  Req’d
 - Ex/ Life insurance: both the insured and the insurer intend for
the beneficiaries to benefit
ii. Unintended / Incidental beneficiaries  not enforceable
- Ex/ t-shirt seller and the bad call
st
b. Rest 1 § 133
i. Intent to benefit 3rd party
- Donee beneficiary – 3rd party beneficiary isn’t owed anything,
but rather, the parties or one of the parties intended to bestow
a kind of gift
- Creditor beneficiary – sort of an automatic intention
- Incidental beneficiary – cannot sue; are not intended by the
parties of the K to have a legal right to sue
nd
c. Rest 2 § 302
i. Parties intend to confer benefits on 3rd party
- Performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary
- Donees and other creditor beneficiaries that are not included in
above
ii. Incidentals – cannot sue
d. Public beneficiaries
i. The larger the public gets for public beneficiaries, the less likely the
parties will have intended to confer legal right to sue on all of them
3. Other issues
a. Product liability & privity
b. Vesting
i. Rest 3d § 311
- If the 3rd party justifiably relies
- If the 3rd party sues
- Manifests assent to the promise at the request of the promisor
or promisee
c. Promisee’s right to enforce
i. Promisee may sue the promisor for not conferring benefit on
beneficiary
d. ∆ against promisee
i. 3rd party can sue the promisee for not conferring the benefit

B. Assignment & Delegation

1. Nature: What, When, etc.
 2. Assignability
a. Unilateral present transfer of K rights to a 3rd party
i. Obligor can’t say anything about it
ii. Must be present, not like “I will…”
b. Can be for consideration or not
i. If yes, irrevocable
c. Can be written or not
d. Gift assignment – can be revoked
3. Effect of assignment
a. Any right can be assigned unless
i. The right of the assignor would materially change the duty of the
obligor
ii. It would materially increase the risk of the obligor
iii. It would materially impair the chance of the obligor to obtain a return
performance
iv. Or, materially reduce the value of the return performance
b. ∆ against assignee
4. Delegatability
a. Someone who has a duty then delegates duty to someone else
i. If services are fungible (or $$) it’s fine
5. Efect of delegation
a. May not delegate if
i. The identity of the person is important
ii. The K says no delegation
iii. If the duty has to do with special skills/qualities of a specific person
b. Recipient can sue either the delegating party or the delegate
6. Compare: Novation
a. The only way to get the delegating party out of the picture would be to get a
novation

X. Remedies
A. Damages
1. Direct
a. Cover
b. Resale
c. Cost
2. Indirect
a. Incidental Damages – costs incurred in ascertaining that there was a breach
 i. Ex/ cost of finding another job
b. Consequential damages – costs incurred indirectly as a result of breach
i. Damages are not recoverable for loss that the party in breach did not
have reason to foresee as a probable result of the breach when the K
was made
ii. Ex/ lost profits
iii. Under CL, incidental is also a consequential damage
c. UCC - § 2-715 – Incidental/Consequential Damages
i. Incidental damages resulting from the seller’s breach include
expenses reasonably incurred in inspection, receipt, transportation
and care and custody of goods rightfully rejected, any commercially
reasonable charges, expenses or commissions in connection with
effecting cover and any other reasonable expense incident to the
delay or other breach
ii. Consequential damages resulting form the seller’s breach include
- Any loss resulting from general or particular requirements and
needs of which the seller at the time of K had reason to know
and which could not reasonably be prevented by cover or
otherwise; and
- Injury to person or property proximately resulting from any
breach of warranty
3. Substantial performance
a. If SP – and the person is not going to undo and redo sub-par work, then the
difference in value is usually what’s awarded
b. If NOT SP – diminished value is used

Common Law UCC

Repudiation Same Same
Breach Substantial Performance / Perfect Tender Rule
Materiality Substantial impairment
Options Total / partial breach Perfect Tender Rule / Cure
Remedies Expectation Remedies Roundup
Reliance
Repudiation

B. 3 Interests
1. Expectation
a. Elements
i. Try to put the injured party in the position they would have occupied
if there had been no breach  looking forward
ii. Meant to fill expectations that arise
 iii. Usually the most substantial
b. Formulas
i. ED = Loss in Value + Other Loss – Cost Avoided – Loss Avoided
- LIV = cost of the K
- OL = other costs of K
ii. ED = Cost of Reliance + Profit – Loss Avoided + Other Loss
- These should not include overhead and other costs that injured
party would have incurred with or without a K
c. Cover – If had to go elsewhere to buy another widget  the difference
between negotiated price and price paid elsewhere
2. Reliance
a. Definition
i. Looking back, to put the person in the position from BEFORE the
promise was made
ii. Now worse off than if the promise had not been made
b. Calculation
i. Incurred expenses in preparation for the K, missed opportunities – out
of pocket loss
ii. Usually the only remedy for breach of agreement to negotiate in good
faith
3. Restitution
a. Definition
i. Does justice require enrichment to be disgorged?
ii. Not only did the person rely on a promise, but a benefit was conferred
on the promisor
b. Calculation
i. Least common
ii. Usually when there is no K, but benefit was conferred in pre-K stage
when parties believe K is imminent
C. Equitable Relief
1. Specific Performance
a. Usually only required when ONLY that performance will suffice
b. Not required when $ can cover the harm
2. Injunctions
a. Success on the merits
b. Public necessity
c. $ damages would be inadequate
D. Limitations
1. Foreseeable
a. Damages are limited to those that arise naturally and are contemplated by
the parties at the time of contracting  Hadley Rule
b. Elements
i. Arise Naturally
- Probability vs. Possibility
ii. Communicated to the ∆
iii. Time of Contracting
iv. Contemplation of the parties
c. UCC  governed by Hadley
i. § 351(3)
- Stop-gap measure
- Assume that Hadley applies
- Court can limit damages for foreseeable loss by allowing
recovery on reliance if justice so requires to prevent
disproportionate compensation
d. Tacit agreement test – did the parties tacitly agree that these kinds of
damages would be recoverable?
i. What did the parties actually view as their responsibilities?
ii. This test has not gained favor
iii. Involves speculation
2. Unavoidable
a. Mitigation
i. Affirmative – proactive steps to avoid damages
- May have to do something in the alternative to avoid damages
- BUT, do not have to do something that is not substantially
similar to performance under the original K
· Ex/ Shirley MacLaine case – did not have to take the
other role to mitigate damages because it was not
substantially the same
ii. Negative – stopping performance when you find out that the K has
been breached
- Cannot recover for more than what could have avoided by
simply stopping work
- Can’t just rack up more and more expenses and then sue for
more money
 3. Certain
a. Does not have to be 100% certainty – just has to be out of the realm of
conjecture
i. Ex/ brand new business can not collect for loss profits – no way of
knowing what lost profits would be
4. Compensatory
a. Emotional Distress
i. Usually not awarded in Ks; Could probably apply a separate tort claim
and bring emotional distress claim, but not for BoK
ii. No punitive damages in Ks
5. Caused by the Breach
E. Other Issues
1. Lost volume sellers
a. Resale is not enough
b. Without breach, would have sold more
i. Ex/ MRI machine – were able to sell the one, but if buyer had not
breached, would have sold 2 machines
2. Losing Ks
a. Should not be allowed to get more in reliance than in expectation
i. So, if they would have expected to make less money than they spent
on reliance, they are entitled to no damages even in the event of a
breach
ii. Injured party should not be better off just because there was a breach
- BUT – this is not the case with restitution  restitution is like
suing outside of the K for unjust enrichment where the injured
party has conferred a benefit on the breaching party and
should be compensated accordingly
3. Liquidated damages
a. Purpose:
i. To coerce the promisor into performing the promise
- BUT – should be about compensation, not about coercion
ii. To provide a convenient method to determine the amount to be paid
in the event of a breach
iii. To put a limit on the amount of the loss to be borne by the breaching
party
- Could be better for the breaching party
- If there was no actual loss, then there is no compensation
usually  would be unenforceable
b. Rules
i. Must be reasonable estimate of actual damages
- Reasonable in relation to estimated/forecasted amount OR the
amount of actual damages (UCC & Rest 2d)
· So, even if the stipulated damages were totally
excessive at the time of K-ing, but they end up being
actual damages, that’s okay
· BUT this is not how most jxs do it
ii. Damages are uncertain at the time of K-ing
iii. [Parties agree to stipulate damages in advance] – in some states
c. UCC § 2-718
i. Only 1 factor: whether liquidated amount is reasonable in light of the
anticipated or actual harm caused by the breach
d. Good so that parties can decide up front how much it will cost if there is a
breach
i. May not even need to sue each other
ii. May NOT be meant as a penalty for breach
- BUT calling something a penalty does not mean that it’s
automatically a penalty
· Just like calling something a K doesn’t make it a K and
calling something a worksheet doesn’t make it a
worksheet
Warranty of Title § 2-312
(1) There is in a K for sale a warranty by the seller that
(a) the title conveyed shall be good, and its transfer rightful; and
(b) the goods shall be delivered free from any security interest or other lien or
encumbrance of which the buyer at the time of K has no knowledge
(2) A wty under (1) will be excluded or modified only by specific language or by
circumstances which give the buyer reason to know that the person selling
does not claim title in himself or that he is purporting to sell only such right or
title as he or a third person may have

Express Warranty of Quality § 2-313

(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise
(b) Any description of the goods which is made part of basis of the bargain
creates an express warranty that the goods shall conform to the description
(2) It is not necessary to the creation of an express warranty that the seller use formal
words such as “warrant” or “guarantee” or that he have a specific intention to make
a warranty, but an affirmation merely of the value of the goods or statement
purporting to be merely the seller’s opinion or commendation of the goods does not
create a warranty

Implied Warranty of Merchantability § 2-214

(1) Unless excluded or modified, a warranty that the good shall be merchantable is
implied in a K for their sale if the seller is a merchant with respect to goods of that
kind. Under this section the serving for value of food or drink to be consumed either
on the premises or elsewhere is a sale
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the K description; and
(b) in the case of fungible goods, are of fair average quality within the description;
and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, or even kind, quality, and
quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may
require; and
(f) conform to the promise or affirmations of fact made on the container or label if
any
(3) Unless excluded or modified, other implied warranties may arise from COD of
UOT

Implied Warranty: Fitness for a Particular Purpose § 2-315

Where the seller at the time of K has reason to know any particular purpose for
which the goods are req’d and that the buyer is relying on the seller’s skill or j’ment to
select or furnish suitable goods, there is unless excluded or modified under the next section
an implied wty that the goods shall be fit for such purpose.
Disclaimers: Exclusion or Modification of Warranties § 2-316

(1) Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever reasonable
as consistent with each other; but subject to the provisions of this Article on parol or
extrinsic evidence, negation or limitation is inoperative to the extent that
such construction is unreasonable.
(2) Subject to subsection (3), to exclude of modify the implied warranty of
merchantability or any part of it the language must mention merchantability and
in case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous.
Language to exclude all implied warranties of fitness is sufficient if it states, for
example, that “There are no warranties which extend beyond the description on the
face hereof.”
(3) Notwithstanding subsection (2)
(a) Unless the circumstances indicate otherwise, all implied warranties are excluded
by expressions like “as is”, “with all faults” or other language which in common
understanding calls the buyer’s attention to the exclusion of warranties
and makes plain that there is no implied warranty; and
(b) When the buyer before entering into the K has examined the goods or the
sample or model as fully as he desired or has refused to examine the goods
there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
(c) An implied warranty can also be excluded or modified by COD or UOT

Limitation of Remedy (Damages) § 2-719

(1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution for
those provided in this Article and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer’s remedies to return
of the goods and repayment of the price or to repair and replacement of
non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed
to be exclusive, in which case it is the sole remedy
(2) Where circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this Act
(3) Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
Bjerre Fall 2002
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Overview
What is a contract? A promise or set of promises for an exchange of goods, services, and behavior. Law
recognizes a duty to perform, and provides a remedy for a breach [specific performance OR damages].
Contracts focus more on business deals, then on personal matters/promises.

Importance of contracts:
1. Need to decide when promises are going to be enforceable
a. Ensure stability, certainty, predictability
2. Economic theory: world becomes a better place when a contract is made
3. Efficiency: there are limited resources so let’s move them where they’re needed

Purposes of contracts: [Sometimes formalities good in Form v Substance conflict]

1. Cautionary fcn: makes people think twice before making their promise. Protects fair-minded people who
make a contract
2. Channeling fcn: gives courts guidelines to know hen to enforce/not enforce a promise
3. Evidentiary fcn: provides evidence of people’s intent [whether contract made or not]

Moral Obligation:
1. CL: Courts refuse to allow morality to play a role in legally enforceable contracts
a. Morality varies individually
b. Moral obligation to follow through on every promise, so every promise would be binding

Autonomy v Paternalism:
1. Autonomy: freedom to contract. People agree on their own terms
2. Paternalism: Courts intruding on this freedom to protect a party in a contract from its own specified terms

Theories of Obligation:
1. Contract – if has consideration
2. Quasi-Contract – if unjust enrichment can be avoided (no promise actually made)
3. Promissory Estoppel – if a person relies on a promise made w/o bargain or consideration = a promise
which causes reasonable, foreseeable detrimental reliance

Some definitions:
1. Consideration: Something of value received by a P’r from a P’e
2. Benefit: privilege/profit/gain
3. Bargain: an agreement between parties for the exchange of promises or performances. A bargain is not
necessarily a contract because the consideration may be insufficient or the Tx may be illegal
4. Promise: the manifestation of an intention to act or from acting in a specified manner, conveyed in such a
way that another is justified in understanding that a commitment has been made; a person’s assurance
that the person will or will not do something
5. Gratuitous Promise: a promise made in exchange for nothing; a promise not supported by consideration
6. Reciprocal Conventional Inducement: directed by each other toward the others; generally accepted rule
or custom; the benefit or advantage that causes a P’r to enter a contract – a consideration will induce a
promise (which is considered of value to the P’e), and a promise will induce for supplying the
consideration (which is of value to the P’r)
7. Detriment: the relinquishment of some legal right that a promise would have been otherwise been entitled
to exercise
8. P’r: maker of promise
9. P’e: recipient of promise
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Types of Contracts:
1. Unilateral: ONE side is making a promise [other side is performing an act]
a. Ex. Hamer v Sidway : kid never “promised” to forbear, he just did
b. P’e is one who gets assurance of future, but P’r doesn’t [only gets what he wants]
2. Bilateral: both sides make a promise
a. Basic premise is that a promise can be consideration for another promise (Get RCI by each
other’s promise)
b. Both sides are P’r and P’e since each get assurance about future
c.
3. Comparison: P’e better off in a unilateral. P’r from a unilateral better off since now have future
assuarances

Conditional Promise: Conditional if its performance will become due only if a particular conditional event
occurs
1. Doesn’t mean promise is unenforceable until the event occurs, but only that the event must occur before
P’r must perform
2. Where party makes bilateral promise, it can be protected by making its own promise conditional on
performance by other party
3. Where promises not performed at same time, like service contract, usual rule is that work is made a
condition of payment

Elements of a Contract:
1. Consideration
2. Offer
3. Acceptance

CONSIDERATION

1. Traditional Theory
a. Detriment to P’e [P’e must do something he doesn’t have to do, or forebear from doing something
he can legally do. Inconsequential if P’e also benefits from harm Hamer v. Sidway] OR
i. Bjerre feels that giving up something illegal/legal are both fine for consideration since
giving up a freedom of action
b. Benefit to P’r
2. Modern Theory: RSC §71: For consideration, a performance or a return promise must be bargained for.
Bargained for if its sought by P’r in exchange for his promise and is given by P’e in exchange for that
promise. – Both parties must seek something from the other. Query: Has there been an exchange [A quid
pro quo “this for that”]?
a. Based on Holmes RCI theory: Each = motive for other; law only recognizes the state motive not
necessarily the “real” motive unless same
b. Ex. Hamer v Sidway under modern. Still works since both induced other. DOES NOT MATTER
IF IT’S A BENEFIT/DETRIMENT TO ANYONE, ONLY IF ITS ENOUGH TO INDUCE
EXCHANGE [Focus = relationship between promise and consideration]
i. This weeds out some errors of the bargain approach which doesn’t focus on relationship
between promise and consideration

Consideration considerations:
1. Need a bargained for exchange [§71]
2. Don’t care about actual motives, only care about whether intent is to induce
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Things that are not consideration: [Think of Form v. Substance theme]
1. Past performance : not bargained for, already get it [Feinberg: no consideration since pension for past
consideration instead of future employ]
2. Moral obligation
3. Mere pretense (peppercorn) – under strict RCI would qualify, but law beyond that, still a hard test since
need all the facts [Ex. P. $1 for a Porsche; Even P. $2k if continue to work could be a mere pretense if
not serious about work continuation]
4. Illusory promises: sounds like a promise has been made, but really hasn’t [Form of promise, but not
substance of one]
a. Levels
i. Unrestricted termination clause makes K illusory : no consideration b/c party w/ right to
terminate is not bound; “at any time” or “for no reason at all” sure signs of no
consideration
1. [Strong v Sheffield: no consideration since did not specify a forbearance length
“completely unfettered”. Even though did get a forebearance, never got any
assurance of one. Consideration is to be tested by agreement, not what was
done under it] [Could have been a valid unilateral K ??]
ii. Restricted termination clause – doesn’t necessarily render K illusory [either includes a
notice before termination or doesn’t include terms such as “at any time” or “for any
reason”
iii. Satisfaction Clause – doesn’t necessarily render a K illusory (Satisfaction could be
equated to “good faith” (subjective) or reasonable person strd) (objective), therefore has
substance and isn’t illusory]
1. Mattai: promised to buy land if could satisfactorily find buyers – court used
subjective test here and upheld K
iv. Requirements/Output Clause – doesn’t necessarily render a K illusory [They are valid if
requirements can be objectively determined to be reasonable]
1. Eastern court determined the term require to mean “require in good faith”,
therefore, not illusory since, although not specifically specified, “require in good
faith” could be determined as reasonable
b. RSC §77 : a promise or apparent promise is not consideration by its terms, the promisor or
purported promisor reserves a choice of alternative performance
5. Gratuitous promise – promise made w/o consideration [Many of above entail a gratuitous promise]
6. Conditional gratuitous promise not consideration [but fine line exists] (if you go around the corner, I’ll
buy you an overcoat – no inducement because P’rs motive is not to get tramp to go around the corner. If
could snap fingers and get him a coat, just as well)
a. “If…then” not good way to distinguish between contracts & gifts

REWARDS:
1. By RSC §71(2) : if one does not know of reward, not induced by it = no consideration. If knew of reward,
then induced by it so consideration.
a. As long as know of reward but have another motive, court will presume partially taking
advantage of it, so consideration

Can the court interpret a contract’s language? YES [Substance v. Form; Aids in autonomy, right to contract]
1. Court can Imply in fact a contract and enforce what was implied and not written into contract. Language
must always be interpreted. “A promise may be lacking, and yet the whole writing may be instinct with
obligation” [Cardozo in Lucy]
a. Ex. Lucy contract is upheld since Lucy bound by Ps “good faith, reasonable efforts” to sell,
although not said in so many words, is implied
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At-Will E’e Contracts: Amount to an unrestricted termination/illusory promise since can terminate/quit “at
any time”
1. Consideration for a RC as part of work can be valid if:
a. For promotion
b. Before hired as part of deal
c. For a guaranteed amount of employment time
d. Bjerre disagrees with this but CAB said After started work AND Actual continuation of
employment [Not valid since still made w/ less bargaining power, not a free exchange] – even
though had “substantial” employment, turning a bi-lat into a uni-lat K, still iffy, contradicts
Strong v Sheffield. HOWEVER, could have succeeded under PE
2. E’e bound to handbook terms even if unbargained for, giving after hire, may not have read/received it
[Policy: continued performance of duties = acceptance and necessary consideration w/ bank getting more
stable/productive work-force] [Some courts say this]
3. E’r can’t unilaterally change/modify terms to reduce E’e rights w/o providing consideration [Some courts
say this]
PE & Quasi K

General:
1. Only applies if K/promise lacks consideration making it invalid
2. Central element of K = consideration
a. PE like detriment to P’e w/o bargain
b. Quasi-K like benefit to P’r w/o bargain

Sometimes society deems it necessary to enforce “gratuitous promises”: Must ask:

1. Society better off when an exchange happens
2. Exchange is voluntary assurance that one is getting what they want
a. Whole mechanism missing with GPs – does not lead to a bettering of society

PROMISSORY ESTOPPEL

Definition: The basic fcn is to make a K enforceable if:

1. Promise is made w/o consideration
2. Reliance on the promise [Reliance doesn’t = consideration but this doctrine will preclude an individual
from not claiming consideration]
3. RST §90 PE binding when:
a. P’r should “reasonably expect” [or reasonably foresee] [objective] promise to induce action or
forbearance from P’e [or 3rd person]; AND
b. Which does induce such action or forbearance [P’e “relies” on promise]; AND
c. Injustice only avoided by enforcement of promise. [Detriment]
d. [Limited may be granted as justice requires]

When can get PE?

1. If relying on promise leaves you worse off [Ricketts: grandpa promised niece $2k gratuitously, she quits
relying on money : PE upholds this]
2. If rely on promise and condition changes during time of reliance [Feinberg: they gave her pension “gift”
for life. At first, she quit on own, but over time she got older and sicker]
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a. Hypo: Probably couldn’t get PE if P discussed quitting for 7 months prior since was not planning
on “relying” on money. Could argue changed mind about retiring before promise, but still tough
case.
3. No PE if fail “reasonable” test [Alden v Presley: executor disavowed promise so no longer foreseeable
that she should still rely on it. (Gift to pay off house if get divorced)]
4. Family Promises
5. Promises to Convey Land: Promise to convey land on which P’e relied by moving onto the land and
making improvements
6. Charitable subscriptions: possible to enforce a promise by finding an exchange amount among
subscribers for benefit of (and enforceable by) the charitable organization; or by finding the charity had
to do something in exchange for the subscriber’s promise
a. RST §90 RD2 : charitable subscriptions don’t require that promise induce reliance Policy: society
has deemed it important to encourage charitable contributions

QUASI-CONTRACT
Other names:
1. Restitution : means you got something and so you need to give something back of value in order to avoid
injustice
These 3 all mean same:
2. Constructive Contract
3. Contract implied-in-law
4. Quantum meruit

Definition: “IMPLIED BY LAW” K is not based on the intent of parties, imposes an implied promise based
on what most people would want. Its a “legal fiction”
1. Use to avoid unjust enrichment
2. Based on what reasonable person would want done
3. Different then taking K and to “IMPLY IN FACT” what the parties intended
a. “K or promise implied by law…very different [then] contract in fact, whether express or implicit.
A K implied by law rests on NO EVIDENCE. It has no actual existence”

Elements:
1. D was enriched; AND
2. Unjust to keep that benefit w/o paying for it.
3. [No requirement a promise has been made]
4. [Need to determine what does it mean to have injustice? When is there injustice?]

Who deserves claim?

1. Officious intermeddler: NO [midnight house-painter]
2. Volunteer: Gratuitous act so NO
3. Deserving Claimant: that is not just unjust for D to retain
a. Professional are not presumed to be acting gratuitously to create an incentive for them to offer
their services
i. Ex. MD helping unconscious person = implied contract since reasonable to assume would
have wanted service performed had been conscious
b. Non-Pros are presumed to be acting gratuitously, UNLESS
i. Extended period of time
ii. Very burdensome (Mills v Wyman could be a quasi-K [son got ill, father later said would
pay for services and didn’t)
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Limits:
1. Quasi-K should not be used as a way around a K supported by consideration that was actually made [i.e.
to make up for no performance, dissatisfaction, etc. on actual K]
a. Can’t let Quasi-K run “wild” or would undermine actual Ks
2. If governs same subject matter, express K overrides recognition of an implied-in-K contract
3. Exhausted all remedies against party which contracted [and Bankruptcy as well]
a. MAJ: Tough luck [risk of bness, could have demanded money earlier] -- would need to weigh
these factors against court intervention/power of quasi-k [Bjerre likes this]
b. MIN: If still has not received reasonable value for service, may be able to recover from 3rd party
after has exhausted all other remedies against person with whom contracted [Ex. A contracts w/ B
to provide service to C : A goes after C cause didn’t get paid from a bankrupt B] [Subrogation]
c. Factors to Weigh
i. How much govt. intervention do we want
ii. How much power quasi-K should have
d. Hypo based on (Callano: D gets shrubs at house for free)
i. What if no money left in estate so resources “exhausted” would court reach different
conclusion?
1. Bjerre says no based on court’s dicta [argue either way]
4. Generally presumption that married people act gratuitously [outside of contract law] but can have
exceptions:
a. When evidence of person’s expectation of compensation AND extraordinary/ unilateral effort by
one spouse benefits other spouse, then restitution appropriate (Pyeatte: Put through law school
case, agreed P goes school next but K too indefinite)
b. Unmarried couples may have chance at restitution

“BARGAINING PROCESS”

The nature of assent: 2 theories

1. Objective: literal interpretation of K excluding actual “intent” of P’r and P’e [reasonable person standard]
a. Preferred by modern courts since reliable
b. Some courts still will take some subjective elements into account [objective standard = floor not a
ceiling]
i. Ex. If person has x-tra actual knowledge, court will take into account
c. Person can’t say was merely jesting if his conduct/words warrant a reasonable person to believe
he intended a real agreement [Undisclosed intention’s immaterial] [Lucy sold farm when drunk] –
remember x-tra, subjective knowledge can still be taken into account
2. Subjective: looks beyond Ks language to determine “intent” of P’r and P’e [“meeting of the minds”
standard]

Intent to be bound: [not intent to make exchange like in consideration]

Negotiation: Do Both parties Intend to be Bound?
1. Types of contracts:
a. Type I : “agreement” on all terms of K and want to formalize in writing – both sides bound
b. Type II: “commitment” on certain terms but still leaves open for good faith negotiations.
Commitment to negotiate in good faith
i. Good faith breached when using trickery, etc.
2. Rule: Agreements to negotiate in good faith are enforceable if: [Note: only assures good faith
negotiations, not successful negotiations]
a. Whether both parties manifested an intention to be bound by agreement?
b. Whether terms of agreement are sufficiently definite to be enforced?
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c. Whether there is consideration?

3. Court reluctant to enforce since reasonable person would not expect parties to be bound:
a. Optimistic statements by MDs to patients
b. Statements between intimates for social purpose
i. Not binding since lacks contractual intent to be bound [rely on each other’s good will]
ii. Ex.
1. No recovery for broken wedding reception plans
2. No recovery for injuries resulting from crash heading to a hunting trip since P =
“guest”
4. Should weigh:
a. Freedom to contract: make K’ing available to those who’ll take pains to clarify idesas as to what
they want K about
b. Freedom from contract: no make K’ing so easy as to hook unwary signer or causual promisor

Gentlemen’s Agreements:
Comes up in “letter of intent” situations
• Best idea: MAKE intent clear! “Parties don’t intend to be bound by K”
• Keeps K law out of agreement/negotiations
• Gives parties some certainty

Formal K Contemplated
What if parties agree on essential details but leave details to be worked out for a K they are both expecting to
sign. What if one party then refuses to sign?
1. CL has 2 widely accepted principles:
a. Absent an expressed intent that no K shall exist, mutual assent [even oral/informal] to exchange
acts/promises is sufficient to create a binding K
b. To avoid obligation of a binding K, at least one party must express intention not to be bound until
a writing is excuted
2. Is written/oral terms binding?
a. Depends on what the parties intended [what would reasonable person think]
b. Factors to consider:
i. Did one party reserve right not to be bound?
ii. Any partial performance of K?
iii. All terms of alleged K were agreed upon?
iv. Is agreement at issue the type of K usually committed to in writing?
v. Detail level of agreement

OFFER

General:
1. Confers power on another to make a K
2. Offer is a voluntary proposal of an exchange; Offeror = master of offer. Offeree has power to accept.
Acceptance creates a K
3. O’r has power to:
a. Specify offer
b. Usually specify what constitutes acceptance – can be as narrow as they want
c. Can choose if it’s a Unilateral or Bilateral K
4. RSC §24 : Offer defined: “An offer is the manifestation of willinginess to enter into a bargain, so made
as to justify another person in understanding that his assent to that bargain is invalid and will conclude it”
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5. Things looking at:
a. will basically be looking at utterances to decide if they are offers
b. will try to decide if an offeror is proposing an exchange; is this a proposal for an intent to be
bound in a legally binding exchange? [reasonable person standard]
c. What offeree reasonably understands is important

Factors to evaluate whether is/isn’t an offer:

1. How people estimate
2. It would not “be possible”
3. Not specify who to sell to
4. How real estate deals work
5. Absence of detail [General language may not be offer]
6. Absence of specified quantity
a. Generally, Mere Price Quote does not equal an offer, the absence of quantity specification is a
very important circumstance that usually declares no offer
7. Reasonable expectation created?
a. Was there a promise, undertaking, or commitment to K?
i. Look beyond the language since no magic words or wooden tests [Owen: no reasonable
person thought that there was an offer]
1. Use of word “quote” does not automatically make it mere price quote
ii. More likely to be beyond mere price quote if made in response to an inquiry about cost
and specifies time/quantity limits [Fairmount Glass Works]
b. Was there Certainty and definiteness in the essential terms? (However, open terms in Ks don’t
render Ks unenforceable per se)
c. Was the offer communicated to the offeree?
8. Offer can only be accepted by party invited to furnish consideration
9. Oral agreements are enforceable
10. Offers can be limited by conditions
11. Mistake: Offeror not bound if the offeree knew or should have known of the offeror’s mistake at the
time of acceptance
12. If contractor asks for bids from sub-contractors, usually construed as the sub-contractor’s making the
offer [contractor not obligated to take highest bid]

Advertisements and relationship to offers

1. General rule, ads not offers, but rather an invitation by seller to buyer to a an offer to purchase
2. If ad is clear, definite, explicit and leaves nothing to negotiation, it could be an offer
a. “First come first served” in one ad was held as an offer
3. Rule prevents problems w/ demand if ads were considered an offer
4. Consumer Protection against False Advertising
a. Federal: FTC Act declares “unfair or deceptive practices unlawful”
b. State: many have similar protection
5. Directness to certain person still doesn’t mean offer – look at all the circumstances
6. Online proposals to sell goods more likely to be treated as offers than printed ads

Acceptance

General: Taking advantage of the offer. Using power given by O’r to make a K. Once an acceptance is made,
then both parties are bound.
1. Once O’e accepts offer, it firms up exchange
2. If close calls; courts usually default to no offer – don’t want to push people into Ks
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Notice & Acceptance: Acceptances need to be communicated to O’r EXCEPT when it is inferred that O’r
does not need communication [express or implied]
1. Notice needed unless O’r dispenses w/ it [express or impliedly]
a. If notice dispensed w/ by O’r then performance is sufficient for acceptance
b. Ex. Carbolic : accept offer of getting sick was meant to be implied or would have gotten 1000’s
of useless postcards
2. Bilateral K,
a. Acceptance: return promise given, then return promise is binding
b. Notice required [Policy: acceptance = communicative act and need to specify their obligations]
3. Unilateral
c. Acceptance: performance
d. Notice: no notice required unless performance not evident

What is not acceptance?

1. Mere doing of act does not guarantee acceptance
a. Policy: We want people to know if they are in a K
2. Silence [could be ok if agreed to by parties or if past actions indicated this was acceptable]
3. Made by person not designated by O’r
4. Changing the terms [counter-offer]
5. Not notified O’r “in some reasonable time”

Termination of the Power of Acceptance

Offers can be terminated by the parties or by law

Types:
1. Lapse of the offer, OR
a. Expiration of offer’s acceptance period
i. Offer lasts as long as O’r wants
ii. If no time, lapses after reasonable time under circumstances
2. Revocation, OR
a. CL: offer freely revocable before accepted when offer made w/o consideration [if had
consideration, would be an option K]
b. Revocation must be communicated to O’e or reasonable steps taken to do so
i. O’r can revoke a general offer in same way made general offer known, don’t need to tell
every person about it
c. If revocation happens between offer/acceptance, power of acceptance is revoked [does not matter
if O’e received info directly or indirectly]
i. RSC 43: O’es power to accept terminated if O’e indirectly learns that O’r has taken
definite action inconsistent w/ an intention to enter into proposed K
d. Iffy language will be interpreted as revocation [benefit of doubt to O’r since don’t want to force
people into Ks]
e. Revocation generally held to be effective when received [§42]
f. EXCEPTION: “Firm Offer” or Option K [Irrevocable Ks for a time]
3. O’r death or incapacity, OR
a. Rule generally holds regardless of whether o’e learns of it
b. Same rule is true for O’e
c. EXCEPTION: doesn’t terminate o’es power of acceptance under an option K [Policy: O’e gave
some sort of consideration to get time]
4. O’e rejection
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a. Act by O’e which puts an end to an ordinary offer [O’e can’t then go back and accept]
i. Words/conduct of o’r must be sufficient for reasonable person to interpret as a revocation
b. Counter-offer (changing offer not acceptance – it’s a counter-offer BECAUSE OF MIRROR
IMAGE RULE
5. Destruction of subject matter or illegality could lead court to terminate offer

MIRROR IMAGE RULE: O’e has agreed to exactly what is offered

1. CL insists acceptance must be on terms proposed by offer w/o slightest variation. Anything else is
rejection of original offer and acts as a counter-offer
2. Exceptions:
a. If sent a reply said neither accepting/rejecting just merely inquiring what is price at another
unspecified quantity [No rejection/counter-offer since made clear]
b. What if said “would you consider X quantity for Y price” – still might not be rejection
c. If say considering offer for higher quantity, but also counter-offers lower quantity : Here, could
negate counter, but original still on the table
3. Mitigations to rule:
a. Implied Term: additional or different term in the acceptance only a clarification of meaning of
original offer
b. Precatory Acceptance: acceptance of o’r terms w/ an additional offer to modify original K
4. If a dispute: party how sent the last form before performance began usually prevailed

MAIL-BOX RULE:
1. Acceptance/Rejection:
a. Assumes that dispatch of acceptance is crucial point at which K is made – after which O’r power
to revoke is terminated, O’es power to reject has ended, and risk of transmission are on the O’r
b. Once dispatched, too late to change mind
c. Policy: puts burden on O’r to rely on revocation in mail and if received before O’e mailed so will
keep O’r from selling goods to others in interim
2. Revocation
a. Ineffective if received after an acceptance has been properly dispatched
b. Generally held to be effective on receipt only, not on dispatch [See §42]
c. Policy:
i. Risk of transmission on O’r; Makes O’rs duty of performance conditional upon receipt of
the acceptance
ii. Disadvantages to receipt rule: while letter is in transit, O’e is free to watch the market &
speculate while O’r is unable to revoke
3. Option Ks : EXCEPTION : Acceptance under an Option K is not operative until received by O’r
4. Electronic Medium: RSC §64
a. Telephone or any instantaneous 2-way medium = like done in presence of person
b. Email: effective when “received” even if no-one aware of it – so when system receives it
5. RSC §40: Time when rejection or counter-offer terminates the power of acceptance. Rejection or
counter-offer by mail or telegram doesn’t terminate the power of acceptance until received by the offer,
but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise
effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the O’r
before he receives the rejection or counter-offer.
a. Note: If O’e 1st decides to reject/counter-offer and mails, but then decides to accept the original
offer and sends notice of acceptance – what happens depends on what gets there 1st. If acceptance
does, then original offer accepted, if rejection/counter offer does, then acceptance becomes
counter-offer
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OPTION Ks : promise made by O’r that effectively limits the O’r power to revoke
1. Options can be created by:
a. Consideration [mere peppercorn can be consideration]
b. Firm offers
c. Reliance by O’e
2. Rejection: doubtful that holder of a power to accept under an option K puts an end to it by rejecting the
“offer” if still within time limits since they have consideration
3. One promise can be consideration for multiple other promises

PRECONTRACTUAL LIABILITY : no party safe by relying on prospect of a contract, but could incur
liability before K formed in some circumstances

R. § 87: Option Contract:

(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer
(PEPPERCORN DOESN’T APPLY HERE), and proposes an exchange on fair terms within a reasonable
time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance and which does induce such action
or forbearance is binding as an option contract to the extent necessary to avoid injustice.

A court has some discretion in determining circumstances of whether there has been an acceptance in
borderline cases to protect the reliant party. A party whose reliance has conferred a benefit on the other may
have a claim to restitution to prevent unjust enrichment even though no contract has resulted.

§45 of Restatement:

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or
tenders a beginning of it
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or
tender of the invited performance in accordance with the terms of the offer.
(partial performance becomes consideration for an option contract—completion of terms of offer =
acceptance)
Unilateral Ks allow partial performance; bilateral Ks don’t
Offer for exchange NOT meant to become a promise [Can’t use PE w/ offers]

[??? Review this] Drennan combines elements of 45 [partial performance] & 90 [PE] to create what later
becomes 87(2) [offer causing reliance becomes an option K]
1. Think about 87(2) v 45? Overlap?
2. What’s the relationship between consideration & reliance?

Requirement of Definiteness

Definition: Contract too indefinite will not be enforced. FCNS:

1. For court to determine if K broken, it must 1st know w/ sufficient specificity just what the K terms are
2. Implicit in principle is P’es expectation interest is to be protected
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3. In calculating damages, must know scope of promise to put person in same position in absence of a
breach

Courts will first interpret a K before concluding its too indefinite. Will look at:
1. Prelim. negotiations / prior communications
2. External sources like trade regs
3. Trade usages
4. Reference to prior history between parties
5. Implied terms supplied by law – “reasonable efforts” = sufficiently definite if content can be determined
by some external standard
6. It is enough if K provides means of making its terms sufficiently definite by time performance is called
for such as:
a. Output & requirement Ks (Eastern Airlines; Lady Duff)
b. Prevailing rate (in Toys)

Why be imprecise?
1. Too lazy to take time: prefer to rely on terms that court will supply if dispute arises
2. Reluctant to raise difficult issues for fear of losing deal
3. Don’t foresee problem
4. Prefer not to disclose info. they feel will give other party advantage

Note: Court will rarely find indefiniteness as sole reason to not enforce K. Even if finds indefiniteness
unreasonable and K unenforceable P may still be entitled to recover under PE or Quasi-K theory for
RESTITUTION [party who has performed under an agreement that is unenforceable for definiteness is
entitled to restitution [Ex. Pyeatte: wife pays for law school – K indefinite but still allowed Restitution under
Quasi-K theory]

Relational K/Complete Contingent – common in employment Ks between business who deal w/ one another
regularly – when all relevant risks can’t be assigned optimally due to unknown future contingencies (Eg
output K) – allows for more indefiniteness

Restatement § 33 Certainty:
(1) Even though a manifestation of intent is intended to be understood as an offer, it cannot be accepted
so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of
a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as an acceptance.

Statute of Frauds
Definition: Makes certain Ks unenforceable because they are ORAL, but general rule is that oral Ks are
enforceable [Controversial: many legislatures have enacted but many courts have blocked their enforcement].
Idea is to protect Ds against fraudulent promises never made. However, doesn’t protect against a fraudulent
D.

What Ks are required to be written?

1. Suretyship: has to do w/ paying debts
2. An agreement not to be performed within one year from making of it
3. Sale of/interests in real estate : [Lucy: scrawling on paper napkin ok for written]
a. Are leases covered? CA says if longer than one year, then need to be in writing
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POSSIBLE
4. Omission of material term [like price] for a sale-of-goods MAY be disqualify it

Important to remember about signatures and documentation:

1. Only ESSENTIAL terms need to be in writing
2. Does not to have to be formal [can be a letter, napkin] and could be oral first, then written down
3. Can be a “one way street” [Enforceable in only one direction]: K is enforceable when signed by the
party to be charged. Therefore, only needs to be signed by D, not P
a. Rationale: Trying to make sure no fraud by D, don’t need Ps signature for this
b. Good policy for both to sign though
4. Though writing & signing a set of promises is powerful evidence of the making of an agreement, it isn’t
conclusive. “The fact that parties have EXPRESSED an agreement in a signed writing is no assurance
that they have CONTRACTED about the matter” – Agreement must still be enforceable

How have courts minimized their impact?

1. Partial performance doctrine
2. Monarco v Lo Greco. 2 ways to overcome Statute of Frauds
a. Unjust enrichment (Quasi-K); OR
b. Unconscionable injury/detrimental reliance (PE)
3. RSC §139 – PE can overcome Statute of Frauds if injustice can only be avoided by enforcement of the
promise [RSC says to look at: availability/adequacy of other remedies, definite/substantial character of
action/forbearance; extent action/forbearance shows evidence of making & terms of promise [or if terms
established by other clear/convincing evidence; reasonableness of action/forbearance; P’rs foreseeability
of action/forbearance]

ELECTRONIC SIGNATURES: St. of Frauds could really hammer this so legislature made statute saying
that e-signatures will suffice
1. E-Sig in Global and National Commerce Act (15 USC 7001):
a. 101(a)(1) : E sig treated like any other sig
b. 101(a)(2): Fact a signature is E shouldn’t be used to deny its legal effect [goes right at statue of
frauds]
2. Definitions:
a. E Record: K or other record created, generated, sent, communicated, received or stored by E
means
b. E Sig: An E sound, symbol or process, attached to or logically associated w/ a K or other record
and executed or adopted by a person w/ intent to sign the record
i. Ex. Clicking “I agree” = going through a process so = a sig.

FORM V SUBSTANCE check-up : Generally, courts moving towards substance over form [sometimes will
ignore form if there is enough substance]
1. Consideration: Promise you care for $1
a. Form = exchange under old law; Modern courts look to substance and says this is a gift
2. Statute of Frauds = Erosion is part of shift
3. Form not completely worthless [Note consideration serves these same 3 Fcns]
a. Evidentiary Fcn: writing a form of evidence of existence of a K
b. Cautionary Fcn: brings a seriousness to K
c. Channeling Fcn: channels K into enforceability or non-enforceability [Makes enforceability more
straight-forward. Let’s parties know a contract has been made and can rely on this]
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POLICING THE BARGAIN

Definition: Deals w/ bargaining abuses. Although a K may meet formal requirements for enforceability, such
as assent, consideration and compliance w/ statutes of fraud, there are cases where the law may nonetheless
refuse to enforce the bargain

Main types:
1. Status of parties – disqualifies certain classes of people from committing themselves to a K
a. Historically: Minors, married women, mentally infirm
2. Behavior of parties – how they bargained in fact
3. Substance of bargain – courts can enforce highly unequal deals, but courts have found ways to disfavor
particularly lopsided deals

Court’s tools:
1. Conventional controls
2. Rescission for fraud
3. Unconscionability
4. Strict construction of harsh terms

Policy reasons for doing this:

1. Courts not paymaster to thieves
2. Won’t increase value to recipients
3. K adversely impacts society as a whole – “public policy” considerations
4. Keeps w/ general substance over form theme

I. STATUS

CAPACITY: Deals w/ those how have less than full power to contract. Lack of capacity is both a benefit and
burden to this class of people.
1. Minor/infancy: [Called: Contract is Voidable by Infant] General rule is K of minor [usually 18 or 21],
other than for necessaries, can disaffirm/AVOID at his option. So K is voidable/not void by minor, not
by adult whom contracted with.
a. Applies to emancipated/unemancipated
b. Minor can disaffirm within reasonable time after reaching majority age [ability could be lost
through parental consent]
c. Restitution after disaffirmance, minor can:
i. Goods: get restitution of payments already made on goods but must return goods
ii. Services: Split: Some Jx say service provider screwed; others feel minor should not be
allowed to be put in a superior position
d. EXCEPTIONS:
i. Statutory or Ks that deal w/ duties of imposed law (like marriage)
ii. Necessaries: like buying food
e. Rational:
i. Doctrine, no matter how unreasonable, protects minors against bad judgment and being
taken advantage of [Even if child lies of age, court would argue he doesn’t know the
ramification of his lies – others do allow deceit]
ii. Court doesn like K but feels there needs to be bright line rule
f. Burden: Puts burden on those considered “infants” but that are not children since may not be able
to contract
g. What else could legislature do?
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i. Allow parties to submit proposed K to court removing infant’s disaffirmance
ii. Establish a rebuttable presumption of incapacity replacing strict rul
iii. Statutory procedure allowing minors to petition a court for removal of disabilities
2. Elderly: some statutes popping up to protect elderly (generally over 60) against deceit
3. Mental Infirmity – If don’t have mental ability [cognition] to understand a Tx, then K is avoidable [even
if have the volition]
a. Differs from “actually” understanding K (not avoidable) from “ability” to (avoidable)
4. Intoxication Person: Only offsets K if so drunk as to have drowned reason, memory,
judgment…rendering party incompetent (Martin v Harsh)
5. Married Women: used to be considered tied to man, but not anymore

II. BEHAVIOR OF PARTIES

Overreaching – Conventional Controls. Courts have traditionally been insistent that no advantage should be
gained through gross unfairness in the process of bargaining. Focus is on: Duress, Fraud & Mistake

1. Generally: To recover monies paid in duress, must act promptly in making claim EXCEPT if to do right
away creates fear stoppage/delay
2. Duress: impermissible pressure/wrongful threat precluding free will exerted by one party over another
either during the initial bargaining or during attempted renegotiation
3. Physical Duress: “I’ll kill you unless you sign”
4. “Economic Duress” or “Business Compulsion” – Improper threat coupled w/ a lack of reasonable
alternative
a. What constitutes economic duress
i. Y
1. Immediate possession of goods is threatened ; OR
2. If one party to K threatened breach of agreement by withholding goods unless
other party agrees to some further demand
3. No reasonable alternative
ii. N
1. mere threat
a. However, threat to immediately stop delivery construed as depriving D of
free will [Austin Instrument]
2. Threatened party can obtain goods from another supplier; AND ordinary breach
remedies not adequate
b. Improper threat need not be illegal is standard not rule, could be a breach of a pre-existing
condition
i. KEY: Whether or not threat is improper because it was not made for a Legitimate
Commercial Reason
ii. Remember HALE. Separate threats from improper threats – coercion can’t be used to
distinguish 2
c. K is not void per se, but voidable by coerced party
d. Narrowly construed or it would threaten many Ks

PRE-EXISTING DUTY RULE: designed to protect against duress

If both parties RESCIND – as though they create a new K to dissolve old K – resolves both of a preexisting
duty.
1. Pure formalism looks to create consideration for 2nd K [looks for any consideration for new
undertaking, no matter how insignificant like a horse, hawk or robe]; in reality all, in substance, that
is happening is that P gets more money to do same actions under old K
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2. Modern trend is toward recognition of promises whose legitimacy the strict consideration doctrine
has placed in doubt, so long as the sincerity of the obligation is clear and the commitment is freely
made [not under duress when modified], rather than if had consideration to modify and create a 2nd
K

Summary comparison of Pre-Existing Duty Rule v. Economic Duress Standard:

1. Pre-existing duty rule is traditional way of resolving injustice relying on consideration – this rule is dying
2. Economic Duress standard: modern standard replacing pre-existing rule – by getting at the same issue,
not through consideration but whether “improper threat” and “no reasonable alternative”
3. Standard: flexible but unpredictable

RSC §89 : Modification of Executory K

A promise modifying a duty under a K not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties
when the K was made; or
(b) to the extent provided by statue; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on
the promise

CONCEALMENT and MISREPRESENTATION

Overall, no duty imposed on 1 party to tell other party any info. However, if he does speak w/ reference to a
specific point, voluntarily or at other’s request, he is bound to be honest and divulge all material facts

Nondisclosure: traditional rule is that this is not a ground on which to void a K.

1. Policy:
a. Serves as an incentive for buyers to become knowledgeable.
b. Promotes specializing – gaining advantage off special knowledge
2. Ex. House has termites but don’t tell a house buyer about it; K? NO; (Kannavos: house used for apts. If
D made NO reference to house as apt. [wholly silent], then no duty to disclose

Misrepresentation: subset of tortious fraud

1. Elements:
a. Misstatement of
b. Material Fact – Pretty important fact
c. Reasonable relied on by other party – not a license to be foolish so if rely on a completely
unreasonable offer, may not be void
d. [Knowledge of doing this] TORT ELEMENT
e. [Intent to mislead] TORT ELEMENT
2. As a rule, party to contract may avoid it even if other party obtained its assent by an innocent
misrepresentation
3. What misstatements may constitute a misrep?
a. ½ truths. Need to weigh
b. Omissions. Need to weigh
c. Not correct a prior statement [if facts change from a prior statement, compelled to say it]
d. Confidential relationship: has to do w/ trust when one party expecting other to give full disclosure
to other – 99% disclosure here may be treated as misstatement
e. Information available to public/lack of due diligence could influence court, but still can recover if
reliance on fraudulent representation
f. Presence of lawyer could influence court
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g. Fragmentary info may be as misleading as active misrep
h. Deception needn’t be direct
4. What if made after signing? Jx divided. One says can’t stamp an affirmative misrep., even after signing
an executory K when elements of fraud are present
5. Example:
a. If asked if there are termites and say “no”, void K? YES
b. If seller in a K signs off there are no termites and he knows there are, void K? YES

III. SUBSTANCE OF THE BARGAIN

Contracts of Adhesion: Boilerplate Ks. Take it or leave it K presented to many others.

They are, generally:

1. Enforceable
2. Lack negotiation, understanding when one accepts them

Other features:
1. Rules are same as other contracts w/ crucial difference that they are not consented to
2. Contingent terms: term doesn’t matter except in rare circumstance. Most people, therefore, don’t worry
about [Ie. Choice of forum clause]
3. Unilateral modification: one side has right to modify K, as long as done in good faith
4. Court less likely to enforce if given after receipt of stub [except car rental agreements, etc. say otherwise]
5. K needs to give people adequate notice, or there is no intent by P to be bound
6. Medium used to convey a contract of adhesion makes no difference
7. Although there is a duty to read K [irrelevant if have K or not], RSC §211(3) provides somewhat of an
exception for Ks of Adhesion – if there are provisions in K which a reasonable person wouldn’t expect to
be there, then particular provision won’t be enforced
a. Rest of K is enforceable
b. Is a common-sense safe-guard

Standard Form Contracts –Restatement §211—This § is inconsistently applied:

(1) Except as stated in sub (3), where a party to an agreement signs or otherwise manifests assent to a writing
and has reason to believe that like writings are regularly used to embody terms of agreements of the same
type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, w/o regard
to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he
knew that the writing contained a particular term, the term is not part of the agreement.

Benefits:
1. Allows cheaper Ks
2. Once you get form together, all subsequent use of K is free
3. Ultimately, benefits end-users since price savings is passed
4. Adv. of lessons/experience and enables a judicial interpretation of one K to serve as interpretation of all
Ks
5. reduces uncertainty
6. saves time and trouble
7. simplifies planning and administration
8. makes risks calculable
9. increases security when taking foreseeable risks
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10. Robust economy
11. Greatest good for greatest # of people

Problems
1. Libertarian: can infringe on our liberty
2. People don’t read them
3. May be a means for one party to impose their will on other
4. One party is a “repeat player” & that gives that party an unfair advantage
5. Unequal bargaining power between parties
6. Person has no choice over terms
7. Timing problem: Ex. May want to rent car, then get handed K terms AFTER have already paid and
gotten keys

Theory from Status to K ; K to Status

Overall: ability to bargain for K gives you power to raise status, but modern trends encompassing lack of
bargaining power have effect of reducing power to K. Therefore, even though there are more Ks in existence,
less and less bargaining power
Side 1: Pg 369
Side 2: Kessler, we are not free under Ks of Adhesion.

What to query? Reasonable person under all circumstances

What if something is objectionable? Try for §211(3)
What if something is missing? Doctrine of Reasonable Expectation: if reasonable person would reasonably
expect something to be in K, but its not, then court to include it. Generally found in insurance Ks. [Example:
For home fire insurance: garage not included for fire. Would reasonable person expect it to be?] Bjeree feels
its a growth area – will extend beyond insurance Ks in future

Examples:
1. Parcel stub not K since main function is for getting bag back [film stub would probably be same thing]
2. Signs on wall: clothes left at dry cleaners 30 days will be thrown at? Reasonable person test
3. For insurance: usually goes in favor of insured
a. Doctrine of reasonable excpectations: when insurance sold in circumstances that discourage
detailed inquiries, reasonable expectations of the buyer should be honored even though policy
terms don’t support them

PUBLIC POLICY:
Concerned w/ the protection of the public at large against the imposition by BOTH parties of K. Times when
K law and all other law come into conflict. [Affects Quasi-K; PE and Ks enforceability]

Overall, How are contracts affected by outside/PP?

Normall, we either enforce a K or we don’t, so this is unusual since parties make the rules in a K. PP is a
reason outside of K law to invalidate a K. No general rule to follow.

When will courts refuse to enforce an agreement, fairly/freely entered by both parties because will
contravene “public policy”?
1. Illegal Ks: Ks that violate specific law: court won’t force an agreement to do what law explicitly
prohibits [Like a K to do a hit]
2. Activities closely related to illegal acts: (Ex. Can’t K to split spoils of a robbery. Usually not enforceable
unless legislature has specifically sanctioned enforceability)
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3. Gambling: CL says gambling illegal, so only statutes making certain aspects of it are enforceable. If no
carve-out, not enforceable
4. Covenants not to compete: must be [MAJ] reasonable under circumstances (industry/time/geography). If
K is deliberately unreasonable, oppressive, or overreaching, covenant would be invalid.
5. Restraints on alienation (alienation: to sell, give away, or transfer items to another)
6. Surrogacy Ks – Baby M case. Best interest of child primarily
7. Usury (charging more interests on loans then law permits). Generally statutes in each state set a
maximum interest rate and anything over that is usurious (good K writing – if have a high interest rate,
add a clause to state that if the state rate is usurious, will fall back on max the state will allow)
8. Prenuptial agreements [if have offer/acceptance/consideration courts will uphold]
a. Prenups/alimony as matter of PP weren’t enforceable
b. Current, under regular K law and ok if
i. Made reasonable provision/good deal for spouse OR
ii. Entered after full/fair disclosure of general financial positions
c. Paternalism: law protecting people from their own actions. Whole concept is contrary to
AUTONOMY [foundation of contract law] – parties know best what they need/want
d. Simeone court against bi. Since based on paternalism, not K law so says only ii, like normal, is
test for a valid K
e. Threat of “sign this or I won’t marry you” is not the kind of threat we protect under Duress
doctrine

For bad K clause, court has 3 choices:

1. “All or nothing rule” : [old rule] court either enforces K as written or rejects altogether [trend is away
from this]
2. Blue pencil: modify to extent that a grammatically meaningful reasonable restriction remains
a. Pro: simple, prevents court from re-write
b. Con: K still fails if offending provision can’t be stricken; form over substance
3. Rule of reasonableness: unless circumstances indicate bad faith from E’r, court will enforce covenants
not to compete to the extent that they are reasonably necessary to protect E’rs interest w/o imposing
hardship on E’e
a. Pro: Acknowledges reality that courts are interpreting the K
b. Con: Courts usually don’t like to make Ks [will do especially for non-compete clauses]
4. HOWEVER, if reasonable evidence that K is unreasonable and oppressive, then covenant is invalid

UNCONSCIONABILITY
Principle one of prevention of oppression & unfair surprise and not of disturbance of the allocation of risks
because of superior bargaining power

“Shocks the conscience”, rarely used, usually inequity of bargaining power.

1. Uncon = Absence of meaningful choice by one party [procedural] & K terms which are unreasonably
favorable to the other party [substantive] [Watkins: lady buys items, but doesn’t own 1 till owns them all]
a. Meaningfulness of choice can be negated by inequality of bargaining power
b. Manner which K entered relevant [“reasonable opportunity” to understand terms, or important
terms hidden?]
c. Test: whether terms are so extreme as to appear unconscionable according to the mores and bness
practice of the time and place?
2. Very fact-specific inquiry and no general rules
3. Some equality Ok, it is gross equality that court’s don’t like
4. Usually both substantive and procedural uncon must be met in order to prove uncon
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a. Substantive element alone in some Jx may be sufficient. Uncon [Gateway: computer mediation
term unreaonable]
5. Unequal bargaining power don’t apply when the parties are 2 companies or corps w/ access to legal
advice.

Substantive Unconscionability – fault/unfairness in bargaining outcome [Con to uncon here: undercuts

private right of contract in a manner that is apt to do more social harm than good since right to freely and
voluntary K is sacred]. Egs. [CHECK LIST/ CONTRADICTS PART OF BJERRE’S]
1. Fault/unfairness in bargaining outcome
2. High price of item/service/interest rater
3. Apportionment, dragnet of repossession clauses : payments apportioned to all items so none of them are
paid off before all are; buy several things, but don’t off one before pay off all
4. An arbitration clause’s term

Procedural Unconscionability – fault or unfairness in the bargaining process – absence of meaningful choice.
[Policy: ok for con since means not free and unvoluntary] EGs.
1. Fork K of adhesion (not inherently uncon, but factor to consider)
2. Unequal bargaining power
3. Education level of parties
4. Setting of Tx
a. Level of need for the item
b. Sharply limited choice
5. High pressure sales
6. Emotional manipulation
7. Knowing advantage-taking
8. Difficult/Complex AND/OR hidden in fine print language
9. Timing

Policy:
1. Paternalistic – interferes w/ freedom to K
2. Institutional Competence: Q of law for judge – but should legislature be the ones to address this?
Sometimes statutes in place to protect consumer
3. Counterproductive? Some argue that effect is to give people w/ bad credit or low financial resources less
opportunity to K (lenders will be less likely to lend to high risk people if their Ks invalidated by doctrine)

DAMAGES FOR BREACH OF CONTRACT

Types of remedies:
1. Equitable Remedies: will usually ONLY get if Damages are inadequate
a. Specific Performance: Ordered to perform K.
i. If performance would require very intense and sophisticated supervision, usually won’t be
ordered
ii. Court won’t order performance of K personal in nature
iii. Won’t be ordered when party claiming breach has adequate remedy at law
iv. Laclede Gas Co. : A requirements K. Hard to calculate damages because they fluctuate –
specific performance = ok
b. Injunction: Court orders not do something
2. Modern age [This is most important]
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a. Damages : Goal is to make P was well off it there would have been no breach. Pay P enough
money so that they will be “indifferent” between getting money or specific performance
3. Tort v K Damages: Tort damages put you back to where you would have been. K damages put you
forward into position you would have been [since K would have been to your advantage]

MONEY DAMAGES

1. Expectancy Damages : overall goal – put the parties in as good a position had there been no
breach. Based on circumstances – not on “reasonable” person
1. P has burden to prove
2. P entitled to benefit of the bargain – enough to put the party in the position she would have been had the
K been completed; pulls the P forward
3. Non-breaching party should be indifferent Re: whether K performed or the money damages
4. Profit
5. Purpose not to implement a benefit but to remedy a harm
a. Almost NEVER give punitive damages
6. Allows for efficient breach
a. Nobody worse off, but somebody better off due to a breach of K
b. Pareto Superior: world is in a better state – efficient breach example since everyone better off
afterwards
c. Lets things get to people who value them the most
d. Doesn’t make sense to impose penalties for breach
e. Works when taking advantage of imperfect information
1. “Perfect Market” efficient breach wouldn’t work since B1 knows how much B2 would
pay so his subjective value would immediately go up. Therefore, S would not profit
from this Tx.
7. Foreseeability and expectancy damages = default rules

GENERAL DAMGE FORMULA: Value of Ds promise – Ps cost to get what is promised

1. Overhead = continuous expense of the bness, irrespective of the outlay of a particular K
a. In a claim for lost profits, overhead should be treated as part of gross profits and recoverable as
damages, and should not be considered as part of seller’s cost [Vitex v Caribtex]
i. Overhead = part of damages because reallocation of overhead cost results in loss of profit
from other Ks. Therefore, overhead is included in amount D has to pay.

2. Restitution
• The dollar of damage = the value of the unjust enrichment.
• The court makes its own determination of its value—must be reasonable
• Used in situations of quasi –K-(Cotnam v. Wisdom—damages for the medical care Harrison
received from Dr. Wisdom).
• However, a valid K doesn’t preclude the use of restitution. If a party makes a bad K and
would not be in a better position if the K was completed, and the K was breached before
completion, the losing party/ non-breacher can recover restitution damages
• Usually K price is not ceiling to what may be recovered (“the sore thumb to the sore thumb
rule.”)

US v. Algernon Blair
Subcontractor made horrible deal, general contractor breached on the contract. Subcontractor was allowed to
recover the reasonable value of the work they had performed (equipment rental costs) up until the day of the
Bjerre Fall 2002
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breach. The promissee, upon the breach, has the option to forego any suit on the K and claim only the
reasonable value of his performance. OK b/c court wants to punish the breacher, and the breacher shouldn’t
be able to benefit from the breach.

3. Restoration
• Restore a party to the position she was in before the harm. Put the P in the position she would
have been in if the promise had never been made (and detrimentally relied upon).
• This is used in Promissory Estoppel situations
• Eg: Ricketts v. Scothorn—damages of the wages she lost from quitting her job in reliance on
her Grandfather’s promise

Notice how Q-K and PE are opposites

DIMINUTION IN VALUE v. COST OF PERFORMANCE

When breach after partial performance, and cost of fulfilling K is greater than value of doing so, which so be
awarded? Overall, the difference of which test to use has to do w/ SUBJECTIVE VALUE owner places
should determine [High subjective value, then cost of performance; low subjective value, then diminution of
value]

(a) Groves—regrading cost of performance = 60K, diminution of land value only 12K for not being
regraded—court awarded cost of performance because breach was willful.
i. Awarding cost of performance should reflect owner’s subjective value of property.
Court here says no evidence of subjective value. Bjerre disagrees.
ii. Awarding cost of performance almost punitive here which goes against K theory
iii. Awarding diminution of value fits better w/ expectancy theory of making P ‘whole’
again

(b) Peevyhouse—regarding strip mine company failed to restore a farm as required by K. Restoration
cost = 29K, value of doing so only $ 300. Court awards diminution of value b/c breach merely
incidental to K’s purpose.
i. Groves court would have awarded cost of performance because breach was wilfull
ii. Subjective value of restoration not considered here---Bjerre thinks bad outcome

LIMITING DAMAGES

1. Mitigation/Avoidability
a. After P receives a breach notice, its his duty to do nothing to increase the damages, can’t continue
to perform, then recover based on full performance
i. Rationale: P interested only in profit, so if gets this anyway on breach, could use time
more wisely otherwise
b. P has a duty to mitigate, if don’t, D not liable to other side if continue to perform for that
continued work
c. Non-breacher must actively look to mitigate by looking for a replacement K
i. “Reasonable substitute” : non-breacher not obligated to take an inferior or different Tx –
must be “substantially similar”
ii. P must make reasonable efforts to find alternative Tx [reasonable determined under
circumstances]. NO duty to take it, but it doesn’t mean shouldn’t take it since court will
assume that since it is there you should have taken it
1. B<P x L [B= cost of step; P = Probability ; L = breached money trying to avoid]
Bjerre Fall 2002
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iii. D is responsible for reasonable costs incurred in reasonable efforts (idea that D should be
responsible because effort taken for Ds benefit to reduce Ds damages)
iv. Even if deal is for less profit, then can still sue for difference
v. Example: Hypo: Buyer breaches K for sale of care for $5k. Seller sells to another for $4k.
Seller can recover $1k from breaching buyer + costs of reasonable efforts to find
substitution
d. RSC 350: Avoidability as a Limitation on Damages
i. Damages not recoverable for loss that the injured party could have avoided w/o undue risk,
burden or humiliation
ii. Injured part is not precluded from recovery by the rule stated in (i) to the extent that he
has made reasonable but unsuccessful efforts to avoid loss
e. EXCEPTION: Lost Volume Seller: seller is not just as well off from mitigating their damages
because they would have made 2 profits instead of only one.
i. Elements of LVS
1. Had capacity [Necessary condition = could hire more workers/rent more
space/etc.]
2. Would have filled it in absence of breach [Possible to do and advantageous]
[Sufficient condition]
3. Profitable [Suffcient]
a. Bjerre doesn’t think profit element as important.
i. If not profitable, D then has no reason to point to this as something
that would have mitigated damages by P in 1st place – would still
owe. Also could get other benefits other than profits from a Tx [NO
PROFIT = NO SUBSTITUTE TO FIRST SALE – 2nd SALE IS
SIMPLY MITIGATING DAMAGES]
ii. Thus, 1 & 2 most important to worry bout
b. Personal services (like movie start) classic non-LVS since can’t perform
both at same time; Construction company = classic LVS since can hire
more workers to do more jobs]
ii. Diminishing Returns
1. An example of when P wouldn’t have a LVS argument
2. A time when you’ll have to pay more to produce more (like overtime charges kick-
in) – so even though you could have produced more, you wouldn’t have
3. Can’t recover as a LVS if you would have lost money on second sale [NO
PROFITS so no LVS]
2. Foreseeability : unforeseeable damages not recoverable. Would a reasonable person have foreseen the
damages?
a. Rule from Hadley [mill crank delivery case]
i. What a reasonable person would foresee (objective) OR
ii. If K made under special circumstances and communicated to D (subjective)
b. RSC 351(3): allows court to limit disproportionate rulings
c. Drafters of contract can eliminate any confusion by writing: “In the event of a breach, we will not
be responsible for consequential damages”

Consequential damages:
Damages not “arising naturally’ but only as a result of “special circumstances under which the K was
actually made”
1. Beyond mere loss in value of promised performance (direct damages) and resulting from impact of the
breach on other Tx or endeavors dependent on the K
2. Lost profits one kind of consequential damage
Bjerre Fall 2002
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3. Example of other kind:
a. D limited to damages for fee that would cost competent person to install a transformer, not for the
consequential damages that resulted to repair it

3. Certainty: P has to prove their case

• speculative damages are not recoverable, they have to be certain enough
• P has to show certainty of the damages, cannot ask the jury to speculate
• Complete certainty is not required: a “reasonable certainty” is the standard.
• Emotional damages usually not recoverable due to too speculative

New business and speculative profits:

1. Old rule : new bness can’t prove lost profits because too speculative
2. New rule: courts moving away from this a bit since some new bness might have lots of proof about
profits. IF have enough certainty, will allow for lost profits [Showing resale Ks, experts saying new whiz
kids, market showing tremendous demand in your bness] [Fera v. Village Plaza: reflects this trend]

PENALTY v LIQUIDATED DAMAGES CLAUSE

Basic rule: penalties not enforceable but estimates of actual damages are enforceable [Liquidated
damages clause]

Increasing Damages

Lake River Corp v. Carborundum Co.

Per the contract, doesn’t take into consideration Lake River’s saved costs. The damages clause provides that
Lake River will be overcompensated. Overcompensation is a penalty.

• Basic rule: Penalty clauses not enforceable; contracts can be drafted to limit damages, but not
to expand damage
• Per Posner and academics: this is a dubious rule: can be the genuine self-interest of parties to enter
into Ks the breach of which will penalize them
• When ALL costs are up front, take-or-pay clause might well be a reasonable liquidation of damages
[K revenues would then be an excellent measure of damages from breach”
• Policy. Should this be the rule?
o Pro: when parties are powerful, competent, penalties should be enforced.
o Con: could have the effect of deterring some efficient breaches.
• Tricky lawyering: instead of a penalty, can you deny a party a bonus for breach?

Liquidated Damages Clause

Flip-side.

1. “At the time of contracting, the parties may wish to avoid disputes and uncertainty over damages if a
breach occurs. Such a provision has the effect of liquidating anticipated damages in the event of a
possible breach, and is known as a ‘liquidated damages’ clause.

Bjerre’s test (from the text pg 1123):

(a standard—not a rule)
1. reasonable estimate
2. need for an estimate (actual damages difficult to prove—eg. Shirly Mclean.
Bjerre Fall 2002
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This amount will be more like actual damages and not penalty damages.

“reasonable estimate at the time of contracting of the likely damages from breach, and the need for
estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages
from a breach of contract after the breach occurs. If damages would be easy to determine then, or if the
estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a penalty”

Ks that specify a single sum in damages for ANY breach and this fixed sum greatly exceeds actual damages,
then it’s a penalty

NOTICE: All the stuff we studied re: damages = a default rule. It can all be avoided by adding a liquidated
damages clause to your K.

Damages Equation
Restatement § 347:
Damages =
Plaintiff’s loss in value caused by the D’s non-performance (This is determined by deducting the
contractual value of what the plaintiff received from what she was promised)

Plus:
Any other loss (includes consequential and incidental damages)

Less:
Any cost or loss the P avoided by not having to perform
 1
Contracts Outline

Philosophical Foundations for E nforcing Promi ses ............................ 3

CONSIDERATION & THE BARGAINING PROCESS ..................................................................................3

Unilateral contracts ............................................................................................................................... 3
Gratuitous Promises / Nudum pactum..................................................................................................................................... 3
Reliance / Promissory Estoppel ................................................................................................................................................. 3
Equitable Estoppel: ..................................................................................................................................................................... 4
Action in the Past: ....................................................................................................................................................................... 4
Moral Obligation does not invoke requirement ..................................................................................................................... 4
Peppercorns .................................................................................................................................................................................. 4
Bilateral contracts ................................................................................................................................. 4
Illusory Promises ......................................................................................................................................................................... 4
Implied Promises (in a specific contract to a specific person).............................................................................................. 4
Quasi Contract: (contract implied in law).............................................................................................................................. 5
Exceptions: Promises Enforceable without consideration:..................................................................... 5

The Bargainin g Process ................................................................... 6

OFFERS ..........................................................................................................................................6
When is an offer made? .............................................................................................................................................................. 6
Not Quite Offers: ................................................................................................................................... 6
Price Quotes & Invitations to make an offer........................................................................................................................... 6
Advertising.................................................................................................................................................................................... 6
Letters of Intent ........................................................................................................................................................................... 6
Oral Contracts ............................................................................................................................................................................. 6

ACCEPTANCES ................................................................................................................................7
Silence is not an acceptance ....................................................................................................................................................... 7
When do offers Lapse? ......................................................................................................................... 7
Lapse in General.......................................................................................................................................................................... 7
Revocation..................................................................................................................................................................................... 7
Option contracts .......................................................................................................................................................................... 7
Communication Breakdowns: ................................................................................................................................................... 8
Partial Performance:................................................................................................................................................................... 8
Agreements to Agree & Definiteness........................................................................................................................................ 8
Counter Offers ...................................................................................................................................... 8
Last Shot Doctrine ....................................................................................................................................................................... 8

SUMMARY TABLE .............................................................................................................................9

Hypos From Class ................................................................................................................................ 9

Defenses to Contracts .................................................................... 11

Reasons Why a Contract may be voidable ............................................................................................................................ 11
Definiteness ................................................................................................................................................................................. 11
Statute of Frauds: Written & Oral Contracts ...................................................................................................................... 11
 2
Promissory Estoppel as the alternative to the statute of Frauds. ...................................................................................... 11
Electronic Signatures ................................................................................................................................................................ 12

POLICING THE BARGAIN..................................................................................................................12

Minority ...................................................................................................................................................................................... 12
Duress - Coercion....................................................................................................................................................................... 12
Mental Capacity......................................................................................................................................................................... 12
Pre-Existing Duty: ..................................................................................................................................................................... 12
MisRepresentations & NonDisclosure.................................................................................................................................... 12
Adhesion contracts ..............................................................................................................................13
Unconscionability....................................................................................................................................................................... 13
Public Policy ............................................................................................................................................................................... 14
How to Modify Contracts ......................................................................................................................................................... 14

Remedies for Breach .......................................................................15

SPECIFIC PERFORMANCE ...............................................................................................................15

MEASURING DAMAGES ...................................................................................................................15

Theories of Breach: the Holmsian Heresy ............................................................................................15
The $90 Radio Example: .......................................................................................................................................................... 15
Calculating Damages ...........................................................................................................................16
Expectancy Damages................................................................................................................................................................. 16
Losing Contracts........................................................................................................................................................................ 17
Limitations on Damages.......................................................................................................................17
Duty to Mitigate ......................................................................................................................................................................... 17
Limitations on Consequential Damages................................................................................................................................. 17
Certainty of Damages ..........................................................................................................................18
Penalty Clauses & Liquidated Damages................................................................................................................................ 18

Analyzing a Contract s Que stion ...................................................... 19

Was there a Contract ................................................................................................................................................................ 19
Was it breached? ....................................................................................................................................................................... 19
What were the consequences? ................................................................................................................................................. 19
Available Remedies ................................................................................................................................................................... 19
Key Definitions: ......................................................................................................................................................................... 19
 3
Philosophical Foundations for E nforcing Promi ses

CONSIDERATION & THE BARGAINING PROCESS

Principles:
“Reciprocal Conventional Inducement” - Holmes
There must be something extracted - something sought
Restatement § 71
Page 180

Test: Was there something exchanged?

It could even be a promise – doesn’t look to the value,

Unilateral contracts
Cases where one party makes a promise
and the other party . . . either performs, or just relies.
Cases:
Hammer v. Sidway:
What is valuable consideration? A detriment to either promisor, or promisee.
Forbearance counts as consideration
Gratuitous Promises / Nudum pactum
Principles:
Gr. Promises are not enforceable.
Exception: promisee reasonably relied upon the promise.
Cases:
Feinberg v. Pfeiffer: Worked 37 years, offered pension. Gratuitous? Yes ∴ not enforceable.
But promise enforced per reliance theory
Kirksey v. Kirksey: Brother-in-law offered place to live.
Broadnax v. Ledbetter: Gratuitous Performance
Captured criminal, but didn’t know about reward.
Capture was not “induced by the reward” ∴ gratuitous.
Reliance / Promissory Estoppel
Restatement § 90:
A promise which the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Estopped from taking back promise if:

1) A promise was made
2) you could have reasonably expected reliance when you made the promise.
3) the promise was actually relied upon.
4) And if injustice can only be avoided by enforcement.
Rickets v. Scothorn: Quit her job in reliance on offer by grandfather for $2,000 + 6% interest.
Feinberg v. Pfeiffer: Worked 37 years, offered pension.
Gratuitous? Yes ∴ not enforceable.
But promise enforced per reliance theory
Drennan v. Star Paving: Can’t do it for the amount we said
Promissory Estoppel: Must perform
also see under offers.
 4
Equitable Estoppel:
When one party has made a statement of fact, and the other has relied upon it.
Dickenson v Dodds: may have gone the other way had this doctrine been in effect then.
π reasonably relied on the statement of fact that he wouldn’t sell the property until Fri.
Action in the Past:
Feinberg v. Pfeiffer again – her previous service did not qualify.
Moral Obligation does not invoke requirement
Mills v. Wyman: Cared for sick son – Father offered to pay then revoked.
Gratuitous – Even though it’s morally right it’s not enforceable.
Peppercorns
Principles:
If one party wants to back out: Not enforceable.
Test: Are the party making a real exchange?
Exception: Enforceable in the case of option contracts

Bilateral contracts
When promises are the exchange for other promises.
This is the most common kind of contract – don’t usually go out and do it right away.
Conditional Promises:
the promise will only become good if . . .
Illusory Promises
Principle: Promises that aren’t actually worth anything don’t qualify as consideration.
Strong v. Sheffield: Promissory note in exchange for an illusory promise
“I won’t collect on my debt until I want to.”
Not enforceable.
Termination Clauses:
E.G.: if the building burns down – landlord no longer obligated to provide housing.
Unrestricted termination clauses – can cancel at any time – make the promise illusory.
At Will Employment: Initially this seems like just an illusory promise – they usually have unrestricted
termination clauses.
It considered like a lot of one day exchanges.
When they change the handbook, and then you go to work – you’re accepting the new information.
Central Adjustment Bureau v. Ingram: does a promise not to compete have force when only exchanged
for a technically illusory (at-will employment) promise?
Yes: as the employment (i.e.: expected performance) continues, the promise becomes increasingly
binding.
Employee Handbooks: Adhesion contracts?
Implied Promises (in a specific contract to a specific person)
Principle: If the parties fail to include a promise in the contract the court can interpret it.
Wood v. Lady Duff: His performance was implied.
New Holding: The court can interpret contracts and enforce what they thought the parties meant,
rather than just what was there.
 5
Schott v. Westinghouse: Suggestion Box idea for a better circuit breaker
Expected to be paid – also no pay would be unjust enrichment.
Definiteness:
Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate.
Not definite enough for the court to decide,
but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much.
Quasi Contract: (contract implied in law)
Principle: when you do something for someone they ought to pay what they owe.
τελος: avoidance of unjust enrichment.
Distinction from Implied promises or promises implied in fact:
Lady Duff implication was in fact.
A.K.A.:
- Contract implied in law
- restitution
- constructive contract
Constructive Employment – not contract, but keep getting paid
Constructive eviction – wasn’t kicked out, but the lights are out, and snow is coming thru the roof.
- quantum meruit (gets as much as he deserves.)
Tests:
1) Was it gratuitous?
I.e.: not professional
2) Was it meddling in the situation?
Callano v. Oakwood
1) Was the Δ enriched?
2) Would retention of the benefit without payment be unjust?
Cotnam v. Wisdom: thrown from streetcar, Drs. Operate.
There is a right to collect – how much is up to the jury
& it should be decided based on how much the service was worth, not what the Δ could pay.
Pyette v. Pyette: Wife put Husband thru law school, Husband divorced and refused to reciprocate.
Not definite enough for the court to decide,
but it was unjust enrichment (quasi – contract) and ∴ he owes – back to jury for how much.
Usually promises between spouses are not enforceable, but in this case the effort by one spouse was so
extrodinary that the court said their was a quasi contract.
Contractor’s Claims:
Sub-contractor (S) built a bathroom on HomeOwner’s (H) house per instructions from Contractor (C).
then C goes bankrupt & doesn’t pay.
S can only get re-paid by H when every avenue against C is exhausted.

Exceptions: Promises Enforceable without consideration:

1) Promise to pay a debt that has expired per statute of limitations or after bankruptcy
2) Re-affirmation of a promise made as a minor.
Principle: The promisor is not making a new promise, but
“abandoning the defense” of bankruptcy, infancy etc.
Restatement § 82 & 83
 6
The Bargainin g Process

OFFERS
When is an offer made?
Definition:
When an offeree reasonably thinks an offer has been made. Offer: A statement or other act
Lucy v. Zehmer: Just kidding about the farm offer in which one person gives
another the power to make a
- Ct: offer is good because Lucy reasonably thought the offer
contract.
had been made.
Must be an expression of will or
The offeror is the “master of the contract” intention.
offeror has the power to make the terms
offeree has the power to make them binding.

Not Quite Offers:

Price Quotes & Invitations to make an offer
Owen v. Tunnison: “I would need at least $16,000 to sell it”
Ct: this was only an invitation to make an offer.
Test: If he had said I couldn’t sell it for less than $16, 221.07
then it might be considered an offer.
Harvey v. Facey: Will you sell us the property? How much will you sell for?
Answer 900£ : Then he didn’t want to sell
Court: he only answered one question. Very formalistic, leans toward status quo.
Ignores implications of statement, and possibly also local knowledge, e.g.: the property was for sale.
Fairmount Glassworks: Reply gave specific quantities and specific price & said “For immediate acceptance”
Ct: this language is an offer.
Tests: Specificity in price & time
The more specific a statement is the more likely it is that it’s an offer.
Policy: Courts lean toward status quo
Advertising
Generally advertising is an invitation to make an offer.
Exception: Very specific advertising can be an offer
Lefkowitz: fur stole for $1 to 1st person thru the door.
Carbolic Smoke Ball: Was specific enough
Usual req’t for acceptance waived.
Letters of Intent
People want to understand each other very well, but they don’t want to be bound by it.
Common with stock underwriting.
Channel Home Centers: Letters of Intent are valuable as consideration.
Oral Contracts
If you work out a deal orally – it’s binding
unless . . . one person also says “and I don’t want to be bound until we write this down.”
 7
ACCEPTANCES
An acceptance is a communicative act
Offeror must be notified that the offer has been accepted.
Once the acceptance is made the contract is binding.
Bilateral contracts: you accept with a promise:
More of a communicative Act
Unilateral contract you accept with an action.
Doing of the action is generally notice.
Carbolic Smoke Ball: Req’t of Notice waived
– it would be unreasonable to have expected that everyone would notify them.
Mirror Image Rule:
Have to accept exactly what the offeror offered.
Silence is not an acceptance
Because we don’t want offerors to coerce us into doing something.
You can waive this rule by receiving consideration: CD clubs.
Regular conduct – creating an expectation.
Have always paid – can expect that you’ll pay again
Hobbs v. Massasoit Whip: Just sent eelskins to a whip making company
Silence and retention for a long enough time = acceptance.

When do offers Lapse?

When a person would reasonably expect it to.
Depends on the circumstances – a house maybe long term, stock maybe 30 seconds.
Face to Face conversations:
If only an offer is made, no acceptance, and no specific lapse time
it lapses at the end of the conversation.
Lapse in General
Loring .v City of Boston: 1837 reward for setting fires
expired by 1841
Revocation
Restatement § 63
Offers can be freely revoked
Dickenson v. Dodds: A revocation can be simply an action inconsistent with the intent to go forward.
A revocation can be good when it comes from a reasonable source, even if it’s not the offeror.
Was close to, but not an option contract – no specific consideration given for the option.
Option contracts
A contract in which the offeror promises bindingly not to revoke for a specific amount of time.
Usually req’s “earnest money” Peppercorns are OK here.
Toys v. FM Burlington: Toy store in a shopping mall
An offer cannot expire within the option period.
Even if price negotiations are ongoing.
Choosing not to exercise your option doesn’t bar your ability to accept within the space of the option.
Not revoked upon death of the offeror.
 8
Drennan v. Star Paving
An offer (usually freely revocable if revocation is rec’d before acceptance)
is enforced even though revocation is technically rec’d prior to acceptance.
– essentially it suggests that it’s an option contract even though no consideration is made.
Promissory Estoppel – can’ revoke the offer once it’s been relied upon.
Restatement § 87(2)
Issue 2: Mistake in an offer – the offer is still binding
assuming it was all in good faith – reasonable person test applies here.
Holman Erection Co.: Sub-contractor’s bid used in main bid.
Then contractor did not use that sub-contractor – were they req’d to?
No – contractor not req’d to use the sub-C they included in the bid.
Implied Option Contracts: Expire when a reasonable person would expect them to.
Communication Breakdowns:
Is there recovery for work done prior to contract?
Sometimes.
Songbird: No recovery for good ideas
Precision Testing: Allowed recovery for design of an environmentally sound car.
Partial Performance:
Brooklyn Bridge hypo: Once you start the performance the offeror is bound.
Agreements to Agree & Definiteness
Generally not allowable because they are too indefinite.
Court doesn’t know how to enforce such a contract.
Channel Home Centers: an exception – just enough definiteness
they just agreed to negotiate in good faith – they were able to show that the other side wasn’t
negotiating in good faith they were leasing it out to someone else.

Counter Offers
A rejection of the previous offer, and a whole new offer.
Once a counter offer is made the other offer is considered to be revoked.
Precatory offers: acceptance of the offer as is with a recommendation to change.
Last Shot Doctrine
When companies know they’re going to agree they send forms back and forth. The last form mailed
before performance begins is the controlling contract.
 9

SUMMARY TABLE
Default Rules Option rules

Promises are not binding without real Mere pretense of consideration is sufficient to hold
consideration an option open
Death of offeror terminates the power to Death of offeror during the option period
Accept has no effect on the ability of the offeree
to form a Contract by exercising the option.

Acceptances: Acceptances:
Mailbox Rule: Acceptances under options are not effective until
Acceptances are effective when mailed rec’d. § 63 they must be rec’d before the end of the
if they are mailed before any option.
rejections or revocations.
Exception: § 40:
If a Rejection is mailed first & rec’d first
an Ac, even if mailed prior to the rj rec’d,
is just a counter offer.
Overtaking rejections are not valid
unless they are relied upon – apply the
estoppel rules to see if reliance is valid.
Rejections: Rejections:
Rejections are binding when rec’d Rejections aren’t binding until the option expires.
unless an Ac has already been rec’d
Offeree can reject during the offer time and then
accept later as long as it’s within the Option time.

Revocations: Revocations:
Are effective when rec’d. Can’t revoke
(without incurring breach of contract penalties.)

Hypos From Class

Contract is made when acceptance is mailed:
This contract is in force:
1 - Offer
2 – Acceptance Mailed – Contract Made
3 – Revocation
4 – Acc Arrives

Revocations are in force when they are rec’d

1 – Offer
2 – Revocation Mailed
3 – Acceptance Mailed – Contract Made
4 – Revocation Arrives -
5 – Acceptance arrives

So if you want to revoke – go and do it in person.

 10
Trade off: Certainty/Flexibility
The more of one you get, the less of the other.

Acceptances are in force when mailed.

Called “an overtaking rejection”
1 - Offer is made
2 – Acceptance is mailed
at this point the Contract is made
3 – Offeree calls and rejects by phone
4 – Acceptance Arrives

It’s too late to reject – the acceptance is effective.

But … What if the offeror goes off and makes another contract in reliance on that statement.
Equitable estoppel … when you’ve made a statement of fact, and someone relies on it
you can’t go back on your word.

Overtaking Acceptance:
Rejections are effective when received
1 – Offer
2 – Rejection is mailed by USPS
3 – Acceptance is mailed – this is the point at which contract is made.
4 - acceptance arrives by FedEx.
5 – Rejection arrives by U.S. Post.

The one that happened first controls

Contract is made when the acceptance is mailed.

Restatement § 40: Non-Overtaking Acceptances

The time when a rejection or counter offer terminates the power of acceptance.
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until
received by the offeror,
but limits the power so that a letter or telegram of acceptance started after the sending of an
otherwise effective rejection or counter-offer is only a counter-offer
unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Non-Overtaking Acceptance
1 – Offer
2 - Rejection Mailed
3 - Acceptance Mailed
4 – Rejection Arrives – this limits the power of the traveling acceptance:
It turns the acceptance into a mere counter-offer.
5 – Acceptance Arrives

It turns the acceptance into a counter offer.

The affect of the acceptance is limited:
It becomes nothing but a counter offer.

Estoppel is not an issue here because § 40 does not deal with reliance.
But it does allow for it.
If the offeror relies on the first received rejection
They are still perfectly free to reject the counter offer.
 11
Defenses to Contracts
Reasons Why a Contract may be voidable
Void or Voidable?
Void: no court will enforce it.
Voidable: one side can withdraw, but the other can’t.
e.g.: minority, mental infirmity, unconscionability, duress,
Definiteness
When is an agreement definite enough to be enforced?
Did both parties intend to be bound?
Relational contracts are looser
Transactional contracts must be more clear.
Evidence (e.g.: pre-contractual documents are used) can be used to interpret the intent.
Pyette v. Pyette found it was too indefinite.
Channel Home Centers – just shy of too indefinite.
Draftsman told “you’ll get a fair share of my profits”
Usually enforceable based on trade customs preliminary negotiations, etc.
Statute of Frauds: Written & Oral Contracts
Some contracts need to be written down to be valid.
Suretyship: promises to pay another’s debt
Real Estate
Promises that won’t be performed within a year.
Courts don’t like statute of Frauds.
If one signature is on a contract the contract can only be enforced against the signing party.
Not every last detail needs to be written out.
Writing can be evidence of te contract. It doesn’t need to be entirely written out itself.
Letter of Memorandum sent a few days later re-capping the conversation is sufficient to satisfy statute of
frauds.
Monarco v. Lo Greco: although it was a real estate deal it was enforceable
based on promissory estoppel & restitution – he was owed a part of the farm.
Rationales:
Evidentiary – proves that the contract existed
Cautionary – makes people think twice before entering into a contract
Channeling function: convenient way of separating enforceable contracts from non-enforceable
contracts.
Bjerre note: Consideration achieves all of these as well.
Promissory Estoppel as the alternative to the statute of Frauds.
Promissory Estoppel is a last resort – you should write clear contracts in the first place.
§ 139 (p. 185 Supp.)
Test for whether injustice can only be avoided by enforcement:
1) availability of other remedies
2) definite and substantial character of the action in relationship to the remedy sought
3) the extent to which the action corroborates evidence of the making of the contract.
 12
4) the reasonableness of the action or forbearance
5) the extent to which the action or forbearance was foreseeable by the promisor.
Electronic Signatures
§ 101 – intent to be bound must be manifested.
E-signature: an electronic sound, symbol or process.
Doesn’t necessarily have to be unforgeable.

POLICING THE BARGAIN

Minority
Age: bright line rule: under age kids can void their contracts.
Doesn’t matter if the item is damaged
– restitution must be made for loss in value, but can’t refuse to take it back.
Exception for necessities – but it must be a real necessity
Not even available for housing if there is a parent who is willing to house the minor.
Can void a contract only after a reasonable time after reaching majority.
Continued bill payment implies an affirmance of the contract.
Kiefer: Even though he misrepresented his age,
and had reached the age of majority,
the contract is still voidable.
Duress - Coercion
“A wrongful threat pre-cluding the exercise of freewill”
Physical – is a defense
Economic Duress:
Not allowed in Crim – allowed in Contracts
Austin v. Loral: Defense contractor – Gov’t is major buyer
Subcontractor stopped working at the last minute, and said pay us more or else
Contractor couldn’t go elsewhere & still deliver on time – they exhausted other avenues
They agreed to the contract, but as soon as the parts were delivered they stopped paying
Ct: they were under economic duress – the contract is voidable.
Mental Capacity
Mental Capacity:
Volitional: Capacity to control you actions
Cognitive: Capacity to understand your actions.
Inebriated people: Must be “really out of it” – KC
Modern approach: use either cognition or volition
Ortelere v. Teacher’s Retirement: Contract was ruled avoidable per volitional incapacity.
Pre-Existing Duty:
Watkins & Son v. Carrig: Hit rock 1/3 way through excavation – asked for 9x the prive to remove
Owner agreed – Does he have to pay?
New contract was enforceable, even though no new consideration was given
– pre-existing consideration. He relinquished the right to the old contract.
MisRepresentations & NonDisclosure
NonDisclosure usually not a problem – we want to encourage people to go out and get specialized
knowledge.
 13
Duty to Disclose:
When you know the other party has made a mistake of fact.
When false implications are made – affirmative representations must be accurate
When new information becomes available.
When a contract is voidable due to Misrepresentations:
Facts weren’t accurate
Must be a material fact (not opinion) that was misrepresented.
the other side must rely on it.
The statement must in fact be false.
Does not matter whether you knew it was false.
Can use misrepresentations to allocate the burden of uncertainty:
Put in the contract that there’s not cockroaches, then if there is seller pays to remove them.
Kannavos v. Annino: It was true that they could rent the apts, but they didn’t mention that it was illegal.
Court: it was Fraud.

Adhesion contracts
Take it or leave it
Contracts are valid to the extent that they don’t go against anything that was actually bargained for.
Are not enforceable when both parties don’t’ know and intend for the contract
e.g.: stuff piggybacking on a receipt if a reasonable person would not expect it.
§ 211 – know esp (3)
1) Claim checks & stubs are not binding if a reasonable person would not view them as a contract.
2) it doesn’t matter if you read it or not (law doesn’t want to encourage willful blindness)
3) Generally they are enforceable, but random unexpected clauses are not
Carnival Cruise Lines: Forum Selection Clause enforceable
R: All passengers benefit when the Co. knows what law they will have to defend under.

Unconscionability
“Shocks the conscience”
Procedural & Substantive unconscionability.
Test:
1) terms unreasonably favorable to one side
2) lack of meaningful choice for the other.
Restatement § 208
Like a public policy choice
- it tries to prevent people from taking “strong advantage” of others.
Walker Thomas Furniture Co.: Contract included a dragnet clause – get everything
included an apportionment clause – never pay anything off.
Coase Theorem:
If you change the balance of power (e.g.: make apportionment clauses illegal) it will economically
efficiently rebalance some other way. (e.g.: more aggressive collections.)
Gateway 2000: Form in box with new computer, Arbitration in Chicago ICC rules ($10,000 to initiate)
Substantive element alone makes the contract unconscionable.
No procedural unconscionability
 14
Public Policy
Contracts are void if they go against public policy
Contracts for illegal actions, gambling, usury (illegally high rates of interest)

How to Modify Contracts

Generally enforceable as long as the terms are reasonable.
Central Adjustment Bureau: Non-compete clauses (probably often modified)
Unreasonably broad they are adjusted to what’s reasonable.
Blue pencil rule.
 15
Remedies for Breach
Two basic kinds of Remedy:
Equitable Remedies: Specific Performance, Injunction
Remedies at Law: $$ (preferred by courts – easier to supervise)
Two ways to calculate damages:
- Diminution of Value
- Putting it back the way it was – Completion of the K.
e.g.: Gravel Pit Case
Breach of Contract is Strict Liability:
If you said you’d sell your car & a tornado takes it away – you’re still liable.
No Punitive Damages for breach
R: We want people to enter contracts
How damages are calculated:
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit

SPECIFIC PERFORMANCE
Not preferred by courts – hard to supervise
Don’t like to force actions (too reminiscent of slavery)
Exception: land is usually considered unique, and not as easily translatable into $$.
Sp Perf is an equitable remedy
Court will not order an equitable remedy when there is a remedy at law available.
Lumley v. Wagner: Opera Singer – Injunction: can’t sing anywhere else in town
Didn’t require singing at π’s venue – too hard to supervise
The extent to which courts go to create supervisable orders.
Laclede Gas Co. v. Amoco Oil: Court ordered Sp. Perf. for public policy: keep propane is residences.
The performance req’d was definite enough that it could be supervised.

MEASURING DAMAGES

Theories of Breach: the Holmsian Heresy

Breach of Contract is Strict Liability:
If you said you’d sell your car & a tornado takes it away – you’re still liable.
No Punitive Damages for breach
R: We want people to enter contracts
The $90 Radio Example:
A Radio might be for sale
Current owner values it at $90 Pacta sunt servanda:
Buyer 1 values it at $110 Promises should be
Buyer 2 values it at $130 observed.

If CO & B1 make a contract to exchange at $100 they both benefit by $10.

If B1 then meets B2 and sells it for $120

But what if seller meets B2 before the exchange takes place,

and breaches the contract and sells to B2 for $120.
 16
Seller makes $30 profit,
but pays $10 to B1 for expectancy in breach.
but is still $20 ahead.

Why are these breaches tolerated?

The Holmsian Heresy
The radio does the best social good by being in the hands of B2.
We want the radio to be in the hands of the person that values it the most.
Arguments against the “right to breach”
Pacta sunt servanda: Promises should be observed
It just seems like the right thing to do.
Transaction Costs are difficult to calculate.
Assumes that all people value $$ the same.
Such theories leave poor people with very little.
Fuller & Purdue:
Kinds of Damages:
Restitution is most important
Reliance is next most important
Expectancy is least – so why do we award it?
1) Credit based society – assume people have what they’re expecting
2) Make plans relying on out expectations & pass opportunities relying on those expectations which
are difficult to articulate.
3) If we make people prove their reliance people will be fearful of relying – because it’s so hard to
prove.
Transaction Costs – sort of built in to the expectancy – it would be too difficult to add them all up.

Calculating Damages
Two ways to calculate damages:
- Diminution of Value
- Putting it back the way it was – Completion of the K.
Groves v. John Wonder Co.: Should the gravel pit be regarded at a cost higher than the cost of the land?
Court orders the cost of regarding.
R: put the π in the position he would have been had the contract been completed.
Accounts for subjective value of land.
(but was there even evidence of such here? He turned around and sold it as soon as it was regarded!)
How damages are calculated:
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit
Expectancy Damages
Principles: Put the π in the position they would have been in had the contract been performed.
“the making of the contract is the securing of the benefit.”
Two ways to calculate damages:
- Diminution of Value ($$ - remedy at law)
Peevyhouse v. Garland Coal Mining: Only given change in value of family farm.
- Putting it back the way it was – Completion of the K. (equitable remedy – sp. perf.)
e.g.: Groves v. John Wonder Co.: Gravel Pit Case
 17
Simple Case Hypo:
Painter promises to paint the house.
Homeowner promises to pay $5,000
Next best price available: $7,000

If the painter decides not to paint what damages are owed for breach?
$2,000 (or whatever the difference is between $5,000 and the next best price available.)

Reasoning:
“the making of the contract is the securing of the benefit.”
Rhetoric: The expectancy is $2,000.

Vitex v. Caribtex: Only directly applicable variable costs included in expectancy calculation.
R: They would have spent the same fixed costs with or without the contract.
Incidental Reliance:
as opposed to essential reliance
Damages above & beyond the loss of profit from the contract -
actions taken in reasonable expectation that the contract wouldn’t be breached.
E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit?
The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit
stand and purchase the fruit.
Losing Contracts
What if the expected profit was negative?
You pay for the value received (assuming the stoppage was in good faith)
Quantum Meruit
Algernon Blair: “The standard of measuring the reasonable value of the services rendered is the amount for
which such services could have been purchased from one in the π’s position at the time and place the
services were rendered.”
The contract price acts as a ceiling.

Limitations on Damages
Duty to Mitigate
Two Methods:
- Stop the Loss Luten Bridge
- Find another transaction – Parker v. 20th Century Fox (Shirley McClain Case)
20th Century Fox: You must put forth a reasonable effort to get a substantially similar position
It must be of similar quality.
Exceptions:
Lost volume sellers – no duty to mitigate
M & R v. Michaels: Contractors are assumed to be lost volume sellers, but π can rebut that.
They had plenty to fill their time, but still were compensated for expectancy.
Limitations on Consequential Damages
They must be foreseeable & relatively certain
Hadley v. Baxendale: Mill shaft case
Can only collect what was reasonably foreseeable by the Δ at the time the Contract is made
it must arise naturally from the breach.
Modern Response: Disclaimers of liability for consequential damages.
 18
Certainty of Damages
Speculative Expectancy Damages:
E.g.: if my house was painted it would be in Home & Garden, and I would get a movie role . . .
Sp. Damages are an evidence issue: Court is conservative in assignment.
Incidental Reliance:
as opposed to essential reliance
Damages above & beyond the loss of profit from the contract -
actions taken in reasonable expectation that the contract wouldn’t be breached.
E.G.: rent a fruit stand & order fruit – if rental contract is breached, fruit rots – who pays for fruit?
The breachor – assuming it was reasonable for him to assume that the renter would rely on the furuit
stand and purchase the fruit.
Penalty Clauses & Liquidated Damages
Ne penalties allowed.
You only get expectancy
R: Punitive damages don’t allow efficient breach -
it makes the π better off with the poor contract with the breach
Good estimate of things that are hard to prove
Lost profits & emotional damages.
Lake River v. Carborundum: If they had just designed the penalty to pay for the cost of the bagging machine
& expected profit they would have been fine.
Take or Pay Clauses: Generally not enforceable – damages are limited to actual damages.
Even new businesses can now show certainty of profits.
Emotional damages are based on a reasonable person.
Objective -
 19
Analyzing a Contract s Que stion

Was there a Contract

Mutual Assent
Was an offer made?
Was it definite/certain enough to be enforced?
Was it properly accepted?
Alternatively:
Quasi Contract
Reasonably relied upon promise
Consideration
Was there mutual reciprocal inducement? Was something actually exchanged?
- or was one promise illusory
Alternatively
was there a reasonable expectation of reliance?
Defenses to Contract
Illegal Subject Matter
Minority
Capacity
Duress
Statute of Frauds
Misrepresentation
Adhesion Contracts
Unconscionability

Was it breached?
Must be a material breach actually causing damages
What were the consequences?
Available Remedies
Contracts: Expectancy Damages
Promissory Estoppel: Reliance Damages.
Quasi Contract – Quantum Meruit
No punitive damages
The Holmsian Heresy
Duty to mitigate damages
Key Definitions:
An offer vests in the offeree the power to create a contract by making an acceptance.
I. Types of Enforceable Promises

A) Promises w/ Consideration- The most common reason given for enforcing a

promise is that there is consideration for it. Consideration is a concept with a long
history, and stems from similar bases of enforceability in English common law.
At one time consideration was defined as a benefit to the promissor or a detriment
to the promissee. This definition, however, tended to be both over and under
inclusive of promises that should be enforced. The reason why contracts with
consideration should be enforceable is that consideration indicates that there has
been an exchange. Generally, it is believed that exchange is good, and benefits
both parties and society as a whole. Thus when judging whether consideration
exists, it is most appropriate, instead of looking to benefit or detriment to either
party, to consider whether an exchange has been made. This is the modern
construction of the definition of consideration. Contracts with consideration are
generally enforceable.

1) Elements of Consideration

a) Exchange- Consideration for a promise must be given

specifically in exchange for that promise. Actions taken before the
promise was made cannot constitute consideration for the promise.

i) Feinberg. Pfeiffer- Case of an office worker near

retirement who was promised a retirement pension. The
Court found that her service to the company up until the
promise could not be construed as consideration for this
promise, and ruled that the promise was not enforceable
based on consideration

ii) Mills v. Wyman- Promise was made by father of man

whom promisee had done a great deal to help, in gratitude
of those acts by the promisee. It was ruled that promisee’s
actions were not consideration for the promise because they
were not performed in exchange for the promise, or they
did not “induce” the promise.

b) Bargain- It is not enough that an action be done in response to

a promise. It must be the case that the action be done or a promise
made be done because it was bargained for by the promissor. The
promise must be induced by the action, AND the other way
around.

i) Kirksey v. Kirksey- Case where brother promised sister a

place on his farm “if she would come down and see him”.
The court ruled that his promise was not enforceable
because it was without consideration. He was not induced
 to promise her a place on his farm by the prospect of her
coming down to see him on his farm, it was found, but
rather it was simply a description of a situation in which he
would offer her his gift.

2) Promises as Consideration- Promises as well as payment or

performance can be consideration for a promise. The promise is
consideration, generally, if the performance promised would be
consideration. That said, the promise must actually be a promise, in other
words an oath to do some specific thing. In addition, promises may be
interpreted by Courts to entail certain things not directly spoken or written
by the promissor.

a) Strong v. Sheffield- Wife of debtor promised to pay her

husband’s debt if creditor forbore on husband’s debt. However,
creditor did not promise to forbear for any length of time, but
rather to forbear collection until such time as he wished to collect
upon it. This meant that the creditor could have collected at any
time after promise was made. Thus, it was ruled that creditor’s
promise could not be consideration for wife’s promise to pay,
because the promise made was not really a promise, and because
the thing promised “to forbear until he didn’t want to anymore”
was not bargained for by the promissor. Statements like the one
made by the creditor in Strong are known as illusory promises.

b) Wood v. Lucy, Lady Duff-Gordon- Case of Lucy, a fashion

designer, who entered into agreement to lend her endorsement
exclusively to Wood, in exchange for half of all profits Wood
may receive for items sold with her endorsement. Lucy sued
Wood for breach because he failed to use her endorsement.
Court found that Wood’s promise to give her half of all profits
implied that he would actually use that license.

c) Central Investment Bureau v. Ingram- Employment

Contract involving non-competition agreement between Central
and employees. Issue was whether there was valid consideration
for employee’s promise not to compete. Court ruled that
employee who had signed agreement near beginning of
employment was bound because performance of continued
employment was adequate consideration. Court also ruled that
another employee was bound to his promise even though he
signed the contract sometime after being employed, because the
performance of continued employment had been tacitly accepted
by the employee.
 3) Exceptions to the Consideration Requirement- In some cases courts
negate the requirement for consideration. These promises are special
because they affirm an obligation that promissor rightfully should have
anyway.

a) Reaffirmance of unenforceable promise made as a minor

b) Reaffirmance of cancelled debt.

B) Promises Relied Upon by Promissees

1) Restatement § 90- This section provides a closely adhered to rule for

reliance. The section provides that a promise is enforceable if: (1) The
reliance by promissee was foreseeable; (2) The promissee was justified in
relying on the promise; and (3) Injustice would be avoided by enforcement
of the promise.

2) Ricketts v. Scothorn- Granddaughter sued Grandfather for recovery of

funds promised to her. Grandfather promised to give her the money so
that she wouldn’t have to work anymore. She soon quit her job in
expectation of payment by grandfather. Court ruled that promise was
enforceable because granddaughter relied on the promise and because it
would be unjust under the circumstances not to enforce the promise.

C) Restitution- Sometimes damages are awarded without a promise having been

made at all. This happens when one party is “unjustly enriched” at the expense of
the other or when a contract is “implied in fact”. In limited circumstances, this
can lead to an obligation on the enriched party to recover the loss for the
enriching party.

1) Cotnam v. Wisdom- Court ruled that doctor could recover fair fees for
services rendered to a life-threatened stranger. The court relied upon the
legal concept of a contract implied in fact in its decision. This argument is
buttressed by the consideration that the patient would have agreed to pay
for the services had he been conscious, and also by the public utility
inherent in allowing doctors/hospitals to recover for services rendered to
unconscious people. Since the occasion arises so often that patients come
to a hospital, for instance, unconscious and seriously injured, it would
create a serious and intolerable financial hardship for medical
professionals not to allow recovery in such circumstances. This might
cause a serious disruption in the economics of medicine and result in a
worsening of the level of care or dramatic increase in the price for those
who ARE conscious when they decide to receive medical treatment.

a) NOTE: Generally, restitution is not allowed for services

rendered in an emergency context. Services by medical
 professionals, for reasons mentioned above, are an exception to
this rule.

2) Callano v. Oakwood Parks Homes Corp- Landscapers installed

shrubberies for purchaser of home, who died before the sale went through.
Ownership reverted to seller of home, and seller sold the property with the
shrubbery. The landscapers sued under a claim of unjust enrichment to
Oakwood Parks Homes. Court ruled that landscapers were not entitled to
Oakwood parks because Oakwood was not in any way responsible for the
actions of the landscapers. Court mentioned that had there been fraud
involved on the part of Oakwood, Callanos may have been able to recover,
but refused to allow recovery in this case.

a) Note: Third party beneficiaries are generally not allowed to

“substitute” when another party is unjustly enriched but cannot
pay. There must be some sort of direct relationship between party
enricher and enrichee.

3) Pyeatte v. Pyeatte- Case of agreement between married couple that

wife put husband through law school in exchange for the husband putting
the wife through graduate school afterwards. Court ruled that terms were
too indefinite to provide a remedy under contract law, but that restitution
was appropriate. Court distinguished the case from other invalid claims
for restitution in marriage contexts for tasks ordinarily assumed to be
conferred gratuitously by married couples, like housework, etc.

II. The Bargaining Process- Every contract is formed through a process whereby two
parties agree to make an exchange. The process is starts with an offer, which must be
sufficiently definite and of a certain form, depending on the situation. Once this offer is
made, a power is bestowed on the offeree to make a contract by accepting the terms of
the offer. After acceptance, the contract is binding and both sides are bound by the
contract unless they agree together to amend or destroy the contract.

A) Assent, generally- A contract is above all an agreement. So, a valid contract

must be agreed to by both parties, with intent to be bound. That said, there is no
way to accurately judge the mental state of another party, and so the fairest way to
deal with this requirement is to look to the observable actions and words of the
parties that would indicate their intent to bound, or lack thereof. It is important to
note, however, that often courts sometimes take into account the subjective
knowledge of each party and what they in particular would be justified in
understanding from the actions of the other party, see Lucy.

1) Lucy v. Zehmer- Case of contract for sale of land, written on the back
of a restaurant check. Zehmer claimed the contract was in jest, but the
evidence suggested that Zehmer did nothing to suggest to Lucy that the
 sale was in jest, and so the court ruled that Lucy was entitled to sue on the
contract.

2) Unfinished Agreements- The rule generally is that unless one party

specifies to the contrary, parties may be held to contracts that remain in
the stages of final negotiation, depending on the particulars of the deal.

3) Genleman’s Agreements- In certain situations, parties wish to

negotiate terms while still holding out on their decision to go through with
a deal. In such situations, the parties will stipulate that an offer, for
instance, is not an offer but rather a “letter of intent”.

4) Special Circumstances- In some special situations intent to be bound

is inferred to be missing unless it is particularly specified. Examples of
this are doctor’s promises to patients and spouses promises to each other.

B) Offer- Generally contract formation is affected through two steps: an Offer

made by one party including all relevant terms of the final agreement, followed by
an acceptance by the second party on those terms. Negotiation often consists of
an initial offer, followed by several counter-offers, with each of the offers and
counter-offers creating for the other party the power of accepting the offer or
counter-offer and binding both parties. There is a balance of power here between
the power of the offeror to insist that the agreement meet her terms and the power
of the offeree to accept or not accept those terms.

1) Owen v. Tunison- Disputed sale of land. Issue was whether words in a

letter from Tunison to Owen to the effect that “I would not be able to sell
for less than ______” amounted to an offer to Owen to make a binding
contract for sale of the property. Court ruled in favor of Tunison, because
his words were thought by the court likely to have been a suggestion for
an offer and not an offer itself. In point of fact, Tunison did not even say
he would sell the land if the buyer met the price stipulated, but rather that
he would not sell it at a lower price.

2) Harvey v. Facey- Suit for breach of contract based on alleged contract

for sale of tract of land, Bumper Hall Pen. Harvey contended that a series
of telegrams amounted to a contract for sale. First telegram was: “Will
you sell us Bumper Hall Pen? Telegram lowest cash price”. Response
was “Lowest Price for Bumper Hall Pen 900 Pounds” Harvey construed
this response as an offer to sell the property to him. Court rejected
Harvey’s claim because Facey did not answer the question in his response
of whether he would sell to him, but rather answered only the question as
to the price. It was ruled that Facey did not intend to confer power on
Harvey to close the deal.
 3) Fairmount Glass Works v. Crunden-Martin Woodenware Co.-
Alleged contract for sale of Mason jars. Issue was whether a response to a
request to offer a price for ten carloads of mason jars was an acceptable
offer to create a contract. The court held that the response’s nature,
including all relevant terms of the deal plus the words “for immediate
acceptance” constituted an offer per request of the first letter, and that the
deal was made available to Crunden-Martin for acceptance.

4) Advertisements- Advertisements are a special brand of offer, and are

generally not taken to be offers to make a binding contract. The reasoning
behind this is partially that offers are supposed to reflect an intent to be
bound. It is utterly unreasonable to suppose that a store, for instance,
intends to be bound contractually to every person who wants a given thing
at a given price from their store. If this were so, the store would be taking
on the responsibility of being contractually obligated when a customer
wanted something that was out of stock or that they had decided not to sell
anymore. There are special cases, however, of advertisements worded in
such a way as they could be construed as an intent to be bound, because
they contain language specific to a particular class of people and/or create
an incentive to perform a particular task in order to qualify for the offer.
In these circumstances an intent to be bound is forced upon a company
because it would be reckless to take away such an offer.

a) Lefkowitz v. Great Minneapolis Surplus Store- Case of

advertisement concerning mink stole. Ad stipulated the amount of
stoles and also “first come, first served.” Lefkowitz was first to
respond to the offer and was not given the stole at the price offered
and sued. Court ruled that specificity of amount, price, and
stipulation that the first to accept would be the given the stole at
that price meant that Lefkowitz could reasonably infer an intent to
be bound on the part of the store.

5) Mistake in an Offer- A mistake in an offer will void that offer if the

offerree has reason to know that the offeror was in error.

C) Acceptance- With some exceptions, The offer determines what the offeree
must do to accept the offer. The situation determines whether an acceptance
creates a binding contract. There are very few rules with no exceptions.

1) Silent Acceptance- Though generally the offeror has the power to

create the terms of acceptance, this power does not extend to mandating
that silence equal acceptance. Silent acceptance binding an offeree would
be contrary to the universally accepted tenet that there must not be a
contract where there was definitely not a meeting of the minds. For, even
though objective considerations have replaced the subjective for proof
purposes, even the objective considerations are designed with the express
 purpose of coming as close as possible with limited evidence to allowing
contracts where there is a subjective meeting of the minds. Even this rule,
however, has its exceptions

2) Carlill v. Carbolic Smoke Ball- The carbolic smoke ball was a

“medical” device. In an advertisement, the makers of the ball indicated
that it had deposited 1000 lbs. in a bank for the purposes of dispensing 100
lbs to anybody who had used the ball for two weeks as recommended and
then contracted influenza. Court ruled that Carlill’s performance as
stipulated in the ad constituted acceptance of the offer, and that it wasn’t
necessary for her to inform CSB that she had accepted the offer.

D) Termination of Power of Acceptance- The power of acceptance is

eliminated by (1) lapse of the offer, (2) by its revocation, (3) by the offeror’s
death or incapacity, or (4) by the offeree’s rejection.

1) Lapse- The length of time an offer is available for acceptance is

determined either by the offer itself or by reasonableness under the
circumstances. For example, items whose price tends to fluctuate require
a shorter time limit for acceptance, whereas the opposite is true for items
with more stable values, such as real estate.

a) Face to face rule- Generally, offers given in a face to face

conversation, unless otherwise specified, do not extend past the
end of the conversation.

2) Revocation- Generally, an offeror is free to revoke until the offer is

accepted.

a) Option contracts- Option contracts get their name from their

special nature vis-à-vis revocation. Option contracts specify an
amount of time in which the offer will be available, and the offer
must stay open during that time. Option contracts must have
consideration, but generally even a mere pretense of consideration
is valid.

b) Indirect Revocation- As shown in Dickinson, revocation need

not be expressed by the offeror herself. Any reliable information
tending to indicate that the offeror no longer intends to be bound
by his original offer will cause the offer to lapse. This is consistent
with the idea that even though a meeting of the minds does not
necessarily have to occur, that a contract can nevertheless not be
formed when there DEFINITELY ISNT a meeting of the minds.
 c) Dickinson v. Dodds- Case of an option contract without
consideration. Dodds sent a letter to Dickinson with an offer and a
p.s. stipulating that the offer would be left open until 9 am on a
certain day. Dickinson, taking Dodds to be bound by this option,
did not act on his acceptance right away. However, hearing that
somebody else was about to buy the property, he hurried to meet t
he 9 am deadline. He met him before 9 am, then sued for breach
when Dodds denied to convey the property. Court ruled that the
promise to leave the offer open was without consideration and that
as such Dodds was free to sell the land to somebody else, and also
that the offer lapsed when Dickinson heard about the other
negotiations, since at that point he was no longer under the
impression that Dodds had his terms in mind and was prepared to
sell them to him under those terms; in other words, the it was
unreasonable for him to think that the offer still stood.

d) Toys, Inc. v. Burlington- Case involving Toy store who rented

space in a mall on a five year lease w/ an option to renew for
another five years. Agreement stipulated an option to renew for
five years if notice of intent to renew was given a year in advance
of expiration of original lease. A letter of intent was given, but an
argument ensued over rental price for the next five years. Lessor
contended that Lessee did not meet the deadline for renewal and
that the option in the original contract was without consideration.
This case shows, first, that one promise or performance by a party
can be consideration for multiple promises by the other party. In
this case, the payment of rent was the consideration for both the
promise to rent the space and the promise to keep the offer to
renew open until a year before expiration. Court held that validity
of acceptance was not a matter of law and sent it back for trial, but
ruled conclusively on the matter of consideration.

3) Death or Incapacity- Generally, death or incapacity of the offeror

voids the offer, but option contracts remain valid past death, until the
normal time of expiration.

4) Rejection- A rejection is a response by the offeree clearly indicating

that they do not wish to bind themselves to the terms of the offer. A
rejection takes away the power of the offeree to create the contract until a
new offer is given. Rejections include “counter-offers”, because a
counter-offers act simultaneously as rejections of the old offer and as a
new offer. There is often dispute over which party in a negotiation was
the last offeree and was therefore entitled to set the final terms of the
contract for acceptance. The question of whether a response is a
counteroffer or an acceptance is informed by the “mirror image rule”. A
failure to accept any terms of the offer, under this rule, makes the response
 a counter-offer rather than an acceptance. If the parties begin performance
under the contract, the party that made this last response is entitled under
law to the terms it specified in its counter-offer.

a) Mailbox Rule- The mailbox rule is the generally adhered to

rule that the acceptance of an offer is valid upon mailing it. Or,
placing it in the mailbox. The rule was crafted to give offerees an
assurance that their acceptance would count, regardless of how late
the offer was received, etc. REVOCATIONS are not subject to the
mailbox rule, and are not effective until received. Similarly,
rejections are not valid until received. Courts generally hold that
BOTH PARTIES ARE BOUND by the mailing of an acceptance
letter, and not just the offeror. In other words, telephoning a
rejection to the offeror after mailing an acceptance does not
invalidate the acceptance. MAILBOX RULE DOES NOT APPLY
TO OPTIONS.

i) Restatement sec. 40- Mailbox rule does not apply to

acceptances sent after a rejection has already been sent.
Rather, in this situation it depends which correspondence
arrives first. If rejection arrives first, then acceptance is
only a counter-offer.

E) Precontractual Liability- This is where the “Brooklyn Bridge Hypothetical”

applies. In a case where performance is sought in exchange for a promise,
beginning to perform concludes the contract and not finishing the performance.
This rule makes sense, since the performance sought in exchange for a promise
may sometimes be long and drawn out, and can require long periods of time and
great expense to complete. It would be unfair to allow the promissor to have the
power to revoke the whole time. In addition liability is conferred in situations
where the terms of an offer are detrimentally relied upon, as in the case of the
subcontractor’s bid in Drennan v. Star Paving, below. In cases such as Drennan,
it is ruled that an implied promise (given the situation) not to change the terms of
the offer is detrimentally relied upon by the offeree. Enforceability is governed
by the same analysis as ordinary detrimental reliance, as set out by
RESTATEMENT, SEC. 90.

1) Drennan v. Star Paving Co.- This case involved a subcontractor who

made a mistaken bid to the general contractor, who in turn relied on false
bid in its bid to a school district. It was ruled that contractor could recover
difference between false bid and next highest bid based on detrimental
reliance on the terms of the original offer, since Drennan’s acceptance of
the offer was in good faith and all the requirements of Restatement sec. 90
were evident, i.e. Detrimental Reliance, Avoidance of injustice,
foreseeability of reliance. It was essentially ruled that under the
circumstances there was an implied promise not to revoke on the part of
 the subcontractor that did not require consideration because it was relied
upon by Drennan.

2) Channel Home Centers v. Grossman- Dispute focused on a letter of

intent signed by Grossman, owner of a property, and CHM, a prospective
tenant. CHM became interested in the site and gave notice of their intent
to rent the property. CHM then sent a letter of intent to negotiate solely
with CHM, while requesting that CHM send a letter of intent back in order
that Grossman might show it to banks from whom he hoped to receive
financing. Court ruled that this exchange of letters of intent may have
been a valid contract, and reversed a summary judgment for Grossman on
the validity of the contract. This case shows that courts may find a valid
contract to have been made despite the fact that neither side believed that
the negotiations were finished and neither side had signed an official
agreement. The type of contract that may have been found here, however,
does not bind the parties to a lease agreement, but rather to an agreement
to continue negotiations in “good faith”.

F) The Definiteness Requirement- There is a minimum amount that must be

apparent in the words or letters exchanged by the parties to determine to a
reasonable level what agreement was meant. Perhaps “definiteness” is not the
right word, because in most cases something far from definite is required. It must
simply be clear what kind of agreement was meant by the parties, on a more
specific than general level. This, along with a prior history between the parties or
of each of the parties with the kind of contract at issue or other such informative
evidence, is usually enough for a court to find sufficient definiteness in an
agreement. The court’s attitude towards this issue is informed by their general
positive attitude towards contract as well as by a knowledge that contracts are
rarely perfect anyway. Courts prefer that an contract be enforced that imperfectly
reflects the actual intent of both parties than that no contract be enforced at all.
Even obviously vague phrases like “reasonable time” and “good faith” are found
to be sufficiently definite, given either prior history of the specific parties or even
the general behavior of the terms in contracts generally.

III. Statutes of Frauds- A statute of frauds is a statute governing the enforceability of

certain kinds of contracts. These statutes have been met with uncertainty and confusion
by the courts, and they tend to be enforced grudgingly and sparingly, since there is much
doubt as to whether the statutes encourage more fraud than they prevent, since one
party’s knowledge of the statute encourages that party to use that knowledge to lead
another party to ruin through oral agreements he intended to breech.

A) Types of Contracts Ordinarily Subject to Statutes of Frauds

1) Suretyship Contracts
2) Sale or Lease of Land to last more than 1 year.
3) Agreements not to be Executed for More than One Year
 4) Contracts between Married Couples
5) Loans over a certain Amount, ex: 50000 dollars

B) Exceptions to Statutes of Frauds- Courts sometimes find exceptions to a

requirement for a contract to be in writing in cases where injustice would be
committed if statute were applied.

1) Monarco v. Lo Greco- Case involving rights to a property promised by

a couple to the son from another marriage of the wife. The son worked on
their farmland and was only kept there upon the promise to leave the
substantial value of the property to him in their will. Despite this promise,
husband never entered this promise into his will and instead left the
property in full to his son. Trial court entered summary judgment for
husband’s son. Appeals court found error in the judgment, ruling that oral
agreement should stand despite statute of frauds’ forbiddance, because
both (1) The oral promissee had changed his position to his detriment in
reliance on the promise, and (2) the promissor would have been unjustly
enriched if the promise had been found unenforceable pursuant to the
statute. Evidence of either one is enough to negate the statute.

a) General Rule for Estoppel of Statute of Frauds- The general

rules for estoppel of enforcement are similar to the general rules
for reliance on a promise (Restatement, sec. 90) and unjust
enrichment.

IV. Policing the Bargain

A) Status of Parties

1) Mental Infirmity- Generally, mental infirmity of any kind is judged to

void the contract if the mental infirmity caused the party not to reasonably
understand the terms of the contract and the other party has reason to
know of the infirmity. In extreme cases, it is not necessary for the other
person to know of the infirmity. This is true of intoxicated parties as well.

a) Ortelere v. Teachers’ Retirement Bd.- A controversial case

involving a schoolteacher who decided to exercise an option in her
pension with school to receive a large loan and to receive larger
monthly installments until death rather than receiving a smaller
monthly stipend and leave the entire remaining portion for her
husband upon her death. Court ruled that her decision was so
egregiously inappropriate that it could be inferred that her decision
was caused by her illness, and thus ruled that her decision to
change the method of payment was void.
 2) Infancy- In most jurisdictions, there is a “magical age” over which
people are held responsible enough to enter into contracts and under which
the opposite. Unless the contract is for “necessaries”, any contract signed
by one under this age of majority is avoidable. An infant may disaffirm
their contracts at any time up to and a reasonable time after reaching the
age of majority.

a) Keifer v. Fred Howe Motors, Inc.- Child purchased automobile

under false pretense of being 21 years or older. Court allowed
child to disaffirm the contract, return the car, and recover payments
on it. A dissent argued that a car for a parent under 21 years old
should count as a “necessary” in today’s society, and that therefore
infant should not have been allowed to disaffirm.

3) Others

B) Preexisting Duty- It is an extension of the general rule of consideration that a

promise is without consideration that is made in return for a promise or
performance that the promissee is already bound to do. Depending on the
circumstances, the line between a new promise for a new promise and a new
promise for the old promise is blurred.

1) Alaska Packers’ Ass’n v. Domenico- Alaska Packers appealed

judgment in favor of workers who struck on board a ship for higher wages
and received them. It was ruled that the new contract bargained for on the
ship was void because it contained a new promise for payment in
exchange for work already promised to be done by the sailors. As such, it
was ruled that there was no consideration for the new promise, and that the
extra wages should be returned by the sailors to Alaska Packers.

2) Watkins and Son v. Carrig- Case similar to Alaska Packers in which

contractor bargained for increase in price when adverse conditions were
found in a basement to be excavated. Homeowner agreed to price
increase, but later claimed that it only owed the original amount because
the promise to pay the higher amount was without consideration. Judge
ruled that this was a case of rescission of the earlier contract in favor of a
new, more fair contract, and that as such it was a new promise for new
work instead of a new promise for old work.

3) Difference between Alaska and Watkins- How is the difference in

these decisions to be accounted for? One idea is that the first situation was
one of duress, and that the second was not. This idea has some weight,
although the first situation would not be a classic case of duress, since a
contract was already signed. Alaska was in a position to sue the workers
for damages from their not working, probably, and so really did not have
an excuse to sign the contract. Some courts and commentators have
 explicitly adopted the rule that a modification made under duress is not
valid, or that a modification is invalid unless lack of duress is proven.

C) Duress- Despite having the outward signs of a valid contract, an agreement

must be voided if it is found that the agreement was made while one party was
under the pressure or threat of the other.

1) Austin Instrument v. Loral Corporation- Court ruled on whether an

agreement to an increase in price was made under duress and therefore
invalid. Austin Instrument was subcontracting for Navy contractor Loral
Corporation. Austin Instrument threatened to delay delivery of goods
already promised to Loral unless Loral agreed to substantial price
increases and to award Loral exclusive right to manufacture the parts for
the next contract with the navy. Court ruled that Loral’s agreement was
made under duress because they were in a position where they had no
choice but to comply with Austin’s demands, because of their pressing
obligations to the Navy, since according to Austin there was no other
source available from which they could receive the parts owed to them by
Austin on schedule.

D) Concealment and Misrepresentation- Here courts ask themselves the

question of what people can be expected to reveal to their adversaries in a
negotiating context, and also what they are expected not to do, e.g. misrepresent
or mislead. In answering this question, courts come down somewhere between
requiring a party to behave with utmost scruples and allowing the worst kind of
deviance and dishonesty to the detriment of the opposing party. Importantly,
rescission is not usually granted for “bare non-disclosure” of a factor of which
one is aware.

1) Kannavos v. Annino- Annino put property up for sale, advertising it

as a rental property, with the knowledge that the property was not zoned as
a rental property. Kannavos rented the property and then attempted to
rescind the deal. Court ruled for Kannavos, holding that the representation
by Annino that the building may be rented out amounted to
misrepresentation regarding a crucial element of the deal, and that as such
the case met the requirements of misrepresentation. Contract rescinded.

2) Elements of Misrepresentation

a) False Statement

b) Reasonable Reliance

c) Statement Must Be about a Material Fact

 d) Exceptions to False Statement Rule can Apply when a
Represenation Can Be Construed as a Half-truth Instead of a
Simple Failure to Disclose

e) Another exception applies with Special Relationships, like

Lawyer/Client, Doctor/Patient, etc. where Disclosure is
Expected.

f) Misrepresentation Extends to Awareness of Mistake of

Adversary.

E) Unconscionability- Unconscionability is a relatively new policy that allows

courts to deal with contracts that, if allowed, would tend to have a profoundly
negative influence on the public at large. This is a new and controversial
development in contract law, and has been met with skepticism. The main reason
given for its development is the shift in the role of contracts in everyday life from
protector of the interests and freedom of the individual to protector of the interests
of a privileged class, usually corporations. The instrument of this shift has been
FORM CONTRACTS. Whatever the reason, courts today are willing to take into
account the terms of the contract along with the relative bargaining strength of the
parties in concluding that the terms of a contract are UNCONSCIONABLE.

IMPORTANT NOTE: SUBSTANTIVE AND PROCEDURAL

UNCONSIONABILITY- The most common rule for unsconscionability
is that a contract may only be found unconscionable if it is, at least to
some extent, both PROEDURALLY and SUBSTANTIVELY
unconscionable. For instance, unconscionability becomes an issue most
often in “adhesion contracts”. Adhesion contracts are examples of
contracts which have a procedural unconscionability element.
“Procedure” refers to the extent to which the process of contract formation
differs from the ideal situation of equal bargaining partners coming to a
fair agreement. Adhesion contracts, by their definition, depart from this
format. However, not all adhesion contracts are found unconscionable. It
is arguable that there is such thing as a “fair” adhesion contract, and such
contracts would promote the public good by allowing agreements fair to
both parties to be made in the most convenient manner possible, saving
time for the 99 percent of people who will not be unhappy with the
transaction in question. Thus there is a separate requirement of
substantive unconscionability, which refers to the unfairness in the terms
of the contract. Importantly, it is also the case that substantive
unconscionability alone is not enough (except in extreme peppercorn
cases) for a finding of unconscionability. If both parties are on equal
footing in a negotiation, it is in the public interest to let the results of the
negotiation stand, lest these sorts of negotiations be discouraged generally,
a most tragic result. This of course is a far more controversial and tricky
thing to deal with. Though both of these factors must be found, more of
one may make up for a lack in the other.

1) Boilerplate “Contracts”- Boilerplate contracts offered usually by

businesses that are assumed to be agreed to by a certain action. The
classic case involves a contract written on the back of a stub given for
receipt of a load of laundry at a dry-cleaning establishment. The terms of
such “contracts” are heavily scrutinized, and it is most certainly not the
case that their terms are generally valid. Usually, the terms will be
adhered to, but not if the terms are such that if the customer had known
about them she would not have agreed to enter into it. Judges’ response to
boilerplate contracts often fall under the category of “procedural” methods
of dealing with unconscionable contracts, because the faults often found
with them center on failure for one party to assent to the terms of the
contract, thereby causing it to lack one of the essential qualities of a
contract, regardless of substance. This method is attacked by some, who
feel that there are negative consequences resulting from dealing with
unconsionability problems by altering procedural rules.

a) Restatement sec. 211- Terms in a boilerplate contract are

generally assented to if it the party manifests his assent in a way in
which he would tend to know to be such an assent. This is an
entirely objective measurement. However, terms for which it is
adjudged that the person would not have assented had he known
about them are voidable.

2) Carnival Cruise Lines, Inc. v. Schute- Dispute centered around

validity of a forum selection clause in a cruise passage contract. Majority
ruled that clause was not unconscionable because passenger had ample
opportunity to read the contract and did not have to agree to the terms and
because the terms themselves were not unreasonable, since it required that
the suit be litigated in a state of the United States. Dissent argued,
however, that the clause should have been thrown out, partially because
the contract was only given to the passengers after the ticket had been
purchased, at which time the ticket was non-refundable. Besides this
procedural issue, the dissent took issue with the majority’s decision on the
reasonableness of the forum, since the forum, Florida, was a great distance
away from Washington, the home of the passenger, and the costs of
litigating such a great distance away were arguably too great and
unreasonable.

3) Williams v. Walker-Thomas Furniture Co.- Case involved a woman

who purchased a great many things on credit from a rent-to-own
establishment. The establishment included in its rental contracts an
apportionment clause and a dragnet clause, which effectively made it
impossible to pay off any of the items purchased until all were paid off.
 Woman purchased a stereo set and missed payments on it. According to
the contract, Walker-Thomas was allowed to come and take back all of the
items purchased previously by Williams, some of which should have been
long paid off were it not for the apportionment clause. Court reversed
summary judgment for furniture company because it was not clear
whether the contract was unconscionable as against public policy. In its
opinion, the court cited the rule on unconscionability include two
elements: (1) the absence of meaningful choice on the part of one of the
parties, and (2) terms unreasonably favorable to the other party.

4) Brower v. Gateway 2000- Case involving boilerplate contract shipped

with computer upon catalog purchase. The term locked the purchaser into
binding arbitration with a firm of the computer company’s choosing. This
term was ruled unconscionable, but only because the price and location of
the arbitration firm was unreasonable, and inappropriate in a contract of
adhesion. It is important to note that it was only this problem that the
court found unconscionable. It was willing to accept everything else in
the contract, despite the fact that none of it was bargained for. The court
demonstrated a tendency to put the onus on purchasers to read contracts
and realize the implications of the terms therein. Caveat Emptor.

5) Armendariz v. Foundation Health Services- Debate in court centered

around the unconscionability of a mandatory arbitration clause imposed on
employee, Armendariz, in an adhesive employment contract. Having
decided quickly on the procedural element, the court went on to consider
the substantive unconscionability of the contract. The court found that the
a “modicum of bi-laterality” must exist in arbitration contracts, and that
such was not present in the case-at-bar. Particularly, the contract
mandated arbitration for employee’s claims arising out of wrongful
termination, whereas employer’s claims arising out of the same transaction
were not so limited. This was found to be unconscionable, enough so that
it made up for the general advantages to the public in allowing arbitration
in such situations. In addition, the contract allowed for only back-pay
damages to be awarded to the employees in arbitration for wrongful
termination, whereas there was no such limitation on the employer’s
claims.

F) Public Policy Considerations- On rare occasions courts make and enforce

rules pertaining to particular types of contracts that are by their nature against
public policy. Such types of contract include contracts to commit crimes and
contracts in restraint of trade, and used to include unreasonable pre-nuptial
agreements. Courts are reluctant to exercise their power to uphold public policy
by refusing to enforce contracts, and the situations are limited in which the issue
comes into play.
 1) Central Adjustment Bureau, again- In its musings on reasonableness
of the terms of the non-compete, court considered which method would be
appropriate to deal with the unreasonableness of the contract. In the end,
the “blue pencil” method was chosen. Usually, courts deal with unfair
terms by altering them to make them reaosonable or throwing them out
altogether.

2) Simeone v. Simeone- Court refused to throw out an arguably unfair

prenuptial agreement, deciding that it was no longer a special issue of
public policy to protect women against unfair prenups, since such a policy
is contrary to the overriding policy to promote equality among the sexes.

V. Remedies

A) Specific Performance- The common law approach to remedies is to award

damages in money terms unless it would be impossible to provide an adequate
remedy otherwise.

1) Klein v. PepsiCo, Inc.- Disputed contract centered around sale of a

Gulfstream jet by PepsiCo to Klein. Trial court found that specific
performance was warranted because there were few jets on the market of
the kind, and that obtaining a new one would be an extreme hardship.
Appeals Court vacated this judgment, arguing that the plane was not
unique enough to warrant specific performance, and that a monetary
award would suffice for damages, especially since the buyer intended to
sell the plane immediately at a profit.

B) Expectancy Damages-

1) Vitex v. Caribtex Corp.- Suit by Caribtex to recover part of damages

awarded to Vitex for breach of contract. Contract was for payment for
processing of wool. The question concerned whether reasonable overhead
costs should be deducted from the gross profits on the transaction. Court
ruled that such costs should not be deducted, for several reasons. The
most compelling is that overhead costs are normally covered by the price
imposed in each transaction, so that a loss of the overhead portion of the
price of one transaction would result in a net loss for the company or a
need to increase its price for other transactions, which it should not have to
do. It was ruled that the damages awarded should only be reduced by
expenses incurred for that particular job. Also, it was found that overhead
would have remained constant, regardless of the contract, meaning that the
only expenses related to the contract were for the specific job. In addition,
the portion of overhead relating to the job might be likened to a loss
incurred.

C) Limitations on Damages
1) Avoidability- Breach is not necessarily “bad”, in a moral sense.
Rather, the only “bad” thing would be to keep parties to contracts from
experiencing the benefits of those contracts, because it might discourage
parties from entering into those contracts. Thus, parties who breach are
not treated as criminals. This explains the court’s attitude toward
avoidability. Avoidability says that when the other party breaches, there is
a duty owed by the other party to leave up with performance of the
contract. There is no right to continue the contract and actually attain the
end result, just as there is no right to specific performance. And parties
must take care not to incur additional unnecessary expenses post-breach,
for these expenses are unnecessary for purposes of upholding the values
that contract law upholds.

a) Rockingham County v. Luten Bridge Co.- A typical example

of unrecoverable expenses for work continued after breach. Bridge
was contracted by the county to be built for a road that it later
decided would not be built. It notified the Bridge constructor to
this effect, but bridge constructor continued work on the bridge
anyway, then sued to recover payment for work done on the bridge
post-breach. Court refused to award these damages, reasoning that
such damages are inappropriate because there is no right to
payment for the work, but rather only to receive the eventual
benefit of the contract, and that continuance of a breached contract
is wasteful.

b) Parker v. Twentieth Century-Fox Film Corp.- Film actress

sued to recover payment under a contract to act in a film that the
film company decided not to make. Fox argued that Parker should
not recover because she was given an opportunity to mitigate the
damages by Fox (to act in another movie) which she refused to
take. Court rejected Fox’s argument, reasoning that in order to
mitigate the damages the movie must have been a perfect substitute
for the movie originally contracted for, and that the new movie was
substantially different in substance and did not amount to a legal
substitute.

c) Groves v. John Wunder Co.- Plaintiff appealed judgment

thought to be less than appropriate. Contract was for excavation of
ground, and landowner was paid certain sum for excavation rights
and promised that the ground would be leveled after the
excavation. Defendant willfully breached the contract. Trial court
ruled that Groves’ damages for Wunder’s breach should be the
difference in value between the land value leveled and unleveled,
which left the plaintiff with a substantially smaller sum than the
price required to relevel the ground. Court overruled trial court’s
ruling, reasoning that plaintiff is owed exactly what he wanted,
 regardless of the capriciousness of his wishes, and that defendants
should not be able to choose not to perform their end of a contract,
based on their view of the desirability of the outcome.

2) Foreseeability- Damages for “consequential damages” are limited to

those damages foreseeable upon formation of the contract. Foreseeability
of this kind may result either from common knowledge or specific
knowledge conferred upon one party by the other of the consequences of
breach. If these possible consequences are not disclosed, damages can not
be recovered for them. Even if possible consequences are disclosed,
damages can only be recovered for those exigencies that arise naturally
from breach. Courts must exercise considerable discretion in determining
which damages fall under this categorization, much as in “proximate
cause” analysis. Also like “proximate cause” analysis, foreseeability plays
a huge role in determining which exigencies should be covered. NOTE:
Parties may contract around this general rule by determing
beforehand which exigencies are recoverable and which are not.

a) Hadley v. Baxendale- Contract for conveyance of driveshaft

for steel mill. Judge ruled that consequential damages were
inappropriate for failure to meet delivery time, because conveyors
were not notified as to the possible consequences of breach.

3) “Losing Contracts”- Losing contracts are those which, had they been
performed, would have resulted in a loss for the injured party. Under rules
based on expectancy costs, these parties would be left with a loss.
Sometimes, however, this loss may be recovered through restitution. The
argument is that work done on a contract is benefit conferred, and that a
reasonable price should be paid for that benefit. A “reasonable price”,
obviously, should (at least) include the costs to the conferrer of conferring
the benefit. A court might feel squeamish in certain circumstances where
the conferrer’s business was especially wasteful, but in most cases
restitution makes sense.

b) U.S. v. Algernon Blair, Inc.- Subcontract for supplies for

metal work on a Navy hospital. Court ruled that restitution was
proper for benefits already conferred by the subcontractor, up to
the costs of conferring those benefits, regardless of the expectation
of expected result of performance by the subcontractor.

D) Liquidated Damages
Agreement- A contract is an agreement between two people. For two parties to truly
“come to an agreement”, both parties must have the same idea of what they are agreeing
to and must be clear that they are agreeing. The rules pursuant to these elements are
geared towards enforcing agreements that have these elements, but are focused
necessarily on the outward signs of the inward qualities of an “agreement”.
Contracts Outline

CONTRACTS

Parol Evidence Rule (PER)

In general, the PER bars evidence that certain agreements made prior to or concurrent with the
signing of the contract from being included in the agreement.
I. Generally
A. Covers extrinsic statements – statements made that are outside the K.
B. Applies only where the later expression of the agreement is in writing.
C. When a later express of intent is oral, the jury usually determines whether the parties
intended whether the intent was that the oral agreement supersede any previous
agreement
D. What a later agreement is in writing, the judge determines if it should supersede.
E. Only allowed when statements supplement the writing and are not contradictory to the
agreement.
II. Total and Partial Integration
A. Partial vs. Total Integration
1. Partial – If the parties did not intend to include all details of the agreement,
than it is considered partially integrated
a) Authoritative as to what it addresses
b) Allows extrinsic statements (oral or written) to be used to supplement
or modify, but not contradict, the agreement
2. Total – If the full intent of the parties is captured in the document, it is
considered total integration.
a) Authoritative as to all aspects of the agreement
b) Complete – covers the whole agreement
3. Unintegrated – statements can supplement or contradict
a) Not authoritative
b) Not complete
III. Summary: the PER provides that evidence of prior agreement may never be admitted to
contradict an integrated writing, and may furthermore not even supplement an integration
which is intended to be complete.
A. Gianni v. Russell & Co.
1. Facts: π enters into lease with Δ. Lease states that π will not sell tobacco. π
contends, but it is not stated in agreement, that he was to have exclusive right to
sell soft drinks in exchange for higher rent, etc.
a) Traditional approach – Looks only at what is in the writing. The
exclusive right was not in the writing. Thus, the statements (exclusive
right) were not enforceable.
b) Benefits of traditional approach
(1) More immune to attack
(2) More certain
(3) Bjerre believes this is too closed and ignores credibility.

B. Masterson v. Stine
1. Facts: Δs owned a ranch as tenants in common and conveyed it to π by grant
deed, reserving an option to purchase it back w/i 10 years for the same
consideration plus depreciated value of improvements. π went bankrupt and

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bankruptcy trustee attempted to enforce option. Δ stated there was an extrinsic

statement stating the option was not assignable or transferable.

a) Modern approach – Allows the extrinsic statements to be considered

part of the K because they supplemented and did not contradict the words
of the K. It must be determined whether the parties intended the written
agreement to be the complete and full embodiment of the terms.
b) Benefits of modern approach
(1) More subjective
(2) More fair if power is imbalanced
(3) Better reflects intent of parties.
c) Against – Too flexible.

C. Integration Clauses/Merger Clauses

1. TOOL: Can add an integration clause to the K to express the intent of the
parties that the K represents the entire agreement. This is a clause indicating that
the writing constitutes the sole agreement between the parties.
a) E.g. - “this agreement constitutes the entire agreement of the parties,
there being no other agreements or understandings pertaining to the
purchase.”
b) Not necessarily effective, but does add credence to the K.
c) Only protects against statements made prior to or concurrent with the
agreement.

D. Modifications Clauses
1. Tool: Can explicitly indicate the intent that no oral modifications made prior
to or subsequent to the K will be enforceable.
a) Effects provisions varied during conversations after a K has been
made.
2. Generally enforceable. An oral modification is enforceable under TX law
even if the K forbids oral modifications.
3. Subsequent agreements supported by consideration are OK.
4. UCC – A signed agreement which excludes modification or rescission except
by a signed writing cannot be otherwise modified or rescinded.
a) §2-209 - No oral modification clauses cannot be modified or rescinded
(but under subsection 4, what may fail to be effective as modification or
rescission may nevertheless be effective as a waiver under 5.
5. Requires real assent from both parties

IV. Exceptions
A. Mutual Mistake
1. Bollinger v. Central Pennslyvania Quarry Stripping and Construction
a) Facts: Parties enter into K whereby Δ is to remove topsoil, deposit
refuse and then replace topsoil. The K did not include the condition that
topsoil be replaced. Δ initially replaces topsoil and then refuses to replace
it. π remonstrates (formally protests) and files action for reformation.

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b) K was reformed to make it correspond to the intent of the parties. This

must be a mutual mistake. The mistake was evidenced by the Δ’s initial
actions to replace the topsoil.
2. Requirements:
a) Both parties must be mistaken
b) About “written” words/contents of the K.

B. Collateral Agreements
1. Test: would this be “naturally and normally” included in the agreement or be
a separate agreement. If not naturally and normally included, then it is a collateral
agreement.
2. Collateral agreements are related to the idea of supplementing a non-
integrated clause; sometimes it is difficult to determine whether an agreement is
collateral or should have been included in original K.
3. Gianni – Exclusive right not a collateral agreement b/c would have been
included in original agreement.

C. Fraud
1. Fraud in the inducement
a) Fraud in why you are signing
b) Is NOT about the contents of the K
c) Makes the K voidable
2. Fraud in the execution
a) One side intends to deceive the other about the words written or not
written – or
b) “knowing misstatement w/ intent that other person will rely on it.”
(1) Remedy: Reform K.

Interpretation
Interpretation deals with how the parties may show the meaning of the terms contained in a
writing.
I. Ambiguity v. Vagueness
A. Ambiguity – Language could have one of two separate meanings.
1. Usually interpreted in favor of the P with less power in the K
2. Raffles v. Wichelhaus
a) Facts: Parties made a deal to buy cotton from the ship Peerless. There
were 2 ships named Peerless. The seller and buyer had different views on
which ship was agreed to.
b) Held: No K. There was no mutual assent, thus no meeting of the
minds.
c) Rule: Where neither P knows or has reason to know of the ambiguity
or where both know or have reason to know, the ambiguity is given the
meaning that each intended it to have.
B. Vagueness – Various shades of one meaning
1. eg – green, chicken
2. Frigaliment Importing Co. v. B.N.S. International Sales Corp.

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a) Facts: π ordered “chicken” from Δ, intending to buy young chicken

suitable for broiling and frying, but Δ believed, in considering weights and
prices, that the order was for older chicken suitable for stewing.
b) Rule: The P who seeks to interpret the terms of the K in a sense
narrower than their general use bears the burden of persuasion.
c) Lesson: For interpretation, we look outside the K to find meaning.
Can look to trade usage or incorporation by reference.

II. Traditional v. Modern Approach

A. Traditional: Plain meaning test (aka four-corners approach)
1. Provides that the meaning of any writing which appears to be clear, complete
and not ambiguous on its face will be determined w/o resort to any extrinsic
evidence.
2. Adv. – certain and objective
3. Dis. – Bjerre does not like it. He believes language should always be viewed
in context.

B. Modern: Allows parties to introduce evidence of what they subjectively thought the
terms in the writing meant.

C. Steuart v. McChesney – Traditional Approach

1. Facts: Δ’s provided a right of first refusal to π to purchase a farm for m.v. as
maintained by the county. Δ obtained two offers much higher than county m.v.
2. Court looked to language of the K. Bjerre – court failed to recognize the
definition of a right of first refusal. Such a clause provides the optionee a right to
meet the terms of a 3rd party offer.

D. Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging – Modern Approach
1. Facts: Δ entered into agreement w/ π to remove and replace the upper metal
cover of π’s steam turbine. Δ had agreed to accept responsibility for work and
“indemnify π “against all loss, damage, expense and liability resulting from …
injury to property.” Black’s definition of Indemnify - To reimburse another for a
loss suffered because of a third party’s act or default. During the work, the cover
fell and damaged the turbine.
2. Held: Offered evidence as to meaning of indemnify was allowed to void the
plain meaning.
3. Rule: The test of admissibility of extrinsic evidence to explain the meaning of
a written instrument is not whether it appears to the court to be plain and
unambiguous on its face but whether the offered evidence is relevant to prove a
meaning to which the language of the instrument is reasonably susceptible.

E. Stanley Fish
1. Language can never be fully understood outside of the context in which it was
written. The modern approach takes into consideration the intent of the parties
in making the agreement.

F. Delta Dynamics

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1. Facts: parties entered into a K for π to provide and Δ to sell a min # of locks
over a 4-year period. Δ did not meet the minimum.
2. Held: When the K does not address an issue, it does not mean that issue is
precluded. Here extrinsic evidence should be considered and included.

III. Maxims
A. Maxims are not decisive and are not rules. They are merely factors weighing in the
interpretation of a document.
1. Contra Preferentum – Terms are interpreted against the author or profferor.
Ambiguous terms are generally held against the drafter. Is generally given lesser
weight when both parties are represented by counsel.
a) Motivates the drafter to eliminate ambiguities
2. Ejusdem Generis – adj. Latin for "of the same kind," used to interpret loosely
written statutes. Where a law lists specific classes of persons or things and then
refers to them in general, the general statements only apply to the same kind of
persons or things specifically listed. Example: if a law refers to automobiles,
trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would
not include airplanes, since the list was of land-based transportation.
3. Expressio unios est exclusion alterius – Latin for “the expression of the one
thing is the exclusion of another.
4. Noscitur a sociis – Latin for it is known from its associations.

IV. Trade Usage

A. Looks to the usage of the word as used by people in the trade.
B. Incorporation by reference – good method of avoiding litigation
C. Sources of meaning in the UCC
1. Course of performance – refers to the way the parties have conducted
themselves in performing the particular K at hand.
2. Course of dealing – looks at the pattern of performance between the parties
under past contracts.
3. Usage of trade – any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation.
D. Hurst v. W.J. Lake & Co. – Modern Approach
1. Court used trade usage to determine that 50% horse-meat meant 49.5%.
E. Parol Evidence Rule Implications
1. Trade usage may be introduced to help interpret the meaning of a writing even
if it is a complete integration. §2-202(a). Sources are thus not effected by the
parol evidence rule.

V. Aids in interpretation
A. Statutory analogy
B. Purpose interpretation
1. examination of the law before enactment of the statute
2. ascertain the “mischief or defect for which the law did not provide relief”
3. analyze the remedy provided by the legislature to “cure the disease.”
4. determine the true reason for the remedy
5. apply the statute as to suppress the mischief and advance the remedy.

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C. Public interest – where K’s that involve performance that would be in violation of
some strongly rooted public interest, often expressed in a statute, may be held to be
unenforceable.

Filling Gaps
Where the K may not be completely definite as to all essential terms, the courts may supply the
missing terms where it is apparent that the parties wanted to bind themselves.

I. Terms
A. Implication – the process of when the court inserts a term into a K where none exist.
B. Interpretation – Process by which a court determines the meaning that the parties
themselves attached to their language
1. §227 (1) - The preferred interpretation avoids the harsh results that might
otherwise result from the non-occurrence of a condition and still gives adequate
protection to the obligor under the rules… relating to promises for an exchange of
performances.
C. Construction – process by which a court determines the legal effect of the language
D. Default rules – implied terms are subject to agreement by the parties.
II. Process
A. Determine whether there is a gap
B. Fill the gap

III. Purpose of gap filling

A. Secure expectations of parties during performance
B. Deal with extraordinary circumstances not anticipated in formation of K.

IV. Restatement §203

A. “When the parties to a bargain sufficiently defined to be a K have not agreed with
respect to a term which is essential to a determination of their rights and duties, a term
which is reasonable in the circumstances is supplied by the court.”
B. Duty of “good faith” – Wood v. Lucy Lady Duff-Gordon – the court supplied the
requirement that the π make good faith, reasonable efforts to promote the Δ’s fashions.
C. Duty to continue business – Going out of business can nullify a K.
1. Requirements and output Ks – Generally, the buyer in a requirements K is
required merely to exercise good faith in determining his requirements and the
seller assumes the risk of all good faith variations in the buyer’s requirements
event to the extent of a determination to liquidate or discontinue the business.
2. Courts look to the primary purpose for which the parties entered the K. If the
primary purpose appears to be achievable by both sides even though the business
is discontinued, then discontinuance will not be treated as a breach.

V. UCC
A. Reasonable price (§2-305); a place for delivery (§2-308); time for shipment or
delivery (§2-309(1)); time for payment (§2-310(a))

VI. Nanakuli Paving & Rock v. Shell Oil

A. Facts: π entered into 2 long-term agreements to have all asphalt requirements filled
by Δ. K did not mention price protection, although it was common practice.

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B. UCC 1-205(4) The express terms of an agreement and an applicable course of

dealing or usage of trade shall be construed wherever reasonable as consistent with each
other; but when such construction is unreasonable express terms control both course of
dealing and usage of trade and course of dealing controls usage of trade. Thus, express
terms have precedent over trade usage.
C. Yet, the court allowed trade usage because it was interpreted to be a gap problem.

VII. Background patterns

A. Trade Usage – What companies in the industry are doing.
B. Course of Dealing – Commonality of previous conduct by the parties to the K.
C. Course of Performance – What the parties do in the course of performing the K.

VIII. Relation to parol evidence rule

A. The court may supply a “reasonable” omitted term even if the K is a completely
integrated one. In such a situation, evidence of the parties prior negotiations or oral
agreements may be given as evidence of what is “reasonable,” but may not for the
purpose of supplying the omitted terms itself.

IX. Anti-trade usage clauses

A. Not effective – what if there is an unstated exception to the no trade usage clause?
B. An inherent problem exists b/c trade usage is meant to resolve language problems.

Conditions
A condition is a triggering event. An event which must occur before a particular performance is
called a “condition.” In general, some or all performances of a bi-lateral K will be conditional
on the happening of some event.

I. Classification of Conditions
A. Precedent/Subsequent distinction
1. Condition precedent – Any event, other than a lapse of time, which must
occur before performance under a K is due.
a) Non-occurrence discharges a contractual duty
2. Condition subsequent – event which operates by agreement of the parties to
discharge a duty of performance after it has become absolute.
a) E.g. – insurance suit which requires that a claim be brought within a
certain time, otherwise it is discharged.
b) Non-occurrence discharges a contractual duty
3. Concurrent condition – exists only when the parties to a K are to exchange
performance at the same time.

B. Express and constructive conditions

1. Express conditions may be implied-in-fact
a) An express condition is a condition on which the parties agree.
2. Constructive conditions – condition not agreed on by the parties (even by
implication), but which the court imposes as a matter of law, in order to insure
fairness.
a) E.g. – Court requires a painter to perform the work before being paid.
b) Constructive discharge – did not fire the ee, but made conditions such
that it was unbearable to work there.

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3. Importance of distinction – Important in relation to performance of a

condition. Strict compliance with express conditions is ordinarily necessary
before the other person’s duty of performance arises. By contrast, substantial
compliance is ordinarily adequate to satisfy constructive conditions.

C. Luttinger v. Rosen
1. Court held that condition of buyers obtaining a mortgage at 8.5% not met
when the best rate available was 8.75% even though sellers offered to make up
the difference. Thus, buyers need not perform.
2. This is an example of strict construction/interpretation of express condition.

D. Kingston v. Preston
1. Owner of silk store did not have to sell business to apprentice who failed to
come up with security required under the K.
2. Covenant was dependent, so Δ did not have to perform until he rec’d deposit
3. Rule: Breach of a covenant by one P to a K relieves the other P’s obligation
to perform another covenant which is dependent thereon, the performance of the
first covenant being an implied condition precedent to the duty to perform the
second covenant.

E. Dependent v. Independent Covenants

1. Dependent – covenant that is contingent upon another covenant/condition
being performed
2. Independent – covenant that is not dependent upon the other condition being
performed.
a) E.g. Promise to paint for a promise to pay $. Under the default rules,
the promise to paint would be independent and the promise to pay would
be dependent.
3. Stewart v. Newbury – Default rule for sequence of performance
a) Where K is made to perform work and there is no agreement as to
timing of payment, party cannot discontinue work until substantially
completed before demanding payment.
b) Rule: Where a K is made to perform work and no agreement is made
as to payment, the work must be substantially performance before
payment can be demanded. This is a default rule.

F. Doctrine of substantial performance.

1. If a party has materially breached his duty, he has not substantially performed,
and the other party is discharged.
2. Consequences: where a party breaches the K by deviating from its terms, but
nonetheless performs well enough that the breach is not material, the other party
always has a claim for damages resulting from the breach.
3. Jacob v. Young & Kent
a) Owner of home being built had to pay contractor even though
“Reading” pipe was not installed b/c a pipe of similar quality was
substituted.
b) Important to evaluate whether the condition, even though dependent,
can be viewed as independent and collateral when the departure is

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insignificant. Here, difference was insignificant and the inclusion of the

non-spec pipe equates to substantial performance.
c) Rule: For damages in construction K, the owner is entitled merely to
the difference between the value of the structure if built to spec and the
value it has as constructed.
4. Factors used in determining whether departure is significant:
a) Purpose to be served (intent of the parties)
b) Desire to be gratified
c) Excuse for deviation (willfulness)
d) Cruelty of enforced adherence (are goods resalable?)
e) This is no bright line rule – it is a standard.

G. Divisibility
1. See below.

II. Mitigating Doctrines

A. Doctrine of Prevention – One that prevents the occurrence or a condition of the duty
may be precluded from later asserting the non-occurrence of that condition
1. The general rule is that a P to a K cannot rely on the failure of another to
perform a condition precedent where he has frustrated or prevented the
occurrence of the condition. Kooleraire Service & Installation Corp .v. Board of
Eduction.

B. Waiver – the excuse of the nonoccurrence of a condition of a duty.

1. §84 – requirement that a condition occur may be eliminated by agreement
between the parties. Waivers can sometimes be retracted.
2. Tool: Anti-waiver Clauses – states no action or inaction by that P shall
amount to a waiver of any condition of any duty of that P. Good to include b/c
they can always be waived later.
3. Waiver after K – Waiver occurs after K formation, but before the condition
fails to occur. Since the party by “waiving” the condition has in effect modified
the K, consideration for the waiver is normally required. However, consideration
is not required when:
a) Condition is not a material part of the bargain.
b) Promissory estoppel – If the party’s manifestation of waiver induces
the other party to change his position in reliance on the waiver, the courts
will also hold the waiver binding even w/o consideration.
4. Retraction of Waiver – Can occur, even if oral. See Rest. 2d §84(2)
a) Estoppel - If the waiver was relied upon, then estoppel will preclude
retraction.
b) Election - A choice binding upon the party that makes it, even w/o
reliance by the other party.
5. Waiver after non-occurrence – After a condition has failed to occur, the
party whom the condition was intended to benefit may choose to ignore the non-
occurrence, and continue with his performance. Once the waiver after breach has
occurred, it may not be retracted.
a) Acceptance – If a person retains benefits under a K after learning that
the condition of the K has not been met, he will be held to have waived the
condition.

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(1) Only applies where the benefits rec’d by the promisor and the
performance that the promisor owes, are part of the same
exchange.
b) Election – When a condition fails to occur, the beneficiary has the
option to (1) waive the condition in which he retains the right to sue later
for damages; or (2) terminate performance and sue for breach. This is an
election. Once the election is made, he will not subsequently be able to
change his mind and cancel the K.

III. Divisibility
A. Test:
1. Is there value in the things/performance independently, or only as a whole –
look to the intent of the parties
2. Measure of damages: The rate of recovery comes from the K rate, not the full
K price, but the rate for each of the mini-Ks, minus the damages for the mini-Ks
not met.
3. Divisibility is a way around the potential harshness of constructive conditions.
B. Gill v. Johnstown Lumber Co.
1. Δ contracted with π to move logs. Court held that consideration for delivery,
as set forth in the K, was apportioned among several items at different rates per
item. As such, the K was divisible.
2. Rule: If the part to be performed by one P consists of several and distinct
items, and the price to be paid by the other is (1) apportioned to each item to be
performed, or (2) is left to be implied by law, such a K will generally be held to
be severable.

IV. Restitution
A. Defined as the value to the Δ of the π’s performance. May be awarded to the π both
in a suit on the K and in a suit brought in quasi-K.
B. Calculation of value – Market value of benefit rendered to the Δ, regardless of how
much the π was injured by the Δ’s breach.
C. Britton v. Turner
1. π was under K to labor for Δ for one year and to be paid $120 for the work. π,
w/o cause, left Δ’s employ after 9.5 mo. Court held for π in the amount of $95
based upon the π having completed 65% of the work (as opposed to having
worked 65% of the K time).
2. Rule: A defaulting P, although unable to recover on a K, may recover under a
quasi-contractual theory the reasonable value of his services less any damages to
the other P arising out of the default.

Breach
I. Breach in the course of performance
A. Factors in determining whether material breach (§275)
1. the extent to which the injured P will obtain the substantial benefit which he
could have reasonably anticipated;
2. the extent to which the injured P may be adequately compensated in damages
for lack of complete performance;

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3. the extent to which the P failing to perform has already partly performed or
made preparations for performance;
4. the greater or less hardship on the P failing to perform in terminating the K
(means the hardship to Walker if Harrison terminates);
5. the willful, negligent or innocent behavior of the P failing to perform
6. the greater or less uncertainty that the P failing to perform will perform the
remainder of the K.
B. This is a standard. It is unpredictable and not hard and fast. Must balance the factors
in determining the outcome.
C. Walker & Co. v. Harrison - Δ drycleaner entered into an agreement w/ π whereas π
would construct and install a neon sign to be leased for 36 months to Δ. Maintenance of
the sign was to be performed by the π. π failed to maintain the sign and Δ refused to
make monthly payments. Held: Failure to service sign not a material breach. If the
breach is not material, then the breach does not void the K. Especially when it is noted
that π had serviced the sign after receiving the letter from Δ.
1. Concept similar to substantial performance: Substantial performance = a
breach that is not material.
II. Total v. Partial Breach
A. Total breach: Must be a material and severe breach.
1. allows wronged party to sue immediately for damages based on the entire k.
Damages usually calculated to put the wronged party in the position he would
have been in had the k been completed.
B. Partial Breach: non-material breach
1. Does not relieve the wronged party from continuing to perform under the K.
2. Aggrieved party has an immediate right to sue for damages stemming from
breach.
a) Beware of WAIVER – treating a breach as partial can be rescinded
unless estoppel or election.

III. Anticipatory Repudiation

A. Def – when a party makes it unmistakably clear, even before his performance under
K is due, that he does not intend to perform.
B. Allows other party to suspend, and perhaps cancel, his own performance.
C. Repudiation – “a party’s language must be sufficiently positive to be reasonably
interpreted to mean that the party will not or cannot perform.
1. Ambiguity – courts are becoming increasingly willing to find that an
ambiguous statement by a party that he does not intend to perform constitutes a
repudiation.
2. Modern view: Rest. 2d §250: Categories that may constitute repudiation
a) Statement of intent not to perform
b) Action by the promisor making performance impossible
c) Indication by promisor or via some other means that promisor will be
unable to perform, although he desires to perform.
3. Expressions of doubt likely not considered AR.
D. Hochster v. De La Tour - In April, π contracted to serve as Δ’s employee beginning
on 6/1. One 5/11, Employer wrote to π that he had changed his mind and declined π’s
services. On 5/22, π brought this action for breach of K.

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1. Court allowed suit before the repudiator’s time for performance arrived.
Rationale:
a) Δ made it impossible for π to perform
b) Relationship btw parties implies promise that neither will do anything
inconsistent w/ the relationship.
c) By allowing π to recognize breach, he can mitigate damages by
finding another job or stopping his own performance.
E. Limitations on AR
1. Does not apply to installment K’s where one party has fully performed and all
that remains is for the other party to pay.
a) must sue for each payment not made – after it is due
b) This is default rule – can be contracted around by acceleration clause.
2. Will not apply whenever one party has fully performed
F. Retraction: General rule is that repudiation can be retracted. Exceptions:
1. When that repudiation has been relied upon.
2. When the other person accepts the repudiation, as the end of the contract

IV. ALLIE HAS BASIC ASSUMPTIONS – GAP FILLERS – p 335 of emmanuels

Third-party Beneficiaries
I. Doctrine of Third-party beneficiaries
A. Relevance: situations where one party makes a K the main purpose of which is to
benefit not himself, but a third party.

B. Must be an intended beneficiary (as opposed to an “incidental beneficiary) to receive

the right to sue. Categories include (§302(1)):
1. Payment of money: performance will satisfy an obligation of the promise to
pay money to the beneficiary; or
2. Intended benefit: circumstances indicate that the promise intends to give the
beneficiary the benefit of the promised performance.

C. Factors to determine intended beneficiary – whether the promise intended that the 3rd
party have the benefit of the K.
1. Reliance: If beneficiary is reasonably relying on the K as having been
intended to confer a right on him.
2. To whom performance runs: If performance is to run directly from the
promisor to the third party.
3. Beneficiary’s assent or knowledge unnecessary for right to sue.
D. Doctrine abandons the requirement for privity and consideration.

E. Lawrence v. Fox - Fox (Δ) promised Holly for consideration that he would pay
Holly’s debt to π. Held: A third party for whose benefit a K is made may bring an action
for its breach. Thus, no privity of K required.

F. Incidental beneficiary: Examples

1. B contracts with A to landscape B’s land. C, B’s neighbor, cannot sue.
2. B contracts with A to buy new car manufactured by C. C is an incidental
beneficiary and cannot sue.

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G. Getting around the rule:

1. no benefit/no inurement clauses
2. “no one can enforce this K except parties hereto.”
3. No inurement clauses theoretically can be gotten around, but are good
evidence of intent to not create 3rd party beneficiary.

Assignments and Delegation

I. Assignment and Delegation Generally –
A. Deals with attempts by a party to an existing K to substitute another in his stead.
B. Assignment distinguished from delegation
1. Assignment – when a party to an existing K transfers to a third person his
rights under the K.
2. Delegation – when the existing party appoints a third person to perform his
duties under the K.
C. Distinguished from third-party relationships in that the rights or duties are transferred
after the contract has been formed. In third-party, the beneficiary must be contemplated
at the time of K formation.

II. Assignment of Rights

A. No consideration is required. Thus, a party who is owed $$ under an existing K may
assign it to a 3rd party gratuitously, and neither the assignor nor the original obligor can
avoid the assignment on the grounds there was no consideration.
B. Assignor’s right extinguished: Upon occurrence of a valid assignment, assignor’s
rights under the K are extinguished and may thereafter only be exercised by the assignee.
C. Revocability: Assignments are revocable unless reliance or payment made.
D. Anti-assignment clauses generally unenforceable.

III. Delegation of Duties

A. Continued liability of delegator: When performance of a duty is delegated, the
delegator remains liable. Rest. 2d §318(3).
B. Not enforceable if they hurt the oblige
C. Non-delegable duties:
1. K’s involving particular skills (eg. Promisee’s own particular skills, artistic
performances, consulting, etc.)

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THE UCC
GAP FILLERS: Article 2 involves K’s for the sale of goods. It provides a series of gap-fillers.

I. §1-102 Purposes; Rules of Construction, Variation by Agreement

A. 1-102(3) The effect of provisions of this Act may be varied by agreement, except as
otherwise provided in this Act and except that the obligations of g/f, diligence,
reasonableness and care prescribed by this Act may not be disclaimed by agreement, but
the parties may by agreement determine the standards by which the performance of such
obligations to be measured if such standards are not manifestly unreasonable.

II. §2-305(1) Open Price Term

A. The parties, if they so intend can conclude a K for sale even though the price is not
settled. In such a case the price is to be a reasonable price at the time of delivery if:
1. nothing is said as to price; or
2. the price is left to be agreed by the parties and they fail to agree; or
3. the price is to be fixed in terms of some agreed market or other standard as set
or recorded by a 3rd party and is not so set or recorded.

III. §2-309 Absence of Specific Time Provisions; Notice of Termination

A. 2-309(1): The time for shipment or delivery or any other action under a K if not
provided in the Article or agreed upon shall be a reasonable time.
1. C1: Reasonable time should be based on good faith and commercial standards
set forth in §1-203, §1-204 (See next section), and §2-103.
a) §1-203: Keeps people from acting w/o good faith
b) §1-204(1): Any time not manifestly unreasonable (higher std) may be
fixed by agreement. What if we add “we agree that 6 mo notice of
termination would be reasonable notice.” The judge would likely provide
summary judgment for such a clause b/c it has been agreed to in the K.
The clause is aka a Safe Harbor
c) §1-204(2): defines a reasonable time as “what a reasonable time for
taking any action depends on the nature, purpose and circumstances of
such situation.”
d) §2-103: Definitions
2. C2: Payment time, where not agreed, is based on time of delivery. For
inspection issues see §2-513.
3. C4: Time of delivery, when open: unreasonably early offers or demands for
delivery are not final positions which amount to breach.
4. C5: When time is open, notification before a K may be treated as breached is
req’d. When both parties are silent, the reasonable time is considered to enlarge.
B. 2-309(2): Where the K provides for successive performances but is indefinite in
duration it is valid for a reasonable time but unless otherwise agreed may be terminated at
any time by either party.
1. C7: Reasonable time of duration is limited by the circumstances. When K is
has been carried on over years, the reasonable time will not term until notice.
C. 2-309(3): Termination of a K by one party except on the happening of an agreed
event requires that reasonable notification be received by the other party and an
agreement dispensing w/ notification is invalid if its operation would be unconscionable.

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1. Flexible under all the circumstances. Considers commercial practice.

D. Hamilton Tailoring v. Delta Air Lines – At issue are questions about duration and
advance notice of termination. See §2-309(3): reasonable here means π gets to sell the
rest of the uniforms to Δ. If π were making generic uniforms, reasonable time could be
shorter.

IV. §1-204 Time; Reasonable Time; “Seasonably” (p13)

A. Whenever this Act requires any action to be taken w/i a reasonable time, any time
which is not manifestly unreasonable (higher std) may be fixed by agreement. (this §
mirrors, but is more specific than §2-309(3))
B. A reasonable time for taking any action depends on the nature, purpose, and
circumstances of such action.
C. An act is taken “seasonably” when it is taken at or w/i the time agreed or if no time is
agreed, at or w/i a reasonable time.
D. Potential clause: “we agree that 6 mo notice of termination would be reasonable
notice.” Judge would likely provide summary judgment for such a clause b/c it has been
agreed to in the K. The clause is aka a Safe Harbor Clause.

V. §2-308 Absence of Specified Place for Delivery (p43)

A. Unless otherwise agreed:
1. (a) Place of delivery is seller’s place of business, or his residence if he has no
place of business
2. (b) in K for sale of identified goods which both parties know to be in a
different place, that place is the place for their delivery.
3. (c) docs of title may be delivered through customary banking channels.

VI. §2-306 Output, Requirements and Exclusive Dealings (p 41)

A. 2-306(1): Output K’s:
1. Protects the buyer who is bound by exclusivity. Output means such actual
output or requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any stated estimate. Quantities higher or lower
than the usual must be purchased by B as long as the quantity is not unreasonably
disproportionate or in the absence of a stated estimate to any normal or otherwise
comparable prior output or requirements may be tendered or demanded.
a) No unreasonably disproportionate quantity to the stated estimate by be
tendered or demanded.
b) If S keeps the quantities artificially low prior to K inception, B would
not be responsible for the full quantity during the K terms b/c S had not
acted in good faith.
B. 2-306(2): Exclusive Dealing: Applicable to of distributorships (higher standard – g/f
and hard work)
1. A lawful agreement by either the seller or the buyer for exclusive dealing in
the kind of goods concerned imposes, unless otherwise agreed, an obligation by
the seller to use best efforts to supply the goods by the buyer to use best efforts to
promote their sale.
a) Seller to supply and buyer to promote.
2. Seller: promises to sell only to B – bound by gf but not by best efforts.

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a) Note that Bjerre believes S bound by gf although section appears to

require best efforts.
b) Benefit to S: Seller gains representation in new territory.
3. Buyer: can buy from multiple sellers, not obligated to buy all S’s output, is
bound to use best efforts to promote goods.

Warranties
I. Types
A. Express §2-313
B. Implied
II. Elements needed to recover on a breach of warranty action:
A. existence of a warranty
B. Δ breached the warranty
C. breach was the proximate cause of the loss sustained.

III. §2-313 EXPRESS WARRANTIES (p46)

A. General
1. Amorphous: statement can be oral or written
2. Key: statement must be a basis of the bargain.
3. Difficult to tell whether an express warranty or puffery.
4. C1: Express warranties rest on dickered aspects of the bargain.
B. Washington SC Test distinguishing between a warranty and mere puffery: (p 96)
1. Whether the representations compared the goods to other goods;
2. the specificity of the representations;
3. whether they related to the goods’quality;
4. whether they were “hedged”;
5. Whether the goods were experimental;
6. the buyer’s actual or imputed knowledge of the goods’ condition;
7. the nature of the claimed defect; and
8. whether the statement was written or oral
C. Approaches to determine whether there is a warranty:
1. Was statement verifiable? (not an opinion: eg get 32 mpg)
2. What would a reasonable buyer think was meant? Factors:
a) Complexity of goods
b) Specificity of statement
D. Question of privity of contract. More specifically, a question of Vertical privity.
1. Vertical privity – Where goods travel from the manufacturer to the consumer.
2. Horizontal privity – Eg. Mother buys a computer from Apple dealer for
daughter. Can daughter recover from dealer.
a) See §2-318.
E. §2-313(1): Express warranties by S are created as follows:
1. 2-313(1)(a): Any affirmation of fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis of the bargain
creates EW that goods shall conform to affirmation or promise.
2. 2-313(1)(b): Any description of the goods made part of the basis of the
bargain creates EW that goods shall conform to description.
3. 2-313(1)(c): Any sample or model made part of the basis of the bargain
creates an EW that the whole of the goods shall conform to the sample or model.

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a) See Barton v. Tra-Mo, Inc. (p102): This § coincides with §2-314

(Implied warranties).
F. §2-313(2): Seller does not have to use formal words to create a warranty, however an
affirmation merely of the value of the goods or a statement purporting to be merely the
seller’s opinion or commendation of the goods does not create a warranty.
1. Puffery - statements that should not be construed to create a warranty

IV. §2-318 Third Party Beneficiaries of Warranties Express or Implied

A. States can choose from 3 alternatives:
1. Alternative A: A seller's warranty whether express or implied extends to any
natural person who is in the family or household of his buyer or who is a guest in
his home if it is reasonable to expect that such person may use, consume or be
affected by the goods and who is injured in person by breach of the warranty. A
seller may not exclude or limit the operation of this section.
2. Alternative B: A seller's warranty whether express or implied extends to any
natural person who may reasonably be expected to use, consume or be affected by
the goods and who is injured in person by breach of the warranty. A seller may
not exclude or limit the operation of this section.
3. Alternative C: A seller's warranty whether express or implied extends to any
person who may reasonably be expected to use, consume or be affected by the
goods and who is injured by breach of the warranty. A seller may not exclude or
limit the operation of this section with respect to injury to the person of an
individual to whom the warranty extends.
B. Use Choice of Law provision in K to avoid confusion of laws

V. Post-sale warranty
A. Device of modification
B. K becomes modified by the statement by comment made after the sale
C. It can still be a warranty and can still be part of the basis of the bargain, but
modification depends on the assent/intent of both parties.

VI. IMPLIED WARRANTIES

A. Are supplied by the law (not by the parties) and are not about the intent of the parties
B. Are gap-fillers
C. Are not opt-in. They exist regardless. But they can be opted-out of. This puts the
burden of expressing intent on those who want to opt out. Everyone is in unless they opt
out.
D. Particular Purpose v. Ordinary Purpose: Sale of pork – there is a lot of pork infected
with trichonosis. Cooking properly will kill the trichonosis. The usual purpose of pork is
to be cooked and eaten. Thus, if purchased with trichonosis, there is no breach of the
implied warranty of merchantability. On the other hand, if the grocer knows you will be
eating it raw, then there is an implied warranty of fitness for a particular use.

VII. §2-314 Implied Warranty of Merchantability

A. General: Like a guarantee that goods are fit for the ordinary purposes to be used and
will pass in trade w/o objections.
B. Applies only when the seller is a merchant of the goods involved in the dispute.

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C. 2-314(1): A warranty that the goods shall be merchantable is implied if the seller is a
merchant with respect to goods of that kind.
1. Merchant – See §2-104 (1) and (3) p 18.
D. 2-314(2): To be merchantable, goods must be at least such as
1. (a): pass w/o objection in the trade under the K description; and
2. (b): if fungible good, are of fair average quality w/i the description:
a) C7: (a) and (b) to be read together.
3. (c): to be fit for the ordinary purposes for which such goods are used; and
4. (d) run, w/i the variations permitted by the agreement
5. (e) are adequately contained, packaged and labeled per the agreement
6. (f) conform to the promises or affirmation of fact made on the container or
label

II. §2-315 Implied Warranty of Fitness for Particular (vs. general) Purpose
A. An implied warranty that goods are fit for a particular purpose is created when:
1. seller has reason to know the particular purpose; and
2. seller knows that buyer is relying (and buyer is relying) on the seller to choose
goods for a particular purpose.
a) Rarely happens
b) Standard situation: buyer asks question regarding what to buy: seller
tells buyer what to buy and B buys it per S’s recommendation.
c) If seller found liable, also liable for consequential damages.
3. C1: B need not bring to S actual knowledge of the particular purpose for
which the goods are intended or of his reliance on S’s skill and judgment, if
circumstances are that S should know.
4. C4: normally only applicable if S is a merchant with the appropriate “skill or
judgment,” but it can arise as to nonmerchants where this is justified by the
particular circumstances.
5. C5: Brand name: If B himself insists on a particular brand he is not relying on
S’s skill and judgment so no warranty results.
B. Reliance can be negated by reliance upon π’s own experts. Keith v. Buchanan.
C. Compared to §2-314: 314 only applicable to merchant sellers.
D. C6: Exclusion or modification of IWFPP must be excluded or modified by a
conspicuous writing (see §2-316)

III. §2-316 Exclusion or Modification of Warranties

A. §2-316(1): Express Warranties:
1. Subject to parol or extrinsic evidence (§2-202), negation or limitation is
inoperable to the extent that such construction is unreasonable.
2. Consistency: Courts attempt to construe language creating an express
warranty and language negating or limiting the warranty as consistent. If they are
inconsistent, then the court will find an express warranty.
3. Reasonably consistent: Look at all the circumstances.
B. §2-316(2): Implied Warranties: Safe Harbor Provision
1. Disclaimer of IWM:
a) Can be modified orally or in writing
b) Language must mention “merchantability” and must be conspicuous
(if in writing)

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(1) §1-201(10): Conspicuousness: when a reasonable person

against whom it would operate would notice it. A standard.
c) This is the drafting rule
2. Disclaimer of IWFPP:
a) Can only be modified in writing (but argue that orally can be
prevented from ever arising)
b) No need for particular language, but disclaimer must be conspicuous.
3. Disclaimers can have 2 forms:
a) Complete: prevent warranty from being in the K at all.
b) Limited: Limiting the time for the warranty, or limiting consequential
damages.
C. §2-316(3): Is the same for both IWM and IWFPP:
1. This is a standard (factors should be weighed and balanced) and much more
flexible than (2)
2. Notwithstanding (2);
a) Unless contrary circumstances, implied warranties are excluded by
expressions like “as is,” “with all faults,” or other such language.
b) When buyer prior to entering K has examined the goods or the sample
or model as fully as desired or has refused to examine the goods, there is
no IW.
c) IW can be excluded or modified by course of dealing, course of
performance, or usage of trade.

D. Cate v. Dover Corp

1. Disclaimer, although written in all-caps, was not conspicuous b/c the entire
text was in all caps.

E. Moscatiello v. Pittsburgh Contractors Equipment

1. Δ sold π a broken paving machine. Back of K had clause disclaiming implied
warranties. Disclaimer was in same font and buried in rest of wording. Ct held the
disclaimer invalid b/c not conspicuous. §2-316(2). Ct also held limitation of
remedies clause invalid b/c it was unconscionable b/c π suffered consequential
damages. Bjerre says it is wrong b/c it equates unconscionability with
conspicuousness. Unconscionability focuses on a lack of choices. Limitation of
remedies is a standard legal tool.
2. Yet, minority of courts hold that limitation of damages constitutes a
modification of the IWM, and thus must be in writing and conspicuous in order to
be effective. Moscatiello could have made this statutory 2-step and have good
holding and good reasoning.
3. It is possible to limit a remedy w/o modifying an implied warranty if the
limitation is not regarding the quality of the goods. Eg. Delivery time.

IV. §2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against
Infringement (p 46)
A. Warranty of title (gap-filler). The law assumes that the seller has rightful title to the
goods being sold, and that this title will xfer to the buyer upon sale.

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V. DAMAGES

A. §2-714 Buyer’s Damages for Breach in Regard to Accepted Goods - Default

1. 2-714(1): Where B has accepted goods and given notification (§2-607(3)), he
may recover reasonable damages for any non-conformity
2. 2-714(2): Measure of damages for breach of warranty is the difference
between the value of the goods accepted at time of delivery and what they would
have been had they been as warranted.
3. 2-714(3): Incidental and consequential damages under §2-715 may be also be
recovered.

B. §2-715 Buyer’s Incidental and Consequential Damages

1. 2-715(1): Incidentals include reasonable expenses of inspection, receipt,
transportation, care and custody, commercially reasonable charges, expenses or
commissions.
a) C1: Intent to provide reimbursement for the buyer who incurs
reasonable expenses in connection with rightfully rejected goods; list
provided not exhaustive.
2. 2-715(2): Consequential damages from seller’s breach include:
a) any loss resulting from gen’l or particular requirements or needs..
b) injury to person or property proximately resulting from breach.

C. §2-718 Liquidation or Limitation of Damages; Deposits

1. 2-718(1): Damages for breach by either party may be liquidated in the
agreement but only at an amount which is reasonable in the light of the
anticipated or actual harm caused by the breach, difficulties of proof of loss, and
the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A
term fixing unreasonably large liquidated damages is void as a penalty.
a) C1: Similarly, an unreasonably small amount would be subject to
similar criticism and might be stricken as unconscionable.
2. 2-178(2): Where seller justifiably withholds delivery b/c of B’s breach, B is
entitled to restitution of any amount by which the sum of his payments exceed:
a) amount to which S is entitled by virtue of liquidating terms
b) in absence of such terms, 20% of the value of the total performance for
which B is obligated under the K or $500, whichever is smaller.
3. B’s right to restitution under (2) is subject to offset for:
a) S’s right to recover damages under this Article
b) Amount or value of any benefits rec’d by B directly or indirectly from
K.
4. Where S had rec’d payment in goods their reasonable value or the proceeds of
their resale shall be treated as payment for the purposes of (2); but if S has notice
of B’s breach before reselling goods rec’d in part performance, his resale is
subject to the conditions laid down in this article.

D. §2-719 Contractual Modification or Limitation of Remedy

1. Subject to (2) and (3) of this and preceding section,
a) Agreement may provide for remedies in addition to or in substitution
for those provided in this article (UCC Art. II).

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b) Resort to a remedy as provided is optional unless the remedy is

expressly agreed to be exclusive
2. Where circumstances cause remedy to fail in its purpose, remedy may be
provided in this Act.
3. Consequential damages may be ltd or excluded unless the limitation is
unconscionable. Limitation of consequentials for personal injury in the case of
consumer goods is prima facie unconscionable.

E. §2-719 hypo: Sweater manufacturer limits the merchantability for 10 days. After 3
weeks the sweaters fade and show obvious defects. Under §2-719(2), the limitation of
remedy “fails of its essential purpose: and is thus unenforceable.

F. Cox v. Lewiston: Limitation of liability

1. π purchased defective seed from Δ. WA law, unlike the UCC, says
disclaimers in consumer cases are not effective.

G. Magnuson-Moss Warranty Act (p178) – Federal legislation passed to encourage

rational, informed consumer choices.
1. Applicable to consumer cases.
2. Does not require a written warranty, but if a seller makes one, it may not
disclaim any implied warranty.

Risk of Loss

I. General
A. The risk of loss is based on the terms of the K.
B. If mandated by the statute to buy insurance and you don’t, then you are liable.
C. UCC rules are gap fillers; use when parties don’t specify risk of loss, or unclearly
specify risk of loss in K.
D. Beyond risk of loss, UCC covers:
1. who pays insurance
2. how much insurance
3. who pays for shipping
4. who bears the loss
5. whether insurance is required
E. These §’s are applicable once K is complete; prior to that the goods and R.O.L. are
still the seller’s responsibility.

II. §2-501 Insurable Interest in Goods; Manner of Identification of Goods

A. 2-501(1): B obtains a special property and an insurable interest in goods by
identification of goods to a K even though the goods so identified are non-conforming
and he has the option to return them. ID can be made at any time specified. Otherwise it
occurs:
1. (a): when K is made if it is for sale of goods already existing and identified
2. (b): if K is for sale of future goods other than those is (c), when goods are
shipped, marked or otherwise designated by S as those under the K

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3. (c): when crops are planted or otherwise growing or the young conceived if K
is for the sale of unborn young to born w/i 12 mo after contracting for sale…
B. 2-512(2): S retains an insurable interest in goods so long as title to or any security
interest in the goods remains in him… default… insolvency… notification of substitute
C. 2-512(3): Nothing in this section impairs any insurable interest recognized under any
other statute or rule of law.

III. §2-613 Casualty to Identified Goods (p 82)

A. Where K requires for its performance goods identified when K is made, and the
goods suffer casualty w/o fault of either party before the risk of loss passes to B, or in a
proper case under a “no arrival, no sale” term (§2-324) then
1. if total loss, the K is avoided; and
2. if partial loss or goods have so deteriorated as to no longer conform to K the
buyer may demand inspection and at his option either treat the K as avoided or
accept the goods with due allowance from the K price, but w/o further right
against the seller.

IV. DELIVERY TERMS

A. §2-319 FOB and FAS Terms
1. 2-319(1): Unless otherwise agreed, FOB (Free on Board) at a named place,
even though used only in connection with stated price is a delivery term which:
a) FOB place of shipment: S must at that place ship the goods in accord
with §2-504) and bear expense and risk of putting them into possession of
carrier. Risk of loss transfers once goods are with carrier. S carries
expense and risk of loss to carrier.
b) FOB place of destination: S must at his own expense and risk transport
the goods to that place and there tender delivery (§2-503). Risk of loss
transfers once goods reach destination. S carries expense and risk of loss
to destination.
(1) 2-503: tender of delivery requires that S “put and hold
conforming goods at B’s disposition.”
c) When under either (a) or (b) the term is FOB vessel, car or other
vehicle, S must additionally at his own expense and risk load the goods on
board. If FOB vessel, B must name the vessel and in an appropriate case S
must comply with this Article on the form of bill of lading (§2-323)
2. 2-319(2): FAS (Free alongside) – 2-319 (2) – unless otherwise agreed, B must
make pymt against tender of the req’d docs and S may not tender nor B demand
delivery of the goods in substitution for the docs. Used in int’l deals.
a) FAS is classified as a destination or shipping K based on where the
risk xfers. If the risk xfers at a location closer to S, than it is a shipment K.
b) FAS destination – xfers occurs at point where goods are put on dock.
3. 2-319(3): Unless otherwise agreed, under FOB vessel or FAS the buyer must
make payment against tender of required docs and S may not tender nor buyer
demand delivery in substitution for the docs.

B. §2-320 CIF and C & F Terms (p59) B bears ROL.

1. 2-320(1): CIF (Cost, insurance, and freight) – price includes the cost of the
goods, insurance and freight to named destination.

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a) In case of loss, B pays S and is reimbursed by insurance co.

2. 2-320(1): C&F (Cost and freight) – Same as CIF w/o insurance.
3. 2-320(2): Unless otherwise specified, CIF destination requires S at his own
expense and risk to:
a) (a): put goods into possession of a carrier at the port for shipment and
obtain a negotiable bill or bills of lading covering the entire transportation
to the named destination; and
b) (b): load the goods and obtain a receipt from the carrier showing the
freight has been paid or provided for; and
c) (c) obtain a policy or cert of insurance for payment of loss to B.
4. 3-320(3): Unless otherwise agreed, C&F has the same effect upon S
(obligations and risks) except obligation as to insurance.
5. 2-320(4): Under CIF/C&F, unless otherwise agreed, B must make payment
against tender of docs and S may not tender nor B demand delivery in substitution
of the docs.

C. §2-509 Risk of Loss in the Absence of Breach (p 67)

1. 2-509(1): SHIPMENT K: Where K requires or authorizes S to ship goods by
carrier. Note there is a strong presumption favoring a shipment K when terms are
ambiguous.
a) (a): if it does not require delivery to a particular destination, ROL
passes to B when goods are duly delivered (see Cooke) to the carrier even
though the shipment is under reservation (§2-505); but
b) (b): if it does require delivery to a particular destination and goods are
duly tendered while in possession of the carrier, the ROL passes to B
when goods are so duly tendered as to enable B to take delivery.
(1) Bjerre: (b) generally requires some showing of specific intent
to shift ROL to S. See Windows below.
2. 2-509(2): DESTINATION K: Where goods are held by a bailee to be
delivered w/o being moved, ROL passes to B:
a) (a) on his receipt of a negotiable doc of title covering the goods; or
b) (b) on acknowledgement by the bailee of B’s right to possession.
(1) →official doc (eg whse receipt) not necessary.
(2) See Jason’s below.
c) (c): after his receipt of non-negotiable doc of title or other writing to
deliver in §2-503(4)(b).
3. 2-509(3): Catch-all: e.g. S delivers himself: ROL passes to B on his receipt
(§2-103 means physical receipt) of goods if seller is a merchant (§2-104);
otherwise the right passes to B on tender of delivery (§2-503).
a) See Schock and Chopper illustration below.
4. 2-509(4): Provisions of this section are subject to contrary agreement of the
parties and to the provisions of this Article on sale on approval (§2-327) and on
effect of breach on ROL (§2-510).

D. Windows, Inc. v. Jordan Panel Systems Corp. – §2-509(1)

1. Jordan (B) seeks consequential and incidental damages from Windows (S).
The windows were sent, but were damaged in transit. K terms were to deliver to
NYC.

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2. Held: B bore ROL during shipment. Even if a K says to deliver to a

particular address, it is not enough to get to 2-509(1)(b). The K is silent about
ROL. Where the terms are ambiguous (or silent), there is a strong presumption
that the K is a shipment K. As a shipment K, under 2-509(1)(a), ROL passes once
the goods have been shipped. Explicit terms (FOB, FAS, CIF, etc.) suffice to
change this presumption. See §2-308 (Absence of specified place for delivery)
3. Bjerre: this is wrong; all delivery K’s requires some destination. The
distinction is not expressed in the statute.
4. Primary point: ROL depends upon what the K says. The rules we learn are
default rules when the issue is not specified in the K. The destination of a
shipment is not a marker of who bears the ROL. Don’t be misled by words of the
statute.

E. Cook Specialty Co. v. Sherlock - “Duly Delivered” (p204)

1. K for buying and selling of a press brake. Terms are FOB MSI’s (S)
warehouse. It is a shipment K b/c it explicitly says so. Brake fell off truck
somewhere in transit.
2. Under §2-509(1), goods are not “duly delivered” unless the K satisfies §2-
504.
3. Held: Under §2-504(a) S must make a K for transportation as may be
reasonable having regard to the nature of the goods. Utilization of a substandard
carrier may not be considered reasonable (e.g.: can’t send perishables w/o
refrigeration).

F. Jason’s Foods, Inc. v. Peter Eckrich & Sons - §2-509(2)(b)

1. Case illustrates how delivery may not equal receipt. S sells goods (ribs) to B.
The ribs are kept at the same warehouse so upon tender, the goods never change
location. The warehousemen changes the ownership in their records and issues a
transfer ticket.
2. Held: B must be notified (not S), though does not have to be formal
notification (e.g.: can be a phone call).

G. Schock v. Ronderos – Nonmerchant Tender of delivery

1. π purchased mobile home from Δ. MH stayed on Δ’s property after purchase
awaiting removal of some of Δ’s possessions and detachment of electricity, etc.
During that time, MH was destroyed by high winds.
2. Held: §2-509 – ROL in absence of breach – (3) risk passes to B on receipt of
goods if S is a merchant, otherwise risk passes to B on tender of delivery.
According to §2-503, tender of delivery requires that S “put and hold conforming
goods at B’s disposition.” Here, b/c B removed skirting, tie down, and the blocks
as well as took the steps, those actions were considered an “exercise of
possession.” Thus, S had tendered delivery and risk of loss had passed.

H. Chopper hypo: π purchased a chopper from merchant Δ, but delayed taking delivery
two months. With B’s consent, S arranged storage at a nearby airport. Court held that
risk of loss remained with S b/c it had remained “under the practical control of S and had
not been rec’d by B w/i the meaning of 2-509(3). A merchant seller cannot xfer risk of
loss to B until B has actually rec’d goods.

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I. §2-504 Shipment by Seller (p 65)

1. Where S is required or authorized to send the goods to B and K does not
require him to deliver them at a particular destination, then unless otherwise
agreed, he must:
a) (a): put the goods in the possession of such a carrier and make such a
K for their transportation as may be reasonable having regard to the
nature of the goods and other circumstances; and
(1) particularly applicable to livestock, items requiring
refrigeration, etc.
b) (b): obtain and promptly deliver or tender in due form any document
necessary to enable B to obtain possession of the goods or otherwise
required by the agreement or by usage of trade; and
c) (c): promptly notify B of the shipment
2. Failure to notify B is a ground for rejection only if material delay or loss
ensues.

J. §2-308 Absence of Specified Place for Delivery (p 43) Default rule

1. Unless otherwise agreed:
a) (a): place for delivery is seller’s place of business or if he has none his
residence; but
b) (b): in a K for sale of identified goods which to the knowledge of the
parties at the time of contracting are in some other place, that place is the
place for their delivery; and
c) documents of title may be delivered through customary banking
channels.

K. §2-503 Shipment by Seller (p 64)

1. Tender of delivery requires that the seller put and hold conforming goods at
B’s disposition and give B any notification reasonably necessary to enable him to
take delivery. The manner, time and place for tender are determined by the
agreement and this Article, and in particular
a) Tender must be at a reasonable hour, and if it is of goods they must be
kept available for the period reasonably necessary to enable B to take
possession; but
b) Unless otherwise agreed, B must furnish facilities reasonably suited to
the receipt of goods.
2. Where the case is w/i the next section respecting shipment tender requires that
S comply with its provisions.
3. Where S is required to deliver at a particular destination tender requires that
he comply with (1) and also in any appropriate case tender documents as
described in (4) and (5) of this section.
4. Where goods are in the possession of a bailee and are to be delivered w/o
being moved
a) Tender requires that the seller either tender a negotiable doc of title
covering such goods or procure acknowledgement by the bailee of B’s
right to possession of the goods; but

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b) Tender to B of a non-negotiable doc of title or of a written direction to

the bailee to deliver is sufficient tender unless B seasonably objects, and
receipt by the bailee of notification of B’s rights fixes those rights as
against the bailee and all third parties; but ROL of the goods and of any
failure by the bailee to honor the non-negotiable document of title or to
obey the direction remains on the seller until B has had a reasonable time
to present the doc or direction, and a refusal by the bailee to honor the doc
or to obey the direction defeats the tender.
5. Where the K requires the seller to deliver docs
a) He must tender all such docs in correct form, except as provided in this
Article w/ respect to bills of lading in a set (see §2-323(2)); and
b) Tender through customary banking channels is sufficient and dishonor
of a draft accompanying the docs constitutes non-acceptance or rejection.

L. §2-511 Tender of Payment by Buyer; Payment by Check

1. Unless otherwise agreed tender of payment is a condition of the seller’s duty
to tender and complete any delivery.
2. Tender of payment is sufficient when made by any means or in any manner
current in the ordinary course of business unless the seller demands payment in
legal tender and gives any extension of time reasonably necessary to procure it.
3. Subject to the provisions of this Act on the effect of an instrument on an
obligation (§3-802), payment by check is conditional and is defeated as between
the parties by dishonor of the check on due presentment.

M. Do §2-507 and §2-511 contradict? NO – payment and delivery are supposed to

occur at the same time.
1. CL rule is that doers go before payors. But the UCC tweaks this: the fall-back
interpretation is that both should happen concurrently. Payment and delivery are
concurrent conditions.

N. §2-507 Effect of Seller’s Tender; Delivery on Condition

1. Tender of delivery is a condition to the Buyer’s duty to accept the goods and,
unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to
acceptance of the goods and to payment according to the K.
2. Where payment is due and demanded on the delivery to the buyer of goods or
docs of title, his right as against the seller to retain or dispose of them is
conditional upon his making the payment due.

Acceptance and Rejection of Goods

Must separate receipt from acceptance
Receipt, under §2-103(1)(c), is defined as taking physical possession of the goods.
Acceptance, under §2-606, refers to a manifestation by B of willingness to take the goods as
performance of S’s obligation sufficient to allow S to demand performance of B’s obligation.

Now, that K has been created we turn to whether the goods of the K have been accepted.

Rejection of Goods
I. §2-601 Buyer’s Rights of Improper Delivery (“perfect tender”)

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A. if goods fail to conform to K (§1-201(11) defines K), B may:

1. Reject the whole;
2. Accept the whole; or
3. Accept any commercial unit(s) and reject the rest –
a) §2-105(6) defines commercial unit as that which commercial usage
designates them as a single whole. Look at quantities for ordering.
B. Can only rightfully reject if the goods fail to conform to the K → interpret K.
1. §1-103 – Art 2 contains a lot of rules about laws, but where it does not speak,
we can still apply common law.
2. Use tools like trade usage, maxims, gap fillers, etc:
a) trade usage to be considered. Egg hypo – 250k palates of eggs ordered
arrive at store. Some are broken. Likely will not be able to reject the
whole b/c trade usage likely provides for a limited # of broken eggs.
b) §2-202 Parol or Extrinsic Evidence
(1) Essentially like CL, but trade usage, course of dealings, or
course of performance is admissible to explain or supplement a
writing even if it is intended as a final expression of the agreement
as long as reasonably consistent w/ K terms.
c) §1-205 Course of Dealings and Trade Usage
d) §2-208 Course of Performance
e) §2-308 Gap Filler for Place of Delivery
f) §2-309 Gap Filler for Time of Delivery
C. This is a strict rule.
D. Limited by Good Faith Obligation of §1-203 Obligation of Good Faith
1. Every K or duty w/i this Act imposes an obligation of g/f in its performance or
enforcement.
2. Rejection is not good unless it is done in good faith.

II. §2-612 “Installment Contract: Breach

III. §2-106 Conforming:

A. S has BOP of proving conformity if goods rejected
B. B has BOP of proving nonconformity if goods accepted

IV. §2-602 Manner and Effect of Rightful Rejection (p 70)

A. 2-602(1): Rejection must be w/i a reas time after delivery or tender.
1. Reasonable under the circumstances
2. Rejection must be clear and unequivocal
B. 2-601(2): Rejection ineffective unless B seasonably notifies S.

Acceptance of Goods
I. §2-606 What Constitutes Acceptance of Goods
A. 2-606(1): Acceptance occurs when B:
1. (a): after a reasonable opp to inspect the goods signifies (orally or written) to S
that goods are conforming or that he will retain in spite of non-conformity.
a) Signify: payment or initialing by B may be support of acceptance, but
is not dispositive

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2. (b): fails to make effective rejection (§2-602 above) w/i reasonable time after
having opp to inspect.
a) Reasonable opportunity to expect depends upon the goods.
3. (c): does any act inconsistent with S’s ownership
B. 2-606(2): Acceptance of a part of any commercial unit is acceptance of that entire
unit.

II. La Villa Fair v. Lewis Carpet Mills

A. πB purchased carpet from the ΔS. It was kept at a warehouse for 9 months before
being taken out and installation attempted. Upon installation, it became evident that the
carpet did not meet the agreed upon specifications.
B. Held: Inspection did not equate to acceptance under §2-606 b/c S was aware that
goods would be shipped to a whse for storage. Industry practice is to delay inspection
until ready to use. Also, carpet in orders like this is generally stacked versus unrolled in
storage.
C. Held2: Cutting and unrolling of carpet did not equate to acceptance (see §2-606(1)(c))
b/c the defects were not apparent until installation. After cutting the carpet, it became
apparent when matching the carpet pieces that the quality and dye varied
D. Held3: K did not express time for performance, thus S was not denied a right to cure.
1. Bjerre disagrees under §2-309(1): time for action … shall be a reasonable time

III. Societe Nouvelle Vaskene v. Lehman Saunders, Ltd. – Time for Rejection
A. ΔB ordered and received apparel from πS. It was received in August and October
1970. It was priced and put on the sales floor in 11/70. A letter was sent to S 12/7
complaining that the goods did not meet appropriate sizes.
C. Under §2-602(1), notice of rejection must be given within a reasonable time,
otherwise it has been accepted (§2-606(1)(b)). These were seasonal goods and a note on
the receipt stated that B had 5 days w/i receipt to reject and it was noted that trade custom
requires 5-10 days. Finally, such goods were generally inspected upon receipt.

V. §2-608 Revocation of Acceptance in Whole or in Part (p 75)

A. 2-608(1): B may revoke acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value if acceptance
1. (a) on reas assumption that its non-conformity would be cured and it has not
seasonably been done so
2. (b) w/o discovery of the non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery b4 acceptance or by S’s assurances.
B. 2-608(2): Revocation of acceptance must occur w/i a reas time after B discovers or
should discover non-conformity. It is not effective until B notifies S.
C. 2-608(3): B who revokes has the same rights and duties w/ regard to goods involved
as if he had rejected them.

VI. Erling v. Homera, Inc.- Revocation of Acceptance

A. B purchased mobile home from S. After some time of living in the MH, problems
with condensation in the roof appeared. S and the manufacturer of the siding attempted to
correct the problem to no avail. At this point, B has already accepted. Can B revoke
acceptance?

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B. Under §2-608, B may revoke acceptance if non-conformity substantially impairs its

value. In comparison, §2-601 (rights on improper delivery) is pretty much any little non-
conformity.

VII. §2-513 Buyer’s Right to Inspection of Goods

VIII. §2-508 Cure by Seller of Improper Tender or Delivery; Replacement (p 66)

A. 2-508(1) Where any tender or delivery by S is rejected b/c of non-conformity and the
time for performance has not expired, S may seasonally notify B of his intention to cure
and may then w/i K time make a conforming delivery.
1. C1: Qualified by K time. K modifications modify time for cure.
B. 2-508(2) Where B rejects a non-conforming tender which S reas believes would be
acceptable S may have further reas time to substitute a conforming order.
1. C2: Intent of (2) is to protect S from a surprise rejection by B.
2. C2: No replacement clause is strictly upheld
3. C3: “further reas time to substitute” meant to protect B.
4. C4: Existing trade usages permitting variations but w/ price allowance are not
covered in this section.

IX. Zabriskie Chevrolet v. Smith – Revocation of Acceptance

A. Δ purchased a car from π. W/i 7/10ths of a mile of the lot, the car died. Δ put a stop
payment on his check and told π that the deal was revoked. π attempted to cure by
replacing the transmission with a transmission from a car on the show-room floor.
B. Acceptance: No acceptance b/c goods were complicated and B did not have reas time
to inspect. §2-606(1)(a)
1. Also, 2-608(1) permits revocation of acceptance when there is a non-
conformity which substantially impairs the value of the lot or commercial unit.
2. General rule: rescission will not be permitted for a slight or casual breach of
K, but only for such breaches as are so substantial as to defeat the objective of the
parties.
C. Rejection: Valid rejection. Refusal to pay was seasonable notice.
D. Cure: §2-508 prevents B from forcing the seller to breach by making a surprise
rejection of the goods b/c of some minor non-conformity at a time at which S cannot
cure the deficiency within the time for performance. Thus, this § would not be applicable.
A cure of a substitution that is not within the agreement is not valid. The cure intended
under the Code, as applied here, does not equate a substituted transmission of unknown
lineage with a new factory transmission.
1. §2-508(1) – if S wants to fix, communicates that desire, and is able to execute
w/i a reasonable time, it should have the opportunity to do so. The rationale is
that contracts should be held together.

X. Rozmus v. Thompson’s Lincoln Mercury: Held that a non-conformity fixes w/i minutes
by tightening two loose engine mounting bolts was proper cure.

INSTALLMENT CONTRACTS: SHOULD NOT BE ON FINAL

Installment Contracts: consequences:
1. B cannot reject a delivery simply b/c it does not include all of the goods covered by the K

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2. S can demand payment of the price for goods delivered, if price can be apportioned, even
if all goods have not yet been delivered; and
3. B’s right to reject the goods is governed by the special rule of §2-612 rather than §2-601.

Graulich Caterer, Inc. v. Hans Holterbosch, Inc. – Cancellation by B of installment k

F: π contracted with Δ to supply German food for World Fair tent. π had provided samples in
order to obtain the k. The first order was far below the quality of the samples and the Δ rejected
them. The same thing happened with the second order.
H: The second order substantially impaired the value of the whole k and resulted in a breach of
the whole. §2-612(3). If the breach goes to the whole contract, then B may cancel the whole k.
§2-711(1)

Flood v. M.P. Clark, Inc. – Cancellation by S of installment k.

F: S contracted to sell lots of potatoes to B for a set price. The terms of payment were upon
receipt of invoice. B was late in making payments, so S put B on COD. S argues that B’s failure
to pay substantially impaired the value of the k and therefore constituted a breach under §2-
612(3).
H: Court found it was not a breach b/c S continued to sell (albeit via COD) to B. Thus, as the
first may have been, S’s actions subsequent to the breach did not call on the breach. As such, S
is now in breach for not continuing to sell to B.

Cherwell-Ralli, Inc. v. Rytman Grain Co. –

F: B entered into installment k with S; S to provide goods upon weekly orders to B. B soon
became delinquent in payment. The Presidents of each company spoke and a check was issued
for all amounts owed. B put a stop payment on the check b/c it was uncertain that S could
continue to fill the order. S stops delivering and sues B for all amounts owed relating to past
shipments. TC finds for S. B appeals that its acts did not constitute substantial impairment of
the whole k.
H: Affirmed. Under §2-703(f), an aggrieved seller is expressly permitted to cancel the
remainder of an installment k. While, §2-612(3) states that a k is reinstated if S “brings an action
with respect only to past installments.” Yet, S’s intent to cancel k was clear. Further, B’s
argument that it feared that S would be unable to complete the k is unavailing b/c S closed its
shop due to surplus inventory versus a shortage.

I. §2-609 Right to Adequate Assurance of Performance (p76)

A. 2-609(1): A K imposes an obligation on each party to ensure execution of the K w/o
impairment. When reasonable grounds for insecurity arise the other party may in writing
demand adequate assurance of performance and may suspend performance until such
assurance is rec’d
1. C2: 3 measures available
a) Aggrieved P can suspend own performance and any preparation
therefore
b) Aggrieved P is given right to requires adequate assurance that other
P’s performance is forthcoming.
c) Aggrieved P may treat the K as broken if his reasonable grounds are
not cleared w/i a reasonable time.
2. C3: Reasonable grounds and Adequate assurance are defined by commercial
rather than legal standards.

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a) Statements that merely create the appearance that there is the potential
that the K will be completed are NOT sufficient to trigger anticipatory
repudiation.
B. 2-609(2): Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance shall be determined according to commercial standards.
1. C3: a B of precision parts has reasonable grounds for insecurity “if he
discovers that his seller is making defective deliveries of such parts to other
buyers with similar needs.”
C. 2-609(3): Acceptance of any improper delivery or payment does not prejudice the
aggrieved party’s right to demand adequate assurance of future performance.
D. 2-609(4): After receipt of a justified demand such assurance of due performance as is
adequate under the circumstances of the particular case is a repudiation of the K. Failure
to provide assurance w/i a reasonable time (not to exceed 30 days) after receipt of a reas
demand constitutes repudiation (repudiation = breach)
1. C5: Party has a 30 day limit to provide assurance.
2. A false assurance could provide the court with information that you were not
enabling the other party to mitigate damages.
E. Can get in trouble is used too strongly
1. By demanding assurances when you don’t have reasonable grounds for
insecurity. May constitute a breach b/c no good faith.
2. By demanding assurances when the assurances are more than you need (party
is entitled to some, but not everything.

Contract Formation
HUGE differences between CL and UCC in approach to K formation
Yet, keep in mind that under §1-103, the CL fills in the UCC.

I. §2-204 Formation in General (p 26)

A. The inquiry becomes whether the parties have, in any reasonable manner,
demonstrated agreement.
B. 2-204(3) is most important. (1) and (2) don’t change anything from the CL.
C. Difference from CL
1. need definiteness for a K to be enforceable
2. only need the intent of the parties to make a K
3. K need to provide a reasonable basis for giving relief.
D. 2-204(1): A K for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of a K.
1. C: can be oral, written or otherwise
2. This is a broader approach than the CL. The inquiry becomes whether the
parties have, in any reasonable manner, demonstrated agreement.
3. An offer may be accepted in any manner and by any medium reasonable in the
circumstances, unless the offer unambiguously states otherwise. §2-206(1)(a)
E. 2-204(2): An agreement sufficient to constitute a K for sale may be found even
though the moment of its making is undetermined
F. 2-204(3): Even though one or more terms are left open a K for sale does not fail for
indefiniteness IF the parties have intended to make a K and there is a reasonably certain
basis for giving an appropriate remedy.
1. Indefiniteness: Use commercial standards in determining this factor.

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2. The more terms left open, the less likely it is that the parties intended to make
a K.

II. §2-205 Firm Offers

A. An offer by a merchant in a signed writing by its terms gives assurance that it will be
held open is not revocable, for lack of consideration, during the time stated or if no time
stated for a reas time; but any such term of assurance on a form supplied by the offeree
must be separately signed by the offeror.
1. Option K is enforceable w/o separate consideration. §2-205.
2. Change from Dickenson v. Dobbs
3. C2: “Signed”: includes initialing, handwritten memo on writer’s letterhead
purporting to confirm a firm offer, an authorized telegram or a typewritten
signature.

III. §2-206 Offer and Acceptance in Formation of K

A. An offer can be accepted by either:
1. a promise to perform; or
2. performance
a) Yet, shipment of non-conforming goods does not constitute an
acceptance if S seasonably notifies B that it was an accommodation.

IV. §2-207 Additional Terms in Acceptance or Confirmation; Battle of the Forms

A. Battle of the Forms: original offer v. acknowledgment.
B. Section abolishes the mirror-image rule
C. Is there a contract?
1. See §2-207(1) – There can be a K with an expression of acceptance even
though that acceptance does not mirror the offer, unless expressly made
conditional on assent. Parties may want to reserve the mirror-image rule. B’s
assent must be something definite.
a) Compared to CL – Mirror-image rule
(1) CL doctrine insists that an acceptance must be on the terms
proposed by the offer w/o the slightest variation. Anything else is
a rejection of the og offer, and acts as a counter-offer.
(2) Exceptions to mirror-image: precatory acceptance and implied
term.
D. If so, what is its terms?
1. See §2-207(2) - “dickered terms” – the concepts people really pay attention to
can materially alter a contract and do not qualify as acceptance.
a) As opposed to “boilerplate terms” – standard, preprinted language that
you do not have to think about upon every occurrence of an agreement.
b) C1 Eg – “ship by x,” “rush,” “ship draft against bill of lading
inspection allowed.”
c) C2 - Any additional term must be regarded as a proposal for an added
term unless acceptance is made conditional.
(1) (2)(a) is limited to the offereror.
d) Between merchants (See §2-104(1)), add’l terms become part of the K
unless:
(1) offer expressly limits acceptance to terms of offer

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(2) terms materially alter (see below) the agreement

(a) This is a standard that must take into consideration all
the circumstances.
(b) (2)(a) device preserving mirror-image rule: An Offeror
could include “Acceptance is limited to the terms of this
offer”
(c) C4: Clauses that materially alter
(i) Clauses negating standard warranties such as
that or merchantability or fitness for a particular
purpose in cases where such a clause would
normally apply
(ii) Clause requiring a guarantee of 90 or 100%
deliveries in a case such as a K by cannery, where
trade usage allows greater leeway
(iii)Clause reserving to the seller the power to
cancel upon B’s failure to meet any invoice when
due
(iv) Clause requiring that complaints be made in a
time materially shorted than customary or
reasonable.
(d) C5: Clauses that don’t materially alter – slight
alterations
(i) Clause fixing a reasonable time for complaints
or inspection w/i customary and reasonable limits
(ii) Clause providing for interest on overdue
invoices or fixing std credit terms
(iii)Clause limiting right of rejection for defects
falling w/i customary trade tolerances
(3) notification of object was already given or is given w/i a
reasonable time.
(a) Another way of making a non-material term a material
term.
e) Compared to CL - Last shot rule.
(1) Performance is construed as acquiescing to the others last offer
unless yours was last.
2. Look at clauses independently.
E. Consider in light of §2-719(3) – Consequential damages may be limited or excluded
unless limitation is unconscionable (very high std). Section is only applicable where a
limitation of remedies clause is in a K, whether it will be enforced.
F. Also in light of §2-315 – implied warranty of particular purpose.

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V. Diamond Fruit Growers v. Krack Corp.

A. Tubing supplied by TPD was ascertained as 30% at fault. K with TPD limited its
liability for consequential damages to a refund of the purchase price or replacement of the
tubing. This limitation was on a form acknowledging the Δ’s order for tubing. Δ and TPΔ
had discussed the terms previously, but had not explicitly agreed to them. TPΔ asserted
this constituted assent to the terms.
B. Held: If the parties act as if they have a K, the provisions of §2-207(3) apply to fill in
the terms of the k. Application of § 2-207(3) is appropriate in that situation b/c by going
ahead with the transaction w/o resolving their dispute, both parties are responsible for
introducing ambiguity into the k. The seller is most responsible for the ambiguity b/c it
inserts a term in its form that requires assent to additional terms and then does not enforce
that requirement. B/c the conduct did not indicate specifically and unequivocally the Δ’s
intent to assent to terms, that conduct did not amount to the assent contemplated under
§2-207(1).

VI. Hill v. Gateway 2000, Inc.

A. Hill buys computer over the phone. Gateway sent K terms containing arbitration
clause in box w/ computer.
B. Judge mistakenly says §2-207(2) irrelevant when there is only one form. Bjerre
disagrees w/ the judge here b/c Gateway could have made acceptance conditional on
additional terms, but that would have had to be expressly stated during the phone call.
Issue of “rolling Ks” or “layered Ks” “buy now, terms later” – very controversial and in
flux.
1. Arguments for:
a) Don’t want to bore people w/ terms over the phone
2. Against:
a) Paternalistic to say people not sophisticated enough to deal w/ these
terms.

Statute of Frauds

§2-201 Statute of Frauds – formalistic concern (outward manifestation of an agreement);

permissive section -
1. K for sale of goods for $500 or more is not enforceable unless there is some writing
sufficient to indicate that a K for sale has been made between the parties. Dispenses with
writing requirement in sections (2) and (3):
• Signature: Needs to be signed by the party it is to be held against. Purpose is to
avoid parties from having to be concerned about people may fraudulently make-
up (say an oral K existed) a K and attempting to enforce it.
• A notation (eg – b agrees/smiley face) by either side can serve to support that the
agreement exist.
• E-sign Act: absolutely applicable to UCC. Is account name on e-mail a signature?
Most likely.
• §1-201 (39) – signed includes “any symbol executed or adopted by a party with
present intention to authenticate a writing.”
• Examples:

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i. Business card with terms on back: some courts have interpreted this to be
adequate as a signature.
ii. Letterhead: can be interpreted as a signature.
• C1: Detail required is minimal. Eg – Identification of which party is buyer and
which seller not required. Only required term that must appear is the quantity
term. No default rule about reasonable quantity in the UCC.
• Even though is satisfies the SOF, it does not prove the terms. Must look to other
sections for gap fillers. Oral aspects of K can be enforced if it can be proven by
party attempting to hold other responsible.
2. 2-201(2): Between merchants (both parties req’d to be merchant), if a confirmation is
received w/i a reasonable time and is sufficient against the sender, it is also sufficient
against the party receiving it, unless that party objects w/i 10 days.
• See Nelson v. Union Equity (p 10)
• Relates to §2-207(2) formulation where only applies when both parties are
merchants.
• §1-201(26): A person receives notice when: it comes to his attention; or duly
delivered at the place of business through which such communications would
ordinarily be delivered.
i. So, if a kid steals it from the recipients mailbox, it has been delivered.
3. 2-201(3)(a): Specifically manufactured goods – When a seller has made a substantial
beginning in the manufacture or committed itself to buy goods from a third party, it may
enforce an oral contract for them if it cannot resell them in the ordinary course of
business.
• Echoes promissory estoppel
i. Reasonably foreseeable
ii. Reliance to the detriment of a party.
• Reason: prevent a buyer from backing out.
4. 2-201(3)(b): May be held when a party judicially admits the existence of the alleged K.
5. 2-201 (3)(c): When seller has received and accepted payment, or buyer has rec’d and
accepted the goods.
• See §2-606; Acceptance of goods.
• Comment 2 – Partial performance can substitute for writing requirement ONLY
for goods which have been accepted or payment made.

Could §2-201(2) this be used as a trap? A fake business could send out hundreds of confirmation
letters.
• Sending the letter makes it enforceable against the sender. §2-201 is meant to address the
problem of the receiving party not holding the letter to enforce it while not being held to
have entered into an agreement. Keeps the π from getting kicked out of court based on
SOF grounds. There are still a lot of other defenses available. This just denies the SOF
defense.

Distribu-Dor, Inc. v. Karadanis

Door distributor entered into an oral agreement to supply mirrors and tubs to Δ. Δ said there was
no agreement and b/c the total purchase price was over $500, any oral agreement that could be
construed from the discussions would be void for the statute of frauds.

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Held: There was an agreement b/c the mirrors were specially manufactured and were not
suitable for sale to others without substantial modification. As such, they fall w/i §2-201(3).
Bjerre side-note: What if §2-103(3) did not apply – look at §1-103: unless Act applies, apply
principles of, inter alia, estoppel.
Also, b/c there was an agreement, the tubs were a component of that agreement.

§2-708 – Seller’s Damages for Non-acceptance or Repudiation

1. damages are calculated as the difference between the market price at the time and place for
tender and the unpaid K price plus any incidentals less expenses saved as a result of the
breach.
2. If (1) does not put seller in position has performance would have done, then seller is due
credit for such shortfall.

Nelson v. Union Equity Co-operative Exchange – Merchant analyzed and 2-201 SOF
Facts: Union entered into an oral agreement with Nelson on a futures K for the purchase of
wheat at a specified price. Written confirmation of the agreement was sent the same day by
Union to Nelson.
Held: Under §2-201(2), this was an exception to written agreement IF Nelson is a merchant.
Issue: Is Nelson, a farmer, a merchant?
Held: Under §2-104(1) – Yes, he is a merchant. See official comment 2: For purpose of this
section, almost every person in business would, therefore, be deemed to be a “merchant” under
the language “who.. by his occupation holds himself out as having knowledge or skill peculiar to
the practices involved in the transaction.
Merchants with respect to goods of that kind or hold yourself as having knowledge of those
particular goods. Look to the profession. If his occupation holds out that he is or should be
knowledgeable about a topic, he will generally be held as a merchant. Eg is an auto mechanic; he
will be held to be a merchant if he buys or sells a car. Mechanic would not be a merchant if he
purchases it for his personal use.

Applicability of the Code

§2-102 says Article 2 applies to “transaction in goods.” Goods (§2-105(1)) are “all things…
movable at the time of identification to the K” other than money, investment securities, and
things in action. Distinction is between goods and services. RE is not included. Mobile home set
in plot is RE. Mobile home on wheels.
Hybrids: Two different approaches
• Predominant purpose: the thrust, the purpose, reasonably stated, is a transaction of
sale with labor incidentally involved.
o All or nothing classification.
• Gravamen: Look at transaction in pieces. Where consumer goods are sold which
retain their character as consumer goods after completion of the performance
promised to the consumer, that good will be treated as a good sold.

Anthony Pools v. Sheehan (p23)

Although the K was primary for the services of Anthony, the diving board still retained its
character as a consumer good. Thus, under the gravamen test adopted by the court, an implied
warranty of merchantability could not be disclaimed for the diving board under §2-314.

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I. FINDING THE LAW OF CONTRACT → INTERPRETATION

a. Broad Questions to consider:
i. What parts of the [alleged] contract may the court consider?
ii. What pieces of outside evidence (written and oral negotiations) may be admissible?
b. Parol Evidence versus Contract Interpretation Issues →
i. PE refers to things that were expressly said or written down during the negotiations
between the party – and the issue at trial is whether these agreements should be
allowed as part of the final written contract.
ii. K Interp refers to things that were not necessarily said during negotiations, but
rather were implicitly assumed or accepted by both (or one) parties – and the issue
at trial is whether evidence should be allowed to determine what a specific term or
provision means (when it is unclear)
c. PAROL EVIDENCE RULE
i. Reasons for PE rule:
1. encourages an careful and accurate drafting of Ks
2. puts parties on notice to include all terms in written K
3. written agreements are more accurate than oral agreements
4. if PE allowed, witnesses may give inaccurate testimony to defraud others
ii. Reasons against PE rule:
1. confusing and causes too much uncertainty
2. substantial injustice may result if court does not allow controversial evidence
to be reviewed.
iii. Steps to consider in analyzing a PE Rule problem:
1. Did parties intend to adopt written contract as the final expression of all terms
in the agreement? (i.e. is the agreement integrated?).
2. If agreement is integrated → what level of integration is present?
3. Once you establish the level of integration, determine what types (if any) of
“extrinsic statements” are admissible.
iv. Governs unwritten statements made during negations that are alleged by one party
to be part of the final written expression of the parties’ agreement
1. If K is not in writing, PE does NOT apply.
2. PE does not bar evidence to show K is not valid.
3. PE does not bar evidence to show fraud in the inducement.
v. Integration Levels → Q: Does “extrinsic evidence” support or contradict writing?
1. Completely Integrated Agreement → R2d §214
a. Authoritative and complete expression of ALL The final terms of the
agreement between the parties.
b. Written agreement is seen as dispositive and complete
c. “extrinsic statements” can NOT be offered as evidence regardless of
purpose (to support or contradict writing)
2. Partially Integrated Agreement →
a. seen as authoritative only as to those provision that are included in the
final version of the written agreement
b. “extrinsic statements” can be offered as evidence to support and/or
supplement the writing, but NOT to contradict it.
3. Unintegrated Agreement
a. Not authoritative and not complete
b. PE rule basically does not apply and any “extrinsic statements” are
admissible to support or contradict the agreement.
vi. Tests to determine Integration Level:
1. Face of the agreement test: (old, not current view): if written agreement
“appears” to be full and complete, no PE allowed. Look at language in K to
determine parties’ intent.
2. Merger [Integration] Clause: Parties can stipulate via provision in K that
agreement is fully integrated – but this is not always dispositive.
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a. Best to put a merger clause in K → at minimum it can be used as

evidence to show intent to have fully integrated K.
b. See note 3, p. 565 text.
3. UCC 2-202: excludes PE only if parties have certainly made agreement a final
expression of the terms of the K.
4. Any relevant evidence: many courts today will allow evidence to determine
the level of integration. Credibility is a huge factor. Q: Would the terms/K
“naturally and normally” be one that is integrated?
vii. Factors to consider when determining integration level: look for intent to be bound
1. degree of inter-relatedness between subsidiary and main agreement
2. subject matter – is subsidiary agreement same subject matter as main K?
3. time of execution – was subsidiary agreement was meant to be performed at
the same time?
4. scope of subsidiary agreement – was it within the scope of the main K?
d. Exceptions to PE Rule:
i. Collateral Agreements: R2d: will admit evidence of collateral agreements only if the
parties would have naturally made them as separate agreements from the K at issue
1. this makes it so both parties do not have to consider all agreements between
them when they put the immediate agreement in writing.
ii. Mistakes/Omissions: see R2d §214, Bollinger.
1. in order to be admissible, evidence of mistake must be:
a. MUTUAL
b. about WORDS in the agreement
2. Or be a result of fraud on behalf of one of the parties.
iii. [No] Oral Modification Clauses:
1. parties can include provision that says: no subsequent [mutual] oral
modifications → but this is NOT dispositive
2. PE Rule only governs statements made prior to or contemporaneous to a
written agreement; therefore, the PE Rule does not cover subsequent oral
modifications.
3. Common Law: ANY prior agreement (including an oral modification clause)
can be modified by a subsequent agreement.
a. must prove: (1) modification and (2) reliance on modification.
4. 2-209: “a signed agreement which excludes modification or rescission except
by a signed writing cannot be otherwise modified or rescinded.”
e. Relevant Case
i. Gianni v. Russell [p. 566]: No PE allowed when written integrated K
1. If terms of K seem to satisfy goals of K, then it is complete and final. If there
is an subsidiary oral promise that is so intertwined with the written K that the
written K cannot operate without it, then it is admissible.
ii. Masterson v. Since [p. 570]: Can use PE to supplement if K not fully integrated
1. court determined that K was only partially integrated, so evidence was
allowed to show whether option K was assignable (because there was no
express provision in the K relating to assignability). PE Rule allows evidence
to supplement, but not contradict the writing.
iii. Bollinger [p. 578]: PE followed to prove mutual mistake
1. court allowed “extrinsic evidence” to show mutual mistake (i.e. both parties
failed to include the oral agreement in the final written expression).
2. this is an exception to the PE Rule → if a party contends that there was an
oral agreement that existed prior to the written K, and both parties assented
to it, but it simply was omitted by mistake from the final agreement, court
will examine evidence to determine if the contention is true.
a. Irrelevant whether agreement is fully/partially integrated.
b. Same exception applies if fraud was present.

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II. CONTRACT INTERPRETATION

a. Vagueness & Ambiguity
i. Vagueness = application in marginal situations is uncertain (“shades of meaning”)
ii. Ambiguous = able to have two or more reasonable interpretations which make it
appropriate and inappropriate at the same time.
1. Patent: ambiguity is readily perceivable from face of terms/document
2. Latent: facially the terms appear to be certain, but in application, unforeseen
ambiguities arise.
a. If both parties have their own interpretation of the terms, but neither
is aware of the other parties view → this is a mutual mistake of
material terms, and the K is invalid.
i. See Raffles v. Wichelhaus [p. 582]
b. If both parties are unaware of the ambiguity, but later discover it, the
K is valid IF terms comport with mutual understanding of terms.
c. If one party is aware but one is not → K is valid and “innocent” parties
terms are applicable.
iii. Ambiguity of Terms vs. Syntax:
1. Terms: words have more than one meaning
2. Syntax: the grammatical structure is confusing
iv. A certain amount of vagueness is acceptable to allow for flexibility due to future
uncertainties – but ambiguity is NEVER tolerable.
v. Resolution of issues in Court
1. Ambiguity and Vagueness problems →
a. if ambiguous, and there is no rational basis for court to choose one of
the offered interpretations, then there is no K.
2. if vague, court will objectively interpret K and enforce
b. Rules & Guidelines for Interpretation
i. Plain Meaning Rule (old rule) = look at the plain meaning of word(s) without
regard to the intent of the drafters/parties.
1. Steuart v. McChesney, PA S Ct, 1982 → court enforced K according to plain
meaning, even though it was apparent that it was contrary to the intent of
the parties. This rule forces parties to be clear in drafting the express terms.
ii. Objective Interpretation = courts will look at the objectively reasonable intent of
the specific parties, rather than the subjective intent claimed by one of the parties.
1. Objective interpretation promotes reasonable certainty re: K interpretation
iii. Modern Approach → Circumstances of K = court will consider whether the
language of the K is “fairly susceptible” to multiple interpretations, even if it appears
to be clear and unambiguous on its face.
1. Traynor developed this doctrine in the case PG&E [p. 597] → he disregarded
the traditional approach which said you have to look at whether the terms are
clear on their face – and PE is only allowed where terms are not.
a. He said the test for whether PE should be allowed in a case to
determine how a K should be interpreted is whether the language of
the K is fairly susceptible to multiple interps. PE is allowed to prove
which is correct.
2. Hurst case [p. 597] → trade usage can be used to interpret Ks.
3. 1-205(3) = custom & trade usage can govern K interp. These may
supplement or qualify terms of K, but if the express terms in K contradict
custom/trade usage, then the terms of the K win out.
iv. Tools for Interpretation
1. Internal references in K = writing may reference other documents, which can
aid in interpreting the intent of the parties.
2. dictionary meaning
3. common usage.
4. trade usage
5. Market realities
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6. subjective intent (only useful when both parties agree)

7. maxims of construction (not dispositive, but used as support)
a. see class notes p. 9
c. GAP FILLING [p. 611]
i. Possibly applications:
1. gap exists because parties failed to consider an issue
2. gap exists because parties failed to include an exception
3. gap exists because the language of the K does not apply to this situation
ii. R2d §204 = where two parties haven’t agreed to a term that is essential to the
fulfillment of the K, the court supplies term(s) reasonable under the circumstances.
iii. Terms implied in Fact: when the conduct or words of a party imply a promise or
agreement that will then be enforced by the court.
1. PE is allowed to negate this type of terms.
iv. Terms implied in Law: when the court supplies terms to the agreement (default rules
from UCC and CL when K is silent).
1. PE is NOT allowed to negate these implied terms.
v. 1-205(4) re: which terms prevail
1. express terms > trade usage
2. course of dealing > trade usage
vi. Good Faith requirements:
1. Merchants: 1-203 → requires “honesty in fact” (subj, considers motive) and
observance of reasonable commercial standards (obj, considers actions).
2. Non-Merchants: requires only “honesty in fact”
III. PERFORMANCE AND BREACH [Ch. 7]
a. Conditions → “triggering events” R2d §224 = uncertain events that must occur (unless
nonoccurrence is excused) before performance is due.
i. Issues to consider:
1. does the language of the K create a condition?
2. has the condition been satisfied?
3. if it has not been satisfied, what is the legal effect?
ii. R §227(1) → re: types of conditions
1. Condition = something that must occur before performance is due.
a. Effect of breach = non-breaching party does not have to perform their
part of the conditioned agreement (remainder of K is unaffected).
2. Duty/Promise = something that must be done before performance is
considered complete.
a. Effect of breach = non-breaching party is entitled to damages.
3. Both = when condition satisfies the duty as well.
a. Effect of breach = non-breaching party is entitled to damages and
does not have to perform their part of the conditioned agreement.
4. If K is unclear, court will usually interpret it as a duty rather than a condition.
iii. Condition Precedent = an event that must occur/exist BEFORE the parties will be
bound by the K.
1. Luttinger [p. 665] → P conditions acceptance of sale of house on ability to
obtain financing. Was not, so no K.
iv. Satisfaction Clause = parties can expressly agree to give one party the right to judge
the acceptability of the other party’s performance.
1. right can be expressly limited; otherwise court may interpret right as granting
full discretion to judging party (limited only by good faith/reasonableness).
a. Reasonable review: (Obj std) R2d §228: would reasonable person in
judging parties position be satisfied by performance?
b. Good Faith review: (Subj std): satisfaction depends on taste, fancy,
etc. Claim of dissatisfaction must be in good faith rather than in an
2. Mattei [p. 677] → court applied GF review for real estate transaction
3. Gibson → court said complete discretion may be allowed.

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v. PREVENTION:
1. party that is subject to the condition cannot prevent the occurrence of it and
then claim they do not have to perform. GF duty exists to not prevent it.
vi. WAIVER:
1. party whose performance is subject to the condition can decide to forego their
right to subject their duty on that condition and continue under the terms of
the K as if it occurred.
a. Waiver can also be implied from conduct (such as payment, etc).
b. Non-waiver clause: says no [in]action may amount to a waiver, but
these are not always honored.
c. RE: Retraction of Waivers → General Rule = waivers can be
retracted prior to the [non]occurrence of the event UNLESS:
i. Estoppel: seller [reasonably] relies on waiver; or
ii. Election: (applies to duties) party’s whose duty is conditional
may treat duty as discharged (after non-occurrence of event)
and treat performance as completed → BOUND by this choice.
b. Constructive Conditions [p. 699]
i. Usually refer to the order of performance in a contract → GOAL = alleviate the risks
associated with performing first under a bilateral K.
ii. Avoids the injustice of forcing the non-breaching party in a bilateral K to perform and
then seek damages for the breach. Rather this allows the court to infer a
constructive condition that excuses non-breaching party from performing.
iii. Usually the DOER has to perform before the PAYER.
1. easier to force a party to pay then it is to force a party to perform
iv. R2d §232 = existence of dependency between exchanged promises is presumed to
exist when parties enter into a bilateral agreement unless contrary intent is express.
1. This is a default rule and can be changed by express agreement of the parties
2. Comment E = generally a party is not required to pay until work is completed,
but many Ks today have satisfaction clauses, as well.
v. Kingston v. Preston [p. 693] → J. Mansfield created constructive conditions
1. three types of covenants:
a. (1) Mutual and Independent → either party may recover for breach if
the other party fails to perform; no excuse for D that P did not perform
i. I don’t think these really exist anymore.
b. (2) Conditions and Dependent → performance of one depends on prior
performance of the other; thus, until prior performance is complete,
the other party is not liable.
i. This is the DEFAULT rule at Common Law.
c. (3) Concurrent Mutual Conditions → if one party is ready to perform
when required and the other is not or refuses, this is a breach.
i. UCC makes this the DEFAULT.
vi. UCC 2-507(1) and 2-511(1) = tender of delivery and payment are concurrent
conditions – law does not require that one occur before the other, but rather they
should occur simultaneously.
c. MITIGATION DOCTRINES [p. 707]
i. Substantial Performance = permits recover for performance that is not complete
but is considered substantial (considering all the circumstances). Arises most often in
construction contracts, because it is virtually impossible to make a building perfect.
1. parties are free to agree that any contract must be performed exactly as
specified in the agreement.
2. Most Ks, however, do not do so → they allow for some deviations; D is
required to pay for the deviations, though, rather than be forced to fix them.
3. Cardozo TEST (from Jacobs v. Youngs & Kent)
a. Purpose of Covenant (emotional attachment or subjective value?)
b. Desire to be gratified (was it explicit that conditions were necessary?)
c. Excuse for deviation (willful breach? R2d §241 says no Sub Perf if so)
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d. Cruelty of enforcement (burden on D if forced to perform exactly under

K or burden on P if specified performance is not received)
4. See R2d §241 = factors to consider when determining if breach is material
5. Application:
a. If Constructive Condition: may be satisfied by substantial performance
b. If Express Condition: must be satisfied completely as required
ii. Divisibility/Severability [p. 720]
1. Q: is the overall performance of the K more desirable or is each divisible part
of equal value?
2. R2d §240 = says to determine whether the elements of performance on both
sides can be paired up with each other.
a. If so → K is divisible.
b. If not → K must be performed entirely.
3. Apportionable amounts may be expressed in K or implied by court.
iii. Restitution = one party confers benefit on another, so the conferring party is
entitled to be fairly compensated for the value of that benefit.
1. must show that it would be unjust to allow the other party to keep the benefit
without compensating you for it (but compensation cannot exceed terms of K)
2. this is seen as a separate action, rather than an action under a K → the terms
of the K are irrelevant: look at the value of the benefit conferred.
3. harder to get relief if performance is not complete (especially if failure to
completely perform was willful), unless it is divisible.
4. Quantum Meruit = “as much as she deserved”
d. ANTICIPATORY REPUDIATION/BREACH → R2d §250
i. Refers to a situation where one party indicates (thru language or conduct) that they
intend not to perform [except on conditions which go beyond the terms of the K].
1. language/conduct must be “sufficiently positive to be reasonably interpreted
to mean that the party will not [or can not] perform.
ii. The doctrine encourages the non-breaching party to mitigate damages
iii. Hochster v. De La Tour [p. 741]: anticipatory repudiation is the same as a breach –
the non-breaching party has a choice to wait until the time of performance to sue for
damages or to sue for damages immediately and find other opportunities.
iv. General Rule = repudiations can be retracted
1. Exceptions =
a. Reliance: if the party relies upon the repudiation, then it cannot be
retracted.
b. Renounce K: if non-repudiating party receives notice of repudiation
and thereafter renounces the K, then the repudiating party is
precluded from retracting. Say: repudiation is final. See R2d §256
v. General Rule = repudiation accompanied by a breach by nonperformance can give
rise to a claim for damages as for total breach
1. Exception = installment contracts → if most of the duties under a K are
performed and most installments have been paid, then the recipient of
repudiation will have to wait until the installments come due before she can
sue for relevant damages.
2. See p. 745 or Restatement 2d §§243(3), 253
3. But this exception is almost always avoided via acceleration clauses
a. basically says on any default, creditor may declare all amounts
remaining payable immediately
vi. no Anticipatory repudiation for unilateral Ks
vii. No AR when one party has already performed
e. BREACH IN THE COURSE OF PERFORMANCE
i. Fundamental Q: was the failure to perform a material breach?
ii. The judge will weigh the factors to consider whether the breach was material or
whether it was merely a partial breach.

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1. partial breach: aggrieved party has to continue performance, but they have
the right to collect damages.
2. material breach: R2d §243(1) = non-breaching party may either →
a. (1) continue performance and treat it as a “partial breach”
b. (2) stop performance and treat breach as “total breach” which
discharges their remaining duties under the K and gives rise to a claim
for damages – BUT if circumstances allow for a “cure” then non-
breaching party is expected to allow for it before treating it as “total”
3. FACTORS judge will consider → taken from Walker Co. v. Harrison [p. 722]
a. Extent to which injured party obtains substantial benefit
b. Extent to which damages will adequately compensate injured party
c. Extent of partial performance or preparation
d. Relative hardship (failing to perform vs. breach)
e. Nature of the breach (intent: willful or innocent)
f. Amount of uncertainty as to whether the party will perform the rest of
their duties under the K
4. This “modern” approach is essentially the same as the R2d §241
a. Uses “good faith” and “fair dealing” rather than “nature of breach”
b. Does not include “extent of partial performance”
5. Also, consider R2d §242 (Bjerre likes this “standard” better)
a. Extent to the delay will make finding other arrangements hard
b. Failure to perform on a certain day is not necessarily a material breach
unless the parties intended for that deadline to be significant.
iii. Connection between material breach and substantial performance → the two
concepts are similar: if there is a material breach, there is no substantial
performance, but if the court finds substantial performance, then the breach is not
material → a similar analysis is done under each doctrine.
iv. Prevailing View: you can use evidence that you were not aware of at the time of the
breach as a justification for the breach (most often applied in employment context).
IV. THIRD PARTY BENEFICIARIES → R2d §§302, 309, 311
a. Fundamental Q: was the agreement intended to benefit a 3d party?
i. 3d party beneficiary has no part in making K but was intended to have right to an
action if the K is not maintained.
ii. Does not require privity of K.
b. Donee Beneficiary: 3d party who received a gift as a result of someone else’s K – they can
sue to enforce their right to receive the gift.
c. Creditor Beneficiary: 3d party who had some right to a debt owed by a contracting party
and was supposed to be repaid as a result; can sue to enforce right to receive payment.
d. Incidental Beneficiaries: 3d party who may enjoy benefits as result of K but has no
enforceable interest in the performance of the K.
e. Lawrence v. Fox → to create a 3d party beneficiary, contracting parties must intend to
confer a benefit upon that person.
i. Need not be privity of K between contracting parties and 3d party beneficiary.
f. No Inurement Clause = expressly stated: no 3d pty beneficiaries.
g. ASSIGNMENT & DELEGATION → “delegate duties” and “assign rights”
i. Assignment: refers to the transfer of a right to a 3d party after the K is created.
1. All that is required is a clear intent to transfer the right → NOT revocable.
ii. Parties involved:
1. Assignee = 3d party to whom the right is transferred
2. Assignor = party who transfers her rights under a K to a 3d party
3. Obligor = party who, following assignment, must render performance to the
assignee rather than the assignor.
iii. Generally ALL rights can be assigned EXCEPT those which:
1. materially alter the obligor’s duty (i.e. personal services).
2. materially vary the risk (e.g. insurance policies).
3. materially impair the obligor’s chance to obtain return performance.
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UNIFORM COMMERCIAL CODE

DEFINITIONS
General Definitions 1-201 p. 9
Course of Dealing 1-205 p. 14
General Defs for Sales 2-103 p. 17
Good, Commercial Unit 2-105 p. 20
Several very important 2-106 p. 21

SUBSTANTIVE PROVISIONS
Supp. General Principles 1-103 p. 8
Statute of Frauds 2-201 p. 22
Parol Evidence Rule 2-202 p. 25
Formation 2-204 p. 26
Firm Offers 2-205 p. 27
Offers & Acceptance 2-206 p. 29
Additional Terms 2-207 p. 29
Cours of Perf. for K 2-208 p. 32
Modification 2-209 p. 33
Open Price Term 2-305 p. 39

OBLIGATIONS
Delivery 2-307 p. 43
Notice of Termination 2-309 p. 43

WARRANTIES
Express 2-313 p. 46
Implied: Merchantability 2-314 p. 49
Implied: Fitness 2-315 p. 53
Exclusions 2-316 p. 54

PERFORMANCE
Sellers Tender of Delivery 2-503 p. 64
Effect of Sellers Tender 2-507 p. 66
Cure by Seller 2-508 p. 66

BREACH, REPUDIATION, EXCUSE

Improper Delivery 2-601 p. 69
Rejection 2-602 p. 70
Buyer’s Options to Salvage 2-604 p. 72
Acceptance 2-606 p. 72
Effect of Acceptance 2-607 p. 73
Revocation of Acceptance 2-608 p. 75
Right to Assurance 2-609 p. 76
Anticipatory Repudiation 2-610 p. 80
Installment Contracts 2-612 p. 82

REMEDIES
Buyer’s Remedies 2-711 p. 91
Buyer’s Substitute/Cover 2-712 p. 91
Buyer’s Damages: Accpt 2-714 p. 93
Deduction of Damages 2-717 p. 95

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I. UNIFORM COMMERCIAL CODE

a. UCC Article 2 is written by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws
i. Commissioners are appointed by every state
ii. Oregon has 3 – including Bjerre
b. 1-102(1) → CONSTRUE THE UCC LIBERALLY TO SATISFY POLICIES/GOALS
c. 1-102(7) → Lays out the Purposes and Policies behind the UCC
i. to “simplify, clarify, and modernize commercial law”
ii. to permit the continued expansion of commercial practices by validating trade
customs and usage as well as parties’ express agreements
iii. to make the law uniform among the various jurisdictions (for predictability)
d. Core Terms to be familiar with:
i. 1-201(3) → “Agreement” = bargain of the parties found in their language or by
implication from other circumstances
ii. 1-201(11) → “Contract” = the total legal obligation which results from the parties’
agreement as affected by the code and any other applicable rules of law
iii. 1-201(19) → “Good Faith” = honesty in fact in the conduct of transactions
concerned (Merchants → GF = honesty in fact and the observance of reasonable
commercial standards of fair dealing in the trade).
iv. 2-105(1) → “Goods” = all things which are movable at the time of ID to the K for
sale other than the money in which the price is to be paid, investment securities, and
things in action (i.e. services).
v. 2-104(1) → “Merchant” = person who deals in goods of the kind or otherwise by
his occupation holds himself out as having knowledge or skill peculiar to the practice
or goods involved in the transaction. Also applies to agents of merchants.
1. Comment 2 → “merchant” roots in the “law merchant” concept of a
professional in business. May be based on specialized knowledge as to the
goods and/or as to the business practices.
2. only applies to merchants in their “mercantile capacities”
3. Warranties, etc. require professional status as to the particular kind of goods,
whereas the simple business practices (contracts, etc) do not.
vi. 1-201(25) → “Notice” = person has notice of a fact when (a) they have actual
notice, (b) receive a notice, or (c) has reason to know it exists.
vii. 1-201(25) → “Notifies and Receipt of Notification” = effective from the time it is
brought to the attention of the individual conducting the transaction. Due diligence
show in routine of communicating information.
1. person “receives” notice when (a) it comes to his attention, or (b) it is duly
delivered at the place of business thru which the K was made.
viii. 2-103(1)(c) → “Receipt of Goods” = taking physical possession of them.
II. WHEN DOES UCC ARTICLE 2 APPLY?
a. 2-102 → SCOPE = applies to transactions of goods
i. see definition of “goods” above
1. real estate not covered
2. movable goods only – not services
ii. “Hybrid Transactions” = those which include BOTH goods and services
1. two methods of dealing with them (jurisdiction split)
a. Predominant purpose = whichever one dominates the transaction
will be used as the basis for judging it
b. Gravamen = the basis of the complaint itself determines the nature of
the transaction involved.
III. CONTRACTS FORMATION
a. 1-103 = concepts of law and equity (such as fraud, duress, misrepresentation, coercion,
mistake, etc. are still applicable in the sale of goods [when UCC is silent].
b. 1-203 = GOOD FAITH requirement in every K for the sale of goods
c. 2-204(1) → K for sale of goods made in any manner sufficient to show agreement,
including conduct that recognizes existence of K.
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d. 2-204(3) → K even if one or more terms are left open

e. 2-205 → “Firm Offers” = by merchant, signed, held open (not revocable) without
consideration for period stated in offer
f. 2-206(1) unless expressly stated otherwise
i. (a) acceptance can be in any manner reasonable under circumstances
ii. (b) offer inviting prompt shipment can be accepted by promptly shipping, but if
goods are non-conforming this is not an acceptance if buyer notifies seller
g. 2-206(1)(b) → lets offeror accept by performance or promise to perform.
h. 2-206(2) → if performance actuates acceptance (i.e. unilateral K) then offeree must notify
offeror of acceptance/performance or it is invalid.
i. BATTLE OF THE FORMS: Generally it is agreed that there are THREE methods of K
formation under 2-207:
i. Offer + Acceptance → under 2-207(1)
ii. Offer + Acceptance that is EXPRESSLY conditioned on assent to additional terms
(which essentially amounts to a counteroffer) → under 2-207(1)’s “unless” clause
iii. Conduct of Parties which recognizes the existence of the K → under 2-207(3)
i. DIFFERENT TERMS: anything that relates to a provision/term that is already
expressly included in the offer.
iv. ADDITIONAL TERMS: anything that relates to any provision that is NOT expressly
included in the original offer.
j. At CL, offeree’s response to an offer operated as an acceptance ONLY if it was the precise
mirror image of the offer. Any new/additional/different terms would make the response an
effective counteroffer.
k. 2-207 [p. 29] → eliminates the “mirror image rule” and “last shot rule”
i. 207(1) answers Q: Is there a K?
1. any expression of acceptance or written confirmation will act as an
acceptance of K even if additional or different terms are contained therein
2. “unless clause” in this provision allows parties to retain the “mirror image”
rule and the “last shot” rule if they so choose – by requiring that any different
or additional terms must be expressly assented to (essentially a counteroffer)
a. Good draftsman tips: say “expressly conditional on acceptance of the
additional or different terms contained herein. . .”
ii. 207(2) answers Q: What are the terms of the K?
1. initially, additional terms are simply proposals for additions to the K
2. Between MERCHANTS: if BOTH parties are merchants →
a. The additional terms automatically become part of the K - UNLESS:
i. acceptance is expressly conditioned on assent to them
ii. if they materially alter the agreement (see comments 4, 5).
1. if more than one additional terms, then if one materially
alters the agreement, it will be lost, but others remain.
iii. prior notice or rejection within reasonable time.
b. Different terms cancel each other out.
3. Non-MERCHANTS: if ONE or both of the parties are NOT merchants →
a. Additional or different terms are NOT part of the agreement unless the
party expressly agrees to them.
b. If the additional terms are rejected, a K is formed with all the terms
that both parties have agreed to.
iii. 207(3) ONLY applies when K is created thru conduct
1. “knock-out” provision = terms consist of only those which BOTH parties have
agreed upon. Both different and additional terms are eliminated
2. Gaps are filled according to default rules (see below).
iv. Overall: Conflicting terms (different terms) → most courts use the “knock out” rule
and exclude both parties versions, and then fill the gaps accordingly.
l. Ways the power of acceptance can be terminated:
i. Rejection
ii. Counteroffer
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iii. Lapse of time

iv. Revocation
v. Death or incapacity
m. “dickered terms” → those terms that the parties negotiate over
n. “boilerplate” → the typical terms contained on the forms that are usually not discussed.
o. Relevant Cases:
i. Diamond Fruit Growers → this was created thru conduct (so under 207(3))
ii. Gateway v. Hill → “rolling contracts”
1. The judge says Gateway is the master of the offer (offer = sending comp,
acceptance = keeping it more than 30 days). The K is not really “formed” at
the time of offer/acceptance, but rather the terms that are included in the
form contract that is included in the box are considered the terms, and what
will be the K is actually decided later.
2. Bjerre doesn’t like this, because it goes against our autonomy. He thinks
when the Hills call Gateway and say “send me a computer” this is the offer to
buy, and Gateway’s shipment is the acceptance, and the terms in the form
are construed as proposals for additions to the K.
IV. OUTPUT / REQUIREMENT / EXCLUSIVE DEALING Ks
a. 2-306 [p. 41] → requires good faith, fair dealing, etc.

V. GAP FILLER PROVISIONS → applied by court unless otherwise agreed on by parties.

a. 1-203 → Good faith requirement throughout.
b. 1-204 → reasonableness is defined by circumstances; wholly fact-dependant.
i. Parties cannot agree in K on time for performance that is manifestly unreasonable.
c. 2-204(1) → K for sale of goods made in any manner sufficient to show agreement
d. 2-204(3) → even if one or more item omitted, K does not fail for indefiniteness if the
parties have intended to make K and there is a reasonably certain basis for providing an
appropriate remedy
e. 2-305 → (reasonable) price (at time of delivery) if parties fail to specify one
f. 2-306 → output K = “best efforts” and “good faith”
g. 2-307 to 2-310 → parties must comply with reasonable practices
h. 2-308 → default RoL = shipment K
i. 2-509(3) → RoL passes to buyer on tender of delivery
j. 2-309(1) → reasonable time
k. 2-309(3) → reasonable notice
l. 2-311 → unless otherwise agreed, buyer has right to specify assortment of goods
m. 1-201 → “agreement” = bargain of the parties in fact as found in their language or by
implication from other circumstances including course of dealing, trade usage, etc
n. 2-305(1)(b) → court will supply price if parties expressly agree to leave it open to be
agreed upon later, but are unable to agree at a later date.
o. 2-714(3) → buyer can get consequential and incidental damages
VI. SAFE HARBOR PROVISIONS
a. 1-204(1) → time (6 months is considered reasonable, but parties are free to agree to any
other time that is still reasonable)
b. 1-102(3) → “safe harbor” enabling statute

VII. MODIFICATION
a. § 2-209 → MODIFICATION OF SALES K: A modification of a K for the sale of goods is
binding without consideration.
i. No-oral-modification clauses: A no oral modifications clause in a sales K will normally
be enforced.

VIII. STATUTE OF FRAUDS

a. 2-201 [22] → a K for the sale of goods >$500 must have writing sufficient to indicate that
a K for the sale of goods has been made AND signed by defendant AND state the quantity.
i. 1-201(39) = defn of “signature”
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b. Exceptions: 2-201
i. (2) → Between merchants, a confirmation from seller to buyer is sufficient to
enforce the agreement against either (unless buyer objects within 10 days).
ii. (3)(a) → “specially mfr’d goods” that cannot be resold – either substantial
production has begun or seller has committed to buy goods from a 3d party.
1. estoppel principle, essentially – but narrower than CL rule
iii. (3)(b) → estoppel: if party “judicially admits” to K, she may be held to it.
1. also applies if party admits to a set of facts that could constitute a K
iv. (3)(c) → SoF does not bar any payment for goods or goods that have been received
and accepted goods (see 2-606 for acceptance rules).
1. partial payment/acceptance only removes part of K from SoF
c. 2-209 → Modification/Rescission
i. (1) does not require consideration
ii. (2) a signed K which excludes oral modifications is binding
iii. (3) if original K is under SoF, modification/rescission must be as well
iv. (5) even if there is a “no oral modification” clause, if p1 orally modifies and p2 relies
on this, then p1’s actions will likely be seen as a “waiver” of the right to the “no oral
modification” clause.
d. Confirmation letters can convert an oral agreement to a “written agreement” between
merchants → but it only counts against the sender at first, but if receiver does not object
within 10 days then it can be enforced against them as well.

IX. PAROL EVIDENCE & INTERPRETATION OF SALES K

a. 2-202 → actual text for UCC’s parol evidence rule = similar to CL principle
b. Three special sources used in interpreting the terms of a contract (in priority order):
i. 2-208(2) → Course of performance: Refers to the way the parties have conducted
themselves in performing the particular contract at hand.
ii. 2-208 (2) → Course of dealing: Refers to how parties acted with respect to past Ks.
iii. 1-205 (2) → Usage of trade: Any practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an expectation that
it will be observed with respect to the transaction in question.
1. Thus the meaning attached to a particular term in a certain region, or in a
certain industry, would be admissible.
iv. Used to interpret even a complete integration: “course of performance,” “course of
dealing,” and “trade usage” may be introduced to help interpret the meaning of the
writing even if the writing is a complete integration.
1. That is, these sources aren’t affected by PE rule – because the writing may
still be explained by evidence from these three sources.
v. 2-208(2) → Custom can’t Contradict Express Terms.
1. However, if these customs can reasonably be harmonized with the writing,
then the customs may be shown and may become part of the K.
vi. 2-208(2), 1-205 → Priorities: express contractual provision controls over a course
of performance, which controls over a course of dealing, which controls over a trade
usage.

X. CONSTRUCTIVE CONDITIONS
a. Sales of goods when no order agreed upon: If each party’s promised performance can occur
at the same time as the other’s, the court will normally require that the two occur
simultaneously = "concurrent conditions."
b. 2-507(1), 2-511(1) → Tender of performance: Courts say that where the two
performances are concurrent, each party must "tender" (conditionally offer) performance to
the other.

XI. RISK OF LOSS

a. Generally: this issue arises when goods are damaged in transit
i. CL → whoever held title to goods when damaged had the risk of loss.
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ii. Code places risk on the party most likely to take precautions against the loss (usually
the one with possession or control of the goods or the one most likely to insure)
iii. General solution is to go by what the K says to determine who carries the risk at
what point.
iv. Whoever bears the RoL may have a claim against the carrier, but its often difficult
b. 2-319 → Types of Delivery Terms [58]
i. (1)(a) → Shipment Contract (F.O.B. = “free on board” → place of shipment)
1. Seller need only place the goods in carrier’s hands (at own risk/expense)
2. Buyer pays shipment costs
3. Risk passes to Buyer when goods are duly delivered to carrier
ii. (1)(b) → Destination Contract (F.O.B. place of destination)
1. S must at own expense and risk transport goods to that place and there duly
tender the goods to buyer.
a. S bears risk until goods tendered at B’s destination
iii. (1)(c) → FOB vessel (buyer must name vessel)
1. Seller must deliver goods to carrier and place them on board
iv. (2) FAS vessel (free along side) at a named port (rarely used)
1. S must deliver at his own expense and risk alongside the vessel
2. S must obtain and tender receipt for goods in exchange for Bill of Laiding
v. (3) buyer must provide instructions for delivery if under (1)(a), (1)(c), or (2)
c. 2-320 → CIF means the price includes in a lump sum the cost of the goods and the
insurance and freight to the named destination.
i. C&F means that the price includes cost and freight to the named destination.
ii. Problems arise when there is inadequate insurance
iii. Seller pays for insurance, but in case where insurance is inadequate, buyer has the
RoL. This provision only requires seller to pay for “usual amount” of insurance.
d. 2-509 Risk of Loss in Absence of Breach [67]
i. (1)(a) → re: shipment K
1. K requires or authorizes Seller to ship goods by carrier when a particular
delivery destination NOT required
2. RoL passes to Buyer when goods are duly delivered to carrier
ii. (1)(b) → re: destination contracts
1. contract requires seller to ship to a “particular destination” (this will be
specified in K usually as “Buyer’s place of business” rather than a specific
address → look for indication of who the parties wanted to bear RoL).
2. Seller must deliver goods to carrier → RoL passes to buyer when goods are
tendered as to enable buyer to take delivery.
iii. (2) Where goods are held by bailee for delivery without being moved, RoL passes:
a. On receipt of negotiable document of title covering goods, or
b. On acknowledgement by bailee of B’s right to possession, or
c. After receipt of non-negotiable document of title or other written
instruction to deliver.
iv. (3) → “catchall” provision
1. RoL passes to buyer on receipt of goods if S is merchant; otherwise risk
passes to B on tender of delivery
a. No use of carrier (S delivers using company van, B picks it up himself)
e. 2-510 Effect of Breach on Risk of Loss
i. (1) if goods fail to conform to K, RoL remains on S until cure or acceptance
ii. (2) Where B rightfully revokes, treat RoL as having rested on S the entire time.
iii. (3) Where B repudiates or breaches before RoL is passed to him, S may treat risk as
resting on B for a commercially reasonable time.
f. 2-511 and 2-507 → discusses concurrent conditions (different from common law)
i. buyer must tender payment, and at same time, seller must tender goods.
g. 2-501 Insurable Interest
i. B obtains insurable interest in goods upon their “identification” to the K. At that
point, long before delivery, B may protect itself against risk by insuring goods.
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h. Concurrent Conditions – the goods in a way belong to both parties, but the ct must decide
who will take liability
CHART
[Default Rules] SELLER’s DUTY BUYER’s DUTY RISK OF LOSS
Passes when seller
SHIPMENT K Deliver goods to carrier Pays shipping costs
delivers goods to carrier
Passes when the goods
Accept goods when they
DESTINATION K Pays shipping costs are tendered to the
are tendered
buyer by the carrier
*Explicit language in the K always overrides these default terms.

XII. REJECTION & ACCEPTANCE/RECEIPT

a. 2-601 [69]: “perfect tender rule” → if the goods fail in ANY respect to conform to the terms
of the K, the buyer may: (1) reject the whole, (2) accept any commercial unit(s) [defined
under 2-105(6)] and reject the rest, or (3) accept the whole.
i. *Distinguish from CL, where “substantial performance” was allowed so minor non-
conformance was not actionable in most cases.
b. 2-307 [43] → unless otherwise expressly agreed, seller must tender all goods at once.
i. Buyer not obligated to accept partial performance
ii. Buyer and seller can expressly agree to create “installments K” though (see below)
c. REJECTION = 2-602(1) [70] → must notify the seller within a reasonable time.
i. Buyer can ONLY reject goods that are (1) non-conforming and (2) have not been
previously accepted (revocation of acceptance is dealt with below)
ii. If buyer rejects, the burden of proving that the rejection was wrongful rests on the
seller, who must show (1) goods were conforming and (2) properly tendered.
iii. Wrongful rejection may result in breach of K
iv. 2-602 → rightful rejection
1. (2)(b) if before rejection, buyer has taken possession, he is under a duty to
hold them with reasonable care and permit S to remove them.
v. 2-603 → B’s duties as to rejected goods
1. if B rejects goods and S does not have a local agent, B is under duty to follow
any reasonable instructions from S and in absence of such instructions B must
make reasonable efforts to sell goods if they are perishable or threaten to
decline in value.
vi. *NOTE: SELLER has chance to “cure” if goods are non-conforming (see 2-508(2))
d. ACCEPTANCE = 2-606 [72] → THREE different ways a buyer can accept goods:
i. (1)(a) buyer chooses to retain goods after a reasonable opportunity to inspect
1. buyer is given reasonable opportunity to inspect goods before she must
decide whether to accept them [unless K expressly says otherwise]
2. occurs when buyer “signifies” she will take possession: implies communication
3. 2-512 → if payment is required before acceptance, B
4. 2-513 → B’s inspection rights
a. Note: payment does not preclude inspection of goods.
b. PAYMENT ≠ ACCEPTANCE
ii. (1)(b) buyer fails to make effective rejection after reasonable opportunity to inspect
1. “reasonable time” is determined by nature of goods and facts of the case.
iii. (1)(c) buyer takes actions inconsistent with seller’s right to ownership
1. Q to ask: has buyer done anything to make others think the goods are hers?
e. ACCEPTANCE vs. RECEIPT
i. 2-103(1)(C) → [17]: “receipt” = the physical taking of possession of the goods
ii. 2-606 → “acceptance” = recognition that the goods are conforming (or buyer will
accept the non-conforming goods) and that the seller has discharged her obligations
under the agreement. “Acceptance” does not require physical possession.
1. 2-607(1) → buyer MUST pay for any goods that she accepts.
2. 2-607(3) → B must seasonably notify S of breach or be barred from remedy.
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a. 2-714 [93] → However, if the buyer incurs any harm as a result of her
acceptance of any non-conforming goods, she may have a cause of
action against the seller to recover damages.
b. 2-717 [95] → upon proper notification, buyer may deduct any amount
of damage that she has incurred as a result of seller’s breach from
cost of goods.
f. REVOCATION OF ACCEPTANCE →
i. 2-608 → once a buyer has accepted, she may desire to revoke this acceptance if she
discovers a defect that was not discoverable at the time of inspection [not applicable
if buyer accepts non-conforming goods per 2-607(2) UNLESS buyer reasonably
assumed non-conformity would be cured].
ii. she must prove that the non-conformity of the goods “substantially impairs the
overall value of the agreement.” [burden is on buyer]
1. this is a higher standard than must be met for the original rejection, but the
buyer has more time for revocation.
2. must notify S of revocation in reasonable time after B discovers or should
have discovered the defects.
3. defect must not result from B’s actions
iii. Effect of revocation: same as rejection (buyer does not have to pay for goods).
iv. “substantially impairs value” = fact-finder determination.
1. see Zabriski Chevy
g. SELLER’S RIGHT TO CURE → novel UCC concept (does not exist at CL)
i. 2-508(2) → even if goods are non-conforming, the seller has a right to “cure”
1. seller must notify buyer of her intent to cure AND replace non-conforming
goods with conforming goods BEFORE the term of the K expires; OR
2. if Seller reasonably thought that goods, even though non-conforming, would
be accepted, she may be allowed a reasonable time after the term of the K
expires to remedy the breach (still must “seasonably” notify buyer).
3. Cure is precluded if there is an express “NO replacement” provision in K.
4. “shaken faith doctrine” → if S continually ties to cure but fails, B does not
have to allow them to continue.
h. INSTALLMENT CONTRACTS
i. 2-612 [82] → covers the “right to reject” an installments K, NOT 2-601.
1. (1) K which requires or authorizes seller to deliver goods in separate lots,
each which requires a separate acceptance [even if K says that “each delivery
is a separate contract” it is still an installments K].
2. (2) Buyer may reject any installment that is non-conforming IF the non-
conformity “substantially impairs the value of that installment” OR if seller
does not cure (and it does not fall under sub3).
3. (3) Buyer may cancel of the whole IF it “substantially impairs the value of the
entire K” – but buyer reinstates the K if she accepts the non-conforming
goods due to lack of notice of cancellation, OR brings an action with respect
to any of the past installments, OR demands performance of future ones.
i. RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE: If a party’s words/conduct do not
constitute an outright repudiation of their duties under the K, but suggest that the party
might not perform, the other party may demand assurances that they will perform.
i. 2-609 [79] →
1. (1) if P1 is reasonably insecure about P2’s performance, P1 can in writing
demand some sort of adequate assurance that performance is forthcoming.
a. If commercially reasonable, P1 may suspend any performance for
which she has not received due return.
2. (4) upon receiving this demand, if the p2 fails to provide adequate assurance
within a reasonable time not exceeding 30 days, this is a repudiation of the K.
ii. there are two ways to get in trouble when invoking this provision [either of which
would result in the demanding-party being liable if they refuse to continue under the
K when assurance is denied]:
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1. you can demand assurance when you do not have reasonable grounds
2. even if you have reasonable grounds, you can demand specific assurance that
is more than adequate under the circumstances.
iii. Issues/Questions to ask → [questions of fact]
1. do I have reasonable grounds?
2. is my demand more than adequate?
3. is the time I required reasonable?
iv. 2-610(a) → expresses mitigation requirement in occurrence of repudiation
j. Retraction of Repudiation → 2-611(1) usually no longer available if/when other party:
i. sues for breach
ii. reasonably relies on the repudiation
iii. states that she regards the repudiation as final
k. 2-703, 2-708 → Seller’s remedies if buyer breaches.

XIII. WARRANTIES
a. Overview:
i. 2-317 [57] → (1) express and implied warranties will be construed as consistent
with each other whenever possible, but if this is unreasonable, then the intent of the
parties shall determine which dominates.
1. (c) express warranties displace inconsistent implied warranties EXCEPT the
implied warranty of fitness for a particular purpose.
ii. To bring a successful claim for breach of warranty, buyer must:
1. Establish that seller warranted goods under UCC 2-313, 2-314, or 2-315.
2. Prove that the goods delivered failed to conform to the warranty
3. Prove the buyer suffered damages as a result of this non-conformity
iii. Seller’s defenses: UCC 2-316, 2-719, 2-318, 2-607(3), and 2-725.
iv. Warranties can be created in a variety of ways, including orally.
v. Code warranty litigation arises in one of two contexts:
1. Commercial, where the loss is often purely economic
2. Consumer, where the loss commonly includes personal injury
b. EXPRESS WARRANTIES: 2-313(1) [46] →
i. (1) express warranties created when
1. (a) affirmation or promise by seller becomes basis of bargain
2. (b) any description of goods becomes basis of bargain
3. (c) any sample/model is used that becomes basis for bargain
a. Sample: a good/unit taken from the bulk of goods buyer will receive.
i. Comment 6 says there is a strong presumption that a warranty
is created when a sample is used.
b. Model: a good/unit that is the same as the goods buyer will receive,
but not from the bulk of the goods.
i. May require expert testimony to prove that model was intended
to provide a literal description of the items.
i. In deciding if an Express Warranty exists, court must determine:
1. Whether S’s statement constitutes an affirmation of fact or promise or
description or whether it was mere puffery
a. What would a reasonable person think of S’s statements? Are they
guaranteeing that the product will conform to statements?
2. Whether the statement was part of the basis of the bargain
3. Whether the warranty was breached.
ii. Reliance vs. “basis of the bargain”
1. No particular reliance need be shown in order to weave the affirmation into
the fabric of the agreement → “reliance” presumption (see comment 3).
a. Seller therefore has burden to prove that reliance did NOT exist
i. Difficult presumption to overcome, because it has to become
“a” basis for the bargain, not “the” basis for the bargain
b. B’s atty should still offer evidence to support reliance
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2. Even if S makes statement that no reasonable person would rely on, this does
not overcome the presumption that he created a warranty.
3. Keith v. Buchanan → if B knows that the product does not conform to the
affirmation of fact before the contract is made, if S can prove this, then S can
show that the affirmation was therefore NOT a basis of the bargain.
iii. 2-313(2) → Non-Warranties: No warranty formed from personal opinions,
affirmation of value, commendation, or other mere puffery.
1. Indications of opinion statement:
a. Lack of specificity
b. Statement made in equivocal manner
c. Statement reveals that goods are experimental in nature
iv. Post-sale warranty – The fact that the statement is made after the sale doesn’t affect
the warranty because it could be taken as a modification of K (especially if made
right after sale)
v. If there is a written disclaimer of an express warranty that is contradictory to the
express warranty, then the warranty will be enforced.
b. IMPLIED WARRANTIES:
i. Ordinary vs. Particular purposes (see Thorne, Blockhead, comment 2 [p. 53])
1. this is a question of fact, and really depends on how you characterize it.
2. TEST: B does not need to meet a unique, one of a kind requirement to get
IWFPP. Question is of degrees – even if others put the good to the same use,
the key is whether B’s use is sufficiently different from the goods customary
use to not be ordinary.
ii. 2-314 [49] → Implied Warranty of Merchantability
1. (1) Always implied if merchant deals in goods of the kind unless excluded
2. (2) Goods, to be merchantable, must at least: (these are all “AND’s”)
a. Pass w/out objection in the trade under the K description; and
b. If fungible goods, are of fair average quality w/in description; and
c. Are fit for the ordinary purpose for which such goods are used; and
d. Run of even kind, quality, and quantity; and
e. Adequately contained, packaged, or labeled; and
f. Conform to promises/affirmations of fact made on the container/label
3. “merchantable” is a common sense standard – just compare it to all other
similar goods. E.g. cigs are merchantable, even though they are dangerous.
4. “merchantability” ≠ expectation.
iii. 2-315 [53] → Implied Warranty of Fitness for a Particular Purpose
1. Rationale: Parties themselves, had they considered such terms, would have
included them in the agreement
2. Requirements =
a. seller must know the particular purpose the buyer seeks
i. Particular purpose is a specific use by B which is peculiar to the
nature of his business, whereas ordinary purposes go to uses
generally used (see comment 3).
b. seller must know that buyer is actually relying on seller’s special
knowledge and skill
i. B’s reliance can be affected by own knowledge/skill
ii. Constructive knowledge of B’s reliance is enough.
c. Note: does NOT require that seller is a merchant of goods of the kind
iv. 2-312 [46] → Warranty of Title
1. Promises that title is good and transfer is rightful
2. S is basically saying that what he is selling is his and the transfer is lawful
3. Implied by a matter of law. Intent of parties irrelevant.
4. If S sells you car, but D has actual title to it, then D owns the car, but you
have a cause of action against S.

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c. BREACH, REMEDIES, and DEFENSES:

i. Breach: To bring a successful claim for breach of warranty, buyer must:
1. Notify S of breach in reasonable time
2. Establish that seller warranted goods under UCC 2-313, 2-314, or 2-315.
3. Prove that the goods delivered failed to conform to the warranty
4. Prove the buyer suffered damages as a result of this non-conformity
a. This causation requirement is tough to prove.
ii. Remedies:
1. 2-711(1) → use if S fails to deliver, repudiates, or B rightfully rejects or
revokes acceptance for goods involved [or whole if installment K]. B may
cancel K, recover price paid and also:
a. (a) cover and have damages paid per 2-712
b. (b) recover for non-delivery per 2-713
iii. Seller typically invokes some combination of →
1. 2-316 – authorizes certain warranty disclaimers
2. 2-719 – permits certain remedy limitations
3. 2-318 – requires a measure of “horizontal privity”; the common law
requirement of “vertical privity”
4. 2-607(3)(a) – requires that B give reasonable notice of breach
5. 2-725 – Article 2 statute of limitations.
d. EXCLUSION OR MODIFICATION OF WARRANTY
i. 2-316 Warranty Disclaimer
1. (1) Express Warranty Disclaimers: Words that create a warranty and words or
conduct that tend to limit warranty are construed when reasonable as
consistent with one another.
a. If unreasonable, then the limiting language is inoperable.
b. S usually may NOT disclaim any express warranty
2. (2) Implied Warranty Disclaimers: S may easily disclaim either or both
implied warranties (opting out of what the law would usually imply)
a. Disclaimer of merchantability warranty must
i. mention “merchantability” and,
ii. if in writing, be conspicuous
b. Disclaimer of fitness warranty must appear in a conspicuous writing
c. Disclaimers of warranty of fitness MUST be in writing and conspicuous,
whereas disclaimers warranties of merchantability must simply
mention “merchantability” and if it is in writing, must be conspicuous.
d. Bjerre suspects that it has to do with how the warranties are created =
i. warranty of merchantability arises when the seller is a
merchant of goods of the kind, but the buyer is not necessarily
relying on the seller in any way
ii. warranty of fitness arises when the buyer relies on the
expertise of the seller, so any disclaimer ought to counteract
this reliance that is unique to this situation
3. (3)(a) Aside from this, all implied warranties are excluded by expressions like
“as is” or “with all faults” or other language suggesting no warranty (“safe
harbor” provision)
4. (3)(b) If B examines product fully or refuses to examine, no implied warranty
regarding defects that examination should have shown.
a. S making product available not enough.
5. (3)(c) also consider course of dealing/performance, and/or trade usage.
6. Conspicuousness = when it is so written that a reasonable person against
whom it is to operate would be able to notice it.
a. Question of law
b. TEST: Whether attention can reasonably be expected to be called to it
c. Actual knowledge overrides need for conspicuousness of disclaimers
d. Good Draftsman Tip: Avoid fine print
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e. Must be conspicuous related to the rest of the document.

f. “warranty” in big bold letters is not enough; must mention “disclaimer”
7. Express warranty is more difficult to disclaim than implied warranty
8. Post-sale warranty disclaimer: not effective b/c not bargained for.
ii. 2-719 → Contractual Modification or Limitation of Remedy
1. (2) Invalidates any remedy limitation where the circumstances cause a
warranty to fail its essential purposes
2. A limitation of personal injury damages in a sale of consumer goods is “prima
facie unconscionable”
3. (3) Consequential damages may be limited or excluded unless the limitation
or exclusion is unconscionable.
a. UCC does not say that inconspicuousness is unconscionable.
4. Moscatiello v. Curbmasters – K contained warranty disclaimers and limitation
of remedy in miniscule print.
a. Majority will enforce inconspicuous remedy limitations.
b. Bjerre said that this case was wrong – too low of a threshold.
iii. 2-607(3) Requires B to “notify” S within a “reasonable time” of any claimed
warranty breach or be barred from any remedy.
1. Comment 4 allows retail consumer more time to notify, but for merchant, a
reasonable time may be short.
2. Notice need merely inform S that the “transaction is still troublesome and
must be watched
3. Notice must inform S that the transaction is claimed to involve a breach
4. No particular type of notice required.
iv. Vertical v. Horizontal Privity
1. Chain of commerce goes from manufacturer → distributor → retailer →
consumer
2. Vertical Privity: The connection between parties in that chain
3. Horizontal Privity: person who gets merchandise is not directly involved in K,
so there is no vertical privity.
a. 2-318 – alternative ways of dealing with horizontal privity
v. 2-725 Statute of Limitations in K for Sale
1. Action for breach of K for sale commenced within 4 years after cause of
action.
e. Non-UCC Regulation of Warranties
i. Magnuson-Moss Warranty Act
1. Doesn’t compel S to make a written warranty, but if S does make one,
whether full or limited, it may not disclaim any implied warranty
2. Purpose: to encourage rational, informed consumer choices
3. Full Warranty must comply with standards.
4. Conspicuous disclaimer of liability for consequential damages permitted if it
doesn’t invalidate or restrict any right or remedy under state law.
5. Any written warranty not meeting minimum standard must be labeled Limited
Warranty
II. Convention on Contracts for the International Sale of Goods (CIS)
a. 1986 U.N. Convention on Contracts for the International Sale of Goods (CISG)
b. Art I(1)(a) – Convention applies to K for sale of goods between parties whose “places of
business” are in different “States”
c. Art I(1)(b) – Convention applies when the rules of private international law lead to the
application of the law of a Contracting State, but this is not effective in the US b/c US took
exception to it.
d. Place of business determinative rather than nationality residence, or place of incorporation
i. Place of business that has closest relationship to the contract and its performance.
e. Doesn’t apply to:
i. Consumer transactions
ii. Contracts predominantly for services
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iii. Real estate

iv. Liability for death or injury
v. Defenses such as duress, fraud, unconscionability
III. REMEDIES
a. S’s REMEDIES
i. 2-703 → S’s options where B wrongfully rejects or revokes, or fails to make
payment due, or repudiates on part or whole. For goods directly affected [or for
whole K if installment K [2-612]] S can:
1. 2-703(a) w/hold delivery of goods
2. 2-703(b) stop delivery by any bailee per 2-705
3. 2-703(c) use 2-704 section for unidentified goods to K
4. 2-703(d) resell/recover damages per 2-706
5. 2-703(f) recover damages for non-acceptance [2-708] or price [2-709]
6. 2-703(g) cancel
ii. 2-708 → S options for non-acceptance/repudiation
1. 2-708(1): market price v unpaid price
2. 2-708(2) : profit lost [use if 2-708(1) inadequate]
a. [Distribu-Dor v Karandis “word is my bond case” – “Middleman” can
get profits under 2-708(2) instead of using (1). (1) only applies in
case where specific goods are of such a character that their rejection
makes possible to S a sale to another person. Here no new sale
possible. Uncertainty as to existence/nature/cause of damages is fatal
but not as to amount of damages [law allows for a reasonable
basis of computation to be used to calculate damages and allow
best approx can make]. “Innocent party won’t be denied recovery
simply because precise proof of amount of damage is not available.”
b. B’s REMEDIES
i. 2-711
1. 2-711(1) Use if S fails to deliver, repudiates or B rightfully rejects or revokes
acceptance for goods involved [or whole if installment K]. B may cancel K,
recover price paid and also:
a. 2-711(1)(a) cover and have damages paid per 2-712
b. 2-711(1)(b) recover for non-delivery per 2-713
2. 2-711(2) If S fails to delivery or repudiates, B may also
ii. 2-711(2)(a) recover identified goods per 2-502
1. 2-711(2)(b) get specific performance/replevin per 2-716
2. 2-711(3) For rightful rejection or revocation B gets security interest for
goods in control that made payments for, other expenses incurred for [can
resell per 2-706]
iii. 2-714 B Damage for Breach of Accepted Goods
1. 2-714(1) If B accepted/gave notice he can recover for damages for non-
conformity
2. 2-714(2) Warranty breach damages are value would have been when
accepted w/o breach
3. 2-714(3) Proper case – incidental /consequential can be recovered per 2-
715
iv. 2-717 B, after notifying S, can deduct for damage resulting from breach from what
remains owed to S under that K
v. 2-719 K modification / limitation of remedy
1. 2-719(1)(a) agreement can provide remedies in addition to or substitute of
those provided in UCC
2. 2-719(2) – if circumstances cause remedy to fail of its essential purpose,
then remedy had as in UCC
3. 2-719(3) – Consequential can be limited/excluded unless
limitation/exclusion uncon. Limiting personal injury for consumer goods is
prima facie uncon. Limiting damage where loss is commercial is not.
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II. AVOIDABLE DAMAGES

a. CL: Where P might have avoided a particular item of damage by reasonable effort, he may
not recover for that item if he fails to make such an effort. This is sometimes called the
"duty to mitigate" rule.
b. Reasonableness: The "duty to mitigate" only requires P to make reasonable efforts to
mitigate damages. For instance, P does not have to incur substantial expense or
inconvenience, damage his reputation, or break any other K, in order to mitigate.

c. 2-715(2)(a) UCC: for sales Ks, it is really only the buyer who has a practical duty to
mitigate.
i. B: If the S either fails to deliver, or delivers defective goods which the B rejects, B
must cover for the goods if he can reasonably do so – he may not recover for those
damages (e.g., lost profits) which could have been prevented had he covered. (If B
does not cover when he could have done so, he will still be entitled to the difference
b/n the market price at the time of the breach and the K price, but he’ll lose the
ability to collect consequential damages that he might otherwise have gotten.)
ii. S: S has much less of a duty to mitigate, when it is the B who breaches by
wrongfully rejecting the goods or repudiating before delivery. S can choose b/n
reselling the goods (and collecting the difference b/n resale price and K price), or not
reselling them (and recovering the difference b/n market price and unpaid K price);
S may also be able to recover lost profits.

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 CONTRACTS II

I. Common Law Rules

A. Parol Evidence Rule

1. Gianni v. R. Russell & Co. (SC of PA, 1924)

In this case, the Court applied the traditional parol evidence rule, which
stipulates that a written document governs all aspects of the agreement in
the document, as well as all others that “relate to the same subject-matter,
and are so interrelated that both would be executed at the same time and in
the same contract...” The contract governed the use of a storeroom for
purposes of operating a convenience-store. Gianni argued that a prior oral
agreement induced him to sign the deal. The prior agreement stipulated
that Gianni had an exclusive right to sell soft-drinks in the portion of the
building owned by defendant. The court found that the exclusive soft
drink license was just the kind of thing that would naturally be included in
a written agreement dictating accepted uses of the property, especially
since the restriction on selling tobacco and other uses were included.

2. Masterson v. Sine (SC of CA, 1968)

This case represents the modern view on parol evidence. The modern rule
usually allows evidence of the intent of the parties in order to determine
whether the written agreement was intended to be a final agreement, as
opposed to the old rule that looked to the document itself exclusively. The
rule, as Justice Traynor framed it, is that the agreement should only be
excluded when the fact finder is likely to be misled, or if the rule is not
“one that might naturally be made as a separate agreement by parties
situated as were the parties to the written agreement.” Essentially, the
modern rule allows for evidence to be presented as to whether the
agreement was intended to be integrated, or a final expression. There is a
presumption that a reasonably complete-looking document is integrated,
but it can be refuted by evidence to the contrary. Then the Court will go
on to determine whether the document is a complete integration of the
agreement. In doing so, the Court will, again, generally allow all evidence
to be presented before deciding whether or not the written agreement was
intended to be complete. If it is decided that the agreement is complete,
then the contract must be interpreted solely by the written contract.

3. Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.

(SC of PA, 1967)
In this case, parol evidence was allowed to be considered in the same
jurisdiction as Gianni, albeit 40 yrs later, where there was “undisputed
evidence” that tended to suggest that the written agreement actually
differed from the actual agreement of the parties. The contract was for
quarry strip-mining, and the extrinsic agreement was for the mining
 company to relevel the land after mining it. The “undisputed evidence”
was that the mining company, from the beginning, had replaced the land,
and stopped only later. Why, the Court reasoned, would they have done
this, unless they thought they must?

4. NO ORAL MODIFICATION CLAUSES- These are usually not binding, and

even when they are, they are subject to actions in estoppel.

B. Interpretation of Contracts

1. Restatement 2nd § 201. Whose Meaning Prevails

Link to Case Citations

(1) Where the parties have attached the same meaning to a promise or
agreement or a term thereof, it is interpreted in accordance with that
meaning.
(2) Where the parties have attached different meanings to a promise or
agreement or a term thereof, it is interpreted in accordance with the meaning
attached by one of them if at the time the agreement was made
(a) that party did not know of any different meaning attached by the
other, and
the other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached
by the other, and the other had reason to know the meaning attached by the
first party.
(3) Except as stated in this Section, neither party is bound by the meaning
attached by the other, even though the result may be a failure of mutual
assent.

2. Restatement 2nd § 202. Rules In Aid Of Interpretation

Link to Case Citations

(1) Words and other conduct are interpreted in the light of all the
circumstances, and if the principal purpose of the parties is ascertainable it is
given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of
the same transaction are interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in
accordance with that meaning;
(b) technical terms and words of art are given their technical meaning
when used in a transaction within their technical field.
 (4) Where an agreement involves repeated occasions for performance by
either party with knowledge of the nature of the performance and
opportunity for objection to it by the other, any course of performance
accepted or acquiesced in without objection is given great weight in the
interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to
a promise or agreement are interpreted as consistent with each other and
with any relevant course of performance, course of dealing, or usage of trade.

3. Frigaliment Importing Co. v. B.N.S. International Sales Corp. (NY, 1960)

In this case, there was a dipute over the definition of the term “chicken.”
Plaintiff sued to enforce his meaning of the contract. Plaintiff understood
chicken to mean only one type of more valuable chicken, whereas
defendant understood it to mean any type of chicken, including “stewing”
chicken. The Court heard evidence from both parties, and came to the
conclusion that the “objective” meaning of the word chicken coincided
with defendant’s contention, and that defendant was not aware that
defendant’s subjective meaning was intended. The objective meaning was
allowed to control, and the suit was dismissed.

4. Oswald v. Allen (NY Fed., 1969)

This case involved a misunderstanding between a coin buyer and seller.
The coin seller referred to her collections as 1) The Swiss Coin Collection;
and 2) The Rarity Coin Collection. When the buyer came to visit the
shop, he was shown Swiss coins from #2. The contract called for the sale
of “All of buyer’s swiss coins.” By this the seller understood #1, and the
buyer understood, literally, “all of her swiss coins,” including those of #2
collection. The court rescinded the contract, finding that the ambiguity in
their respective understandings of the contract was irresolvable.

5. Function of Judge and Jury- Courts are often split on whether a given
interpretation is a question of fact or law. All agree, however, that interpretation
must be a question of law when the interpretation deals with complex subjects
which the jury might not understand. In general, the situation must dictate the
decision. The more questionable the facts are, the more likely the jury will be
given the job.

6. Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co. (SC of
CA 1968)
In this case, The Court overturned a lower court’s decision to rely on the
“plain meaning rule” in a case involving indemnity for an accident. While
the holding of the case is somewhat unclear, the Court obviously
disapproves of the idea that one meaning may be taken from a text,
without any consideration of the circumstances under which it was
employed. The Court casts doubt, essentially, on any claim to know the
 “real” meaning, and mentions in a footnote that “even if the plain meaning
rule were in force..002E” seeming to indicate that the plain meaning rule
should be abolished entirely. The decision in this case means that the
Court must at the very least consider evidence about the circumstances
surrounding the case, and decide whether those circumstances would
possibly allow for a different meaning. Only after doing so may a court
exclude evidence from the fact-finder of a particular meaning intended by
one of the parties.

7. Restatement 2nd § 203. Standards Of Preference In Interpretation

Link to Case Citations

In the interpretation of a promise or agreement or a term thereof, the
following standards of preference are generally applicable:
(a) an interpretation which gives a reasonable, lawful, and effective meaning
to all the terms is preferred to an interpretation which leaves a part
unreasonable, unlawful, or of no effect;
(b) express terms are given greater weight than course of performance,
course
of dealing, and usage of trade, course of performance is given greater weight
than course of dealing or usage of trade, and course of dealing is given
greater weight than usage of trade;
(c) specific terms and exact terms are given greater weight than general
language;
(d) separately negotiated or added terms are given greater weight than
standardized terms or other terms not separately negotiated.

8. Trade Usage- See sec. 203’s hierarchy of interpretive tools...

a) Hurst v. W.J. Lake & Co. (SC of OR, 1932)

Hurst was a case involving the trade in “horse meat scraps.” The
contract called for meat containing “not less than 50% protein.”
The trial court granted summary judgment to the plaintiff because
the meat was less than 50% protein, even though it was more than
49.5% protein. On appeal, the Court ruled that the trial court erred
by excluding trade usage evidence, tending to show that in the
trade, 50% always means at least 49.5%.

9. Steuart v. McChesney
Case involving a right of first refusal, which stipulated that upon a bona
fide offer for a certain house, this person would have the right to buy first.
Strangely, the document also stipulated what price he would be able to
pay. The price was the county assessor’s price for tax purposes. Even
more strangely, the contract differed from an ordinary right of first
refusal, in that normally an absolute right is not conferred upon the buyer
 by any bona fide offer, but rather the owner is simply precluded from
selling to anyone else. The strangeness of these circumstances made this
case, in the opinion of Bjerre, one in which the “plain language rule”
should not apply, and evidence should have been allowed to show how the
contract ought to be interpreted.

C. Gap-Filling Provisions/ Default Rules

1. Good Faith-

a) Dalton v. Educational Testing Service (NY App. 1995)

Dalton involved a young man who took the SAT twice, receiving a
score 410 points higher the second time. The Educational Testing
Service disputed this score, and per the contract exercised its right
to cancel the score, giving the student several options. One of the
options was the chance to submit evidence for the board to review,
explaining the discrepancy in scores and/ or proving that the same
person took both tests. Dalton took this opportunity. The lower
court found that ETS had breached its obligation to use good faith
in examining the materials submitted by Dalton, and ordered that
the score be released. The Court agreed that ETS had breached the
good faith requirement by not considering his evidence, but
disagreed about the remedy. The contract did not force ETS to
release the test score on upon admission of extra evidence, but
instead compelled them merely to use good faith in taking the
evidence into account. This result is controversial because it
arguably has little to no real effect in this case.

b) Burger King Corp. v. Weaver (FL Fed. 1999)

Here, in a very recent case, the Court refused to enforce a claim of
breach of Good Faith and Fair Dealing which did not refer to
breach of a specific provision, but to vague behaviors by the
defendant which could be construed as demonstrating lack of good
faith. The Court held that such breaches of “good faith” are not
cognizable in Contract law. Instead, the Court held, the plaintiff
must show that the defendant failed to exercise good faith in
conforming to a specific term of the contract. It also held that the
“good faith” interpretations of any provision must not interfere
with the specific provisions of the contract.

2. Express Conditions- It is not the case that obligations under a contract are
absolute, and that each party must go through with them no matter what. This is
because of the doctrine of conditions. Generally, an obligation under a contract is
conditional if: a) the parties agree that it will be conditional, or b) the parties do
not explicitly agree, but the situation is one in which the obligation is expected to
be conditional, e.g. paying for a service...if the service is not rendered, you do not
have to pay.

a) Luttinger v. Rosen (SC of CT, 1972)

This case involved both good faith and conditions. It was a real-
estate contract, which called for the purchase of a home on express
condition that the buyer’s obtained financing at a certain rate. The
buyers chose to check at only one institution, but the facts
supported the idea that that bank was the only institution
reasonably likely to give them the financing. The sellers offered to
make up the difference between the bank financing and the agreed
upon rate, but the buyers refused. The Court held that the buyers
had used “due diligence”, an offshoot of good faith, in
attempting to secure the financing, and that it was unreasonable to
expect them to accept the financing supplement offer of the sellers.

b) Restatement 2nd § 227. Standards Of Preference With Regard To

Conditions

Link to Case Citations

(1) In resolving doubts as to whether an event is made a condition of
an obligor's duty, and as to the nature of such an event, an
interpretation is preferred that will reduce the obligee's risk of
forfeiture, unless the event is within the obligee's control or the
circumstances indicate that he has assumed the risk.
(2) Unless the contract is of a type under which only one party
generally
undertakes duties, when it is doubtful whether
(a) a duty is imposed on an obligee that an event occur, or
(b) the event is made a condition of the obligor's duty, or
(c) the event is made a condition of the obligor's duty and a duty is
imposed on the obligee that the event occur,
the first interpretation is preferred if the event is within the obligee's
control.
(3) In case of doubt, an interpretation under which an event is a
condition of an obligor's duty is preferred over an interpretation
under which the non- occurrence of the event is a ground for
discharge of that duty after it has become a duty to perform.

c) The “Sail with the next wind” Problem- There are three ways in which
Duties and Conditions may be allocated in a contract for each party. Take
for example the duty or condition of a party “sailing with the next wind.”
A contract involving this obligation can make it either a duty, a condition,
or both. If it is a duty and not a condition, then the sailor can fail to sail
with the next wind, and the opposing party would receive resultant
damages, but the other party would be obligated to perform her part of the
contract. If it is a condition, then the other party does not have to perform
his end of the bargain, but can not obtain damages. If it is both, the sailor
is liable for damages and the opposing party does not have to perform the
conditional obligation. Courts tend to construe language in a contract,
in the absence of clear language or usage, as assigning a duty and not
a condition or both. Another way to put it, is that “Forfeiture” is
discouraged in interpretation.

d) Gibson v. Cranage (SC of MI, 1878)

This case construed the obligation of the customer of a painter to
be conditional, as per the contract, on the customer’s subjective
satisfaction with the painter’s performance. The artist brought suit
for damages, but the Court found for the defendant. The Court
held that in a case where the contract calls for a subjective
satisfaction, that that satisfaction is an absolute condition on any
obligation. It was not, however, held to have been a duty of the
painter’s to paint a satisfactory painting.

e) Mattei v. Hopper (SC of CA 1958)

This case involved a real estate transaction. The
transaction called for the purchase of a tract of land,
conditional on buyers’ procurement of a satisfactory set of
lessees for the property. Buyer sued to enforce the
contract, but trial court found that buyer’s obligation was
illusory, and that therefore there was no contract. The
Court held that the obligation was not illusory, but that
there was a good faith requirement which must be met by
the buyer, so that while the set of lessees must “satisfy”
him, he must try to obtain such a set in good faith, meaning
presumably that he is not able to arbitrarily decide that the
lessees are unsatisfactory.

f) Objective v. Subjective Standards for one-sided conditions-

Courts decide on a case to case basis whether to employ an
objective or a subjective standard in cases like Mattei, in which a
duty is conditional on their “satisfaction”, or other such subjective
term. In cases where dissatisfaction can only reasonably be
premised on a certain set of particular qualities, objections must be
limited to these qualities. In cases where this is not the case, courts
will either allow the subjective requirement, rescind the agreement
(although I haven’t found an example of this), or require a different
obligation like “good faith”, rather than reasonableness. This is
what happened in Mattei. The lower court wanted to rescind the
contract, but the Supreme Court found that this was not
appropriate, and that consideration could be found, as long as the
 buyer was obligated to use “good faith” in attempting to procure
lessors he could be satisfied with. It must be said that in certain
cases it would be hard to distinguish between good faith and
reasonableness.

g) Doctrines Which Mitigate the Effect of Conditions-

i) Prevention- Prevention will be found when the party,

whose duty is conditional does something that affects
whether the condition will be met. This activity does not
have to be purposeful. The NRA case in the book shows
this, where the “taking over” of the board who had to
certify something by outside forces did not prevent
prevention doctrine from applying. Also, the prevention
does not have to be directly caused by the obligor. It is
enough if the obligor was an indirect, but substantial cause.

ii) Waiver- Parties may agree to waive the conditionality

of the duty. Whether a waiver by the obligor may be
rescinded, is the difficult question. The general rule is
that a waiver may be revoked by the obligor if the waiver
was given before the condition occurs, unless the other
party substantially relied on the waiver. On the other
hand, if the waiver cannot be revoked if it happens after
the condition is met. NOTE: Anti-Waiver Clauses are
Controversial...This may be more than a default rule in
some States.

3. Constructive Conditions (Conditions as Gap-Filling)

a) Kingston v. Preston (King’s Bench, 1773)

Here the venerated Lord Mansfield gave a decision that became a
cornerstone of the doctrine of constructive conditions. The
contract was between the owner of a business and his apprentice.
It called for the transfer of the business to the apprentice after a
certain amount of time, and also for the apprentice to pay security
for the transaction “at and before” the transfer was to take place.
The Court found that making the owner’s duty unconditional
would completely frustrate the purpose of the provision in the
contract calling for security to be paid, and thus finding an
independent covenant would frustrate the true intent of the parties.

b) The Importance of Time of Performance- When a Contract calls for

duties to be performed at specified times, the duty to be performed later is
often found to be conditional on the performance of the earlier.
Furthermore, constructive conditions are created in certain
circumstances where time of performance is assumed, such as in
employment contracts. In employment contracts, it is assumed that the
worker must work first, and then be paid by the employer, if neither is
specified. In fact, it is a general default rule that in contracts that
require a doing and a paying, that the doing must be done first, and that
the paying is conditional on the doing.

c) Stewart v. Newbury (NY App. 1917)

This was a contract for construction of a building. The written
agreement contained no specified payment method, and there was
a dispute as to whether the parties had agreed in a telephone
conversation that payments would be made according to custom,
which was, in this case, 85% every month until the building is
completed, whereupon the rest would be paid. The Court gave the
question of whether the agreement about payment method had
been made to the jury. The issue on appeal was whether the
judge had erred in his instructions to the jury. The judge at
trial instructed the jury that, if the jury did not find that the
agreement on payments was made, then they must find that the
buyer was responsible to make payments at reasonable times.
The jury returned a verdict for the contractor. The Court reversed,
because the law does not call for payments “at a reasonable
time,” but rather for payment upon completion of
performance...see rule above: doer must do, before payer must
pay.

d) Concurrent Conditions- A concurrent condition is one that

operates on both parties at the same time. Concurrent Conditions
are found in contracts where it is unclear what the time of
performance for each party must be. In these cases, each party’s
duty is conditioned on the other’s performance, such that
neither party has a claim until somebody performs their part of the
deal. For instance, if a buyer arranges to sell grain at any time
within the next 1000 years, then neither party has a claim until they
themselves perform. But once a party performs, then they have a
claim against the other party. However, this rule is subject to
special treatment when the remedy is specific performance.
When specific performance is called for, a court may make a
judgment, even though neither of the parties has perfectly
performed, at the request of one of the parties. The example from
the book is a purchaser of land that paid a certain amount to the
judge, because she was not sure what the actual price was. The
Court found this to be satisfactory, finding that since the action
was for specific performance, that more lenient “equity” rules
should apply.
 e) Substantial Performance- This is a doctrine that ONLY
APPLIES TO CONSTRUCTIVE CONDITIONS, AND NOT
TO EXPLICIT CONDITIONS. In cases involving Constructive
Conditions, failure of one party to perform perfectly will not
always result in the abdication of the responsibility of the other
party, as with express conditions. However, the breach must not
be willful. If the breach is found to be willful, the plaintiff may be
completely excused from its duty. Damages in these cases are
decided based on the diminution of value in the contract based
upon the failure of the party to perform. Thus, in Jacob and
Youngs, the damages were the difference in value between the
Reading Pipe and the pipe used.

The test of whether a party has substantially performed is a

very mushy one, and is a question of law. Each situation is
considered by itself, although some jurisdictions have specific
values for damages, exceeding which substantial performance
cannot be found. For instance, one State has held that if the
damages reduce the value of the performance by more than 10%,
that the party has not substantially performed.

4. Divisibility- This is a doctrine that mitigates somewhat the damages

received in certain cases, when the other party has partially performed,
and what has been performed is a complete service unto itself.

a) Gil v. Johnstown Lumber Co. (SC of PA, 1892)

This case involved a contract to drive logs
downstream to a mill. It called for a certain amount
per thousand feet of log. The trail court found that
the contract was unseverable. The Court reversed,
finding that the contract was for driving logs to the
mill, and that the plaintiff should be paid for the
length of as many logs as did make it, since the
value of those logs is not dependant on the other
logs having made it.

5. Restitution- The standard rule, still, is that most contracts are not
apportionable in the way that the next case was held to be. However, the
trend is toward the more equitable position.

a) Britton v. Turner (SC of NH, 1834)

In this case, the Court upheld a jury verdict for an
employee who contracted with employer to work for a year,
but left after 9 ½ months. The Court upheld the verdict as
 an extension of the equitable doctrine of restitution, which
already allowed for payment of restitution in cases of
incomplete construction contracts, even in case of breach
by the contractor. The Court compared the two, saying that
in both cases the opposing party “accepted” the work.
Even in this case, the Court mentioned that an express
term included in the contract that the work must be done in
full, would have defeated a claim for restitution.

6. Material Breach and Repudiation

a) Walker & Co. v. Harrison (CS of MI, 1957)

This was a contract for installation and maintenance of a
neon sign. Soon after the sign was installed, the sign was
vandalized, and the store owner called the sign company to
complain. After a week or so of failing to perform
maintenance to the sign, Harrison sent a telegram, stating
that he felt the failure to maintain the sign was a material
breach, and that he would no longer be making payments.
Walker and Co. sued on the contract. The Court found that
the breach by Walker was not material. Materiality of
breach is a complicated and subjective area, and involves a
holistic fact-based approach, with only fairness as a guide.
Interestingly, Harrison was found to have materially
breached the contract, because he repudiated his
obligations and breached by not paying rent on the sign.
These two, when taken together, add up to an automatic
cause of action for the other side. Walker & Co.’s breach,
on the other hand, was not accompanied by a repudiation,
and so the materiality of the breach came into question.

b) EXCEPTION: An exception to the general rule of

repudiation + non-performance exists in the specialized
case where performance by the non-breaching party has
been completed, and the breach consists only of failure to
pay scheduled payments. In these cases, repudiation along
with breach does not equal material breach. HOWEVER,
this is only the default rule, and the inclusion of an
ACCELERATION CLAUSE.

7. Anticipatory Repudiation

a) Hochster v. De La Tour (Queen’s Bench, 1853)

This case involved an employment contract between
a courier and a traveler. The courier was to prepare
for a trip, where he would accompany employer and
 peform any tasks he might require of him. Before
the contract was to begin, employer gave him
unequivocal notice that he would not need him any
longer. The Court found that this released
employee of any obligations, mostly because the
opposite result would put too large a burden on him.
If he had to wait until the time of the contract, he
could be sued if he had entered into a contract for
other work. Yet, if he did not try to find other
work, then he would be hurt by all that time where
he was unemployed. This rule is consistent with
mitigating damages, also, because the employee can
find other work, instead of waiting to start and then
suing for damages inherent in having to wait to find
other employment.

D. Disruption of Basic Assumptions of Contracts

1. Mistake- Mistake is used by courts in very specific situations where 1) BOTH

parties are mistaken about a given fact that is a basis of the contract; 2) The effect
on the contract is material; and 3) No recourse can be had to accommodate the
difference, such as arranging for extra consideration by the advantaged party.
Materiality of the disruption is to be determined on the basis of all of the facts.

2. Impracticability- This involves cases where an intervening factor affects a

material circumstance of the transaction, and makes performance by one of the
parties impracticable. The event must not be the fault of the disadvantaged party.
Again, the fact that the non-occurrence of the condition was assumed in the
formation of the contract can be disputed by the language of the contract or the
circumstances surrounding the contract.

3. Frustration of Purpose- This differs from impracticability only in that

performance does not become impracticable, but rather the entire purpose of the
contract is subverted by an event, the non-occurrence of which was assumed by
both parties. The prototype example of this situation is an agreement to rent an
apartment during a parade. If the parade is cancelled, the contract will be
rescinded.

E. Third Party Beneficiaries

1. Lawrence v. Fox
Lawrence v. Fox illustrates the near-universal rule that third-party
beneficiaries may sue to enforce a contract of which they are not a party.
 The test in these situations is one of intent. If the intent of the two parties
is to enter into a contract in which the performance of one party will
advantage the position of another party, usually by obtaining means to pay
a debt, then that third party may sue to enforce the contract.

F. Assignment & Delegation- NOTE: 1) This is only a default rule; 2) When a duty is
assigned, the assignor remains responsible for the duty.

1. Macke Co. v. Pizza of Gaithersburg, Inc. (MD App. 1970).

This case involved a contract between pizza shops and a vending machine
operator. The original vending machine operator sold his business to a
separate company, and the rights and duties were assigned with the sale.
The pizza companies argued that they should not have to continue the
deal, because they had decided expressly that they did not want to deal
with Macke Co., and that was why they signed with the original vending
company. The Court found that when the quality of performance is
materially the same, a duty may be delegated. AGAIN, THIS IS ONLY
A DEFAULT RULE.

II. UCC Article II Rules

A. Default Rules for Requirements Contracts, Notice of Termination, Trade Usage, and
Open Price Terms

1. UCC § 2-306. Output, Requirements and Exclusive Dealings.

(1) A term which measures the quantity by the output of the seller or the
requirements of the buyer means such actual output or requirements as may occur
in good faith, except that no quantity unreasonably disproportionate to any stated
estimate or in the absence of a stated estimate to any normal or otherwise
comparable prior output or requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in
the kind of goods concerned imposes unless otherwise agreed an obligation by the
seller to use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale.

2. UCC § 2-309. Absence of Specific Time Provisions; Notice of Termination.

(1) The time for shipment or delivery or any other action under a contract if not
provided in this Article or agreed upon shall be a reasonable time.
(2) Where the contract provides for successive performances but is indefinite in
duration it is valid for a reasonable time but unless otherwise agreed may be
terminated at any time by either party.

(3) Termination of a contract by one party except on the happening of an agreed

event requires that reasonable notification be received by the other party and an
agreement dispensing with notification is invalid if its operation would be
unconscionable.

3. UCC § 1-205. Course of Dealing and Usage of Trade.

(1) A course of dealing is a sequence of previous conduct between the parties to a

particular transaction which is fairly to be regarded as establishing a common
basis of understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation that it will be
observed with respect to the transaction in question. The existence and scope of
such a usage are to be proved as facts. If it is established that such a usage is
embodied in a written trade code or similar writing the interpretation of the
writing is for the court.

(3) A course of dealing between parties and any usage of trade in the vocation or
trade in which they are engaged or of which they are or should be aware give
particular meaning to and supplement or qualify terms of an agreement.

(4) The express terms of an agreement and an applicable course of dealing or

usage of trade shall be construed wherever reasonable as consistent with each
other; but when such construction is unreasonable express terms control both
course of dealing and usage of trade and course of dealing controls usage of trade.

(5) An applicable usage of trade in the place where any part of performance is to
occur shall be used in interpreting the agreement as to that part of the
performance.

(6) Evidence of a relevant usage of trade offered by one party is not admissible
unless and until he has given the other party such notice as the court finds
sufficient to prevent unfair surprise to the latter.
4. UCC § 2-305. Open Price Term.

(1) The parties if they so intend can conclude a contract for sale even though the
price is not settled. In such a case the price is a reasonable price at the time for
delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set
or recorded by a third person or agency and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price for him to fix in
good faith.

(3) When a price left to be fixed otherwise than by agreement of the parties fails
to be fixed through fault of one party the other may at his option treat the contract
as cancelled or himself fix a reasonable price.

(4) Where, however, the parties intend not to be bound unless the price be fixed or
agreed and it is not fixed or agreed there is no contract. In such a case the buyer
must return any goods already received or if unable so to do must pay their
reasonable value at the time of delivery and the seller must return any portion of
the price paid on account.

5. Hamilton Tailoring Co. v. Delta Air Lines, Inc. (OH Fed. 1974) pg. 84
This was an oral requirements contract, in which Hamilton supplied
uniforms for Delta’s stewardesses on a requirements basis. At the end of
the relationship, Delta gave Hamilton 1 year notice that it was
discontinuing the contract. No agreement then or before was made
regarding reasonable time for notice OR for what, if any, arrangements
would be made for sale of leftover uniforms. Hamilton brought suit
against Delta, claiming that Delta failed to give reasonable notice, under
2-309(3), and/or failed to conform to the contours of the agreement
established by trade usage, under 1-205(3). The Court held that neither of
these claims was incorrect as a matter of law, and thus denied summary
judgment to Delta. Hamilton supplied evidence of trade usage over 30
years of experience in the industry, and Delta was unable to prove
unequivocally that the time it had given was reasonable, since it was
apparent that Hamilton had devoted extensive efforts to preventing
overstock, and yet was left with such a huge stock of uniforms at the end
of the deal.

6. § 2-716. Buyer's Right to Specific Performance or Replevin.

 (1) Specific performance may be decreed where the goods are unique or in other
proper circumstances.

(2) The decree for specific performance may include such terms and conditions as
to payment of the price, damages, or other relief as the court may deem just.

7. Eastern Air Lines v. Gulf Oil Corporation (FL Fed. 1975)

Here the Court decided a corporate “requirements contract” dispute.
Gulf Oil wished to get out of the contract, because its terms, based on an
obsolete and misleading price index, rendered inaccurate by extenuating
circumstances, were harmful to its business interests. Gulf brought suit to
rescind the contract, arguing that the contract is invalid for want of
mutuality of obligation and vagueness. However, UCC 2-306 conflicts
with both of these ideas, in allowing for requirement or output contracts in
all cases, where the requirements or output is such as may occur in “good
faith.” “Good Faith” means honesty in fact, and, exclusively in the
realm of merchant-merchant transactions, observance of reasonable
commercial standards of fair dealing in the trade. The Court held that
the contract was a valid requirements contract under 2-306. In addition,
the Court ordered specific performance under 2-716, which offers a rather
lenient guideline for ordering specific performance, namely in any case
where goods are unique, or in other proper circumstances.

8. UCC 2-306 Problem...Mr K’s Barbecue Sauce- This problem created more
problems than it solved. Essentially, the only solid things that came out of the
discussion were that: 1) Exclusive Dealing in (2) and Requirements and
Output Contracts (1) are two different things, and shouldn’t be conflated;
and 2) Exclusive Dealings contracts may cover only a limited area, such as
the Pac NW.

NOTE: Some jurisdictions have outlawed requirements contracts that are not
exclusive.

DOUBLE NOTE: THESE ARE DEFAULT RULES!!!!!!!!!!!!!!!!!!!!!!!! Good

Drafting can clear up all the confusion resulting from this section.

B. Default Rules (and some absolute rules) on Warranties and Damages under Article II

1. UCC § 2-313. Express Warranties by Affirmation, Promise, Description,

Sample.

(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.

(2) It is not necessary to the creation of an express warranty that the seller use
formal words such as "warrant" or "guarantee" or that he have a specific intention
to make a warranty, but an affirmation merely of the value of the goods or a
statement purporting to be merely the seller's opinion or commendation of the
goods does not create a warranty.

2. § 2-314. Implied Warranty: Merchantability; Usage of Trade.

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall
be merchantable is implied in a contract for their sale if the seller is a merchant
with respect to goods of that kind. Under this section the serving for value of food
or drink to be consumed either on the premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least such as

(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the
description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality
and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require;
and
(f) conform to the promises or affirmations of fact made on the container or label
if any.

(3) Unless excluded or modified (Section 2-316) other implied warranties may
arise from course of dealing or usage of trade.

3. § 2-315. Implied Warranty: Fitness for Particular Purpose.

Where the seller at the time of contracting has reason to know any particular
purpose for which the goods are required and that the buyer is relying on the
seller's skill or judgment to select or furnish suitable goods, there is unless
excluded or modified under the next section an implied warranty that the goods
shall be fit for such purpose.

4. § 2-316. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever
reasonable as consistent with each other; but subject to the provisions of this
Article on parol or extrinsic evidence (Section 2-202) negation or limitation is
inoperative to the extent that such construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied warranty of

merchantability or any part of it the language must mention merchantability and
in case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous. Language
to exclude all implied warranties of fitness is sufficient if it states, for example,
that "There are no warranties which extend beyond the description on the face
hereof."

(3) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like "as is", "with all faults" or other language which in
common understanding calls the buyer's attention to the exclusion of warranties
and makes plain that there is no implied warranty; and
(b) when the buyer before entering into the contract has examined the goods or
the sample or model as fully as he desired or has refused to examine the goods
there is no implied warranty with regard to defects which an examination ought in
the circumstances to have revealed to him; and
(c) an implied warranty can also be excluded or modified by course of dealing or
course of performance or usage of trade.

(4) Remedies for breach of warranty can be limited in accordance with the
provisions of this Article on liquidation or limitation of damages and on
contractual modification of remedy (Sections 2-718 and 2-719).

5. § 2-317. Cumulation and Conflict of Warranties Express or Implied.

Warranties whether express or implied shall be construed as consistent with each

other and as cumulative, but if such construction is unreasonable the intention of
the parties shall determine which warranty is dominant. In ascertaining that
intention the following rules apply:
(a) Exact or technical specifications displace an inconsistent sample or model or
general language of description.
(b) A sample from an existing bulk displaces inconsistent general language of
description.
(c) Express warranties displace inconsistent implied warranties other than an
implied warranty of fitness for a particular purpose.

6. Keith v. Buchanan (Cal.App., 1985)

This case involved a dispute over an alleged express warranty of the
seaworthiness of a boat. The case relies on the text of UCC 2-313. The
lower court dismissed the claim of warranty. The basis of the warranty
was a brochure that plaintiff perused in deciding whether to purchase the
boat. 2-313(1) provides that any representation or affirmation of fact
regarding the product that becomes a basis of the bargain shall be
construed as a warranty of the truth of that representation or affirmation.
The Court cited precedents establishing the fact that a brochure
advertising the product can be the form in which such representations
appear. The Court’s next task was to decide whether the affirmations
contained in the brochure were, as a matter of law, not part of the basis of
the bargain. The Court held here that the Court must assume that such
representations are part of the basis of the bargain, unless other evidence
tends to suggest that it was not. RELIANCE NEED NOT BE SHOWN.

7. Notes on UCC 2-313 and Express Warranties

a) Advertisements can and often do create warranties

b) Ordinarily, “Bargain” means pre-sale, especially for disclaimers
c) Causation must be shown in order to recover damages.

8. Barton v. Tra-Mo, Inc. (Or App 1984)

This case sheds light on the provisions in 2-313, the express warranty
section, which deal with express warranties created through the use of
“samples” or “models.” For the purposes of the statute, it makes no
difference whether the object is a sample or a model, as long as the usage
of it was such that it became part of the basis of the bargain. At trial, the
Court granted a directed verdict, since the pleadings alleged that
“samples” were shown under 2-313, whereas it was clear that they were
not samples. Court found that the pleading should have been allowed to
be amended, and that the jury could have found that the items tested were
‘models’, under 2-313.

9. Implied Warranties of Merchantability and Fitness for a Particular

Purpose

10. § 2-104. Definitions: "Merchant"; "Between Merchants"; "Financing

Agency".
(1) "Merchant" means a person who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction or to whom such knowledge or skill
may be attributed by his employment of an agent or broker or other intermediary
who by his occupation holds himself out as having such knowledge or skill.

11. Blockhead, Inc. v. The Plastic Forming Company, Inc. (Conn. Fed. 1975)
This was a breach of warranty case, alleging breach of both implied and
express warranties under the UCC. The Implied Warranty of F for a P.P.
was barred because Blockhead’s agent was knowledgeable about wiglet
casings and the manufacturing processes by which they are made. 2-315
depends on a reliance on the skill of the seller for recovery. The implied
warranty of Merchantability was barred because, under 2-316, a warranty
claim is excluded if, under inspection, the buyer was or should have been
aware of the defect in question. The Court held that, under the
circumstances, Blockhead’s agent, a knowledgeable person in this area,
should have been aware of the defects, if there were any. In addition, the
Court dealt with the express warranty claim by pointing out that the
plaintiff failed to present any evidence that the cases shown to him were
samples or models under the code. A major problem with the Court’s
reasoning in this case, is that the Court assumes that the cases shown to
Blockhead were samples or models under 2-316, yet demands that
plaintiff prove they were such for the purposes of the express warranty
claim, under 2-313. These stances are inconsistent.

12. Valley Iron and Steel Co. v. Thorin

This case involved a specialized metal piece constructed by Valley Iron
for Thorin’s use. The issue on appeal was whether Thorin’s counter-
claims of breach of warranty should have been accepted by the trial court.
The Court decided that they should have been. The trial court dismissed
the claims because it held that, as a matter of law, Thorin had not given
Valley Iron and Steel enough information for them to know what the
purpose of the product was. The Court held that this was not true as a
matter of law, because the buyer had discussed the purposes of the metal
object with the seller, and the object was used for an ordinary purpose.

13. Lessons From Valley Iron and Blockhead- The most important lesson is
that Courts differ on whether to treat 2-314 and 2-315 as mutually exclusive
or inclusive. In other words, case law from the specific jurisdiction must be
consulted to determine whether either or both may be used as a basis.

14. Keith v. Buchanan II

In the second section of the “Buddy Ebsen” case, the Court upheld a final
judgment that there was no implied warranty of fitness for a particular
 purpose, because the buyer had not relied on the seller, but instead on his
own experts, including the fabulous yeoman Ebsen.

15. Defenses to Express Warranties under Article II

16. § 2-719. Contractual Modification or Limitation of Remedy.

(1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution for
those provided in this Article and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer's remedies to return of the
goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to fail of its

essential purpose, remedy may be had as provided in this Act.

(3) Consequential damages may be limited or excluded unless the limitation or

exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.

17. § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing

Breach After Acceptance; Notice of Claim or Litigation to Person
Answerable Over.

(1) The buyer must pay at the contract rate for any goods accepted.

(2) Acceptance of goods by the buyer precludes rejection of the goods accepted
and if made with knowledge of a non-conformity cannot be revoked because of it
unless the acceptance was on the reasonable assumption that the non-conformity
would be seasonably cured but acceptance does not of itself impair any other
remedy provided by this Article for non-conformity.

(3) Where a tender has been accepted

(a) The buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any remedy;
and
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-
312) and the buyer is sued as a result of such a breach he must so notify the seller
within a reasonable time after he receives notice of the litigation or be barred from
any remedy over for liability established by the litigation.
(4) The burden is on the buyer to establish any breach with respect to the goods
accepted.

(5) Where the buyer is sued for breach of a warranty or other obligation for which
his seller is answerable over
(a) he may give his seller written notice of the litigation. If the notice states that
the seller may come in and defend and that if the seller does not
do so he will be bound in any action against him by his buyer by any
determination of fact common to the two litigations, then unless the seller after
seasonable receipt of the notice does come in and defend he is so bound.
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-
312) the original seller may demand in writing that his buyer turn over to him
control of the litigation including settlement or else be barred from any remedy
over and if he also agrees to bear all expense and to satisfy any adverse judgment,
then unless the buyer after seasonable receipt of the demand does turn over
control the buyer is so barred.

(6) The provisions of subsections (3), (4) and (5) apply to any obligation of a
buyer to hold the seller harmless against infringement or the like (subsection (3)
of Section 2-312).

18. Cate v. Dover Corporation (SC of TX, 1990)

In this case, summary judgment was granted to defendant, Dover
Corporation, on an action for breach of the implied warranty of
merchantability, UCC 2-314. Product was a heavy lifter. The trial court
granted the motion pursuant to UCC 2-316, which allows for a disclaimer
of implied warranties. In the case of an implied warranty of
merchantability, 2-316 calls for a disclaimer to mention merchantability,
and in case of a writing, that the written disclaimer be conspicuous. The
trial court held that the disclaimer was effective under 2-316 as a matter
of law. The Court reversed, arguing that the disclaimer did not meet the
test of conspicuousness, because the disclaimer was hidden amongst
numerous bold affirmative statements of warranty, and was not otherwise
made conspicuous, e.g. colored differently, etc. Defendant argued that the
disclaimer was effective regardless, because the buyer had actual
knowledge of the disclaimer. Although the Court did not rule on this
point, because it found no evidence to support it in this case, it did
announce that it would be proper to allow for a disclaimer in cases where
the buyer had actual knowledge, even when the disclaimer is not
conspicuous. The Court culled this doctrine from the structure of 2-316,
specifically the fact that section 4 allows for effective disclaimer when
such is implied from trade usage, course of performance, or course of
dealing.
19. Separate Opinions in Cate, and the State of the Law of Disclaimer of
Warranties

a) Public Policy- As was pointed out in Cate, a number of States

have undertaken measures to limit a seller’s ability to limit her
liability. These measures include ruling certain disclaimers per se
unconscionable, regardless of conspicousness, requiring extra
specificity or clarity in the enumeration of disclaimers, and even
eliminating section 2-316 altogether from their State’s enaction of
the code.

b) Standards of Conspicuousness- The dissent in Cate disputed the

majority’s ruling as to the proper standard for conspicuousness,
and in particular whether actual knowledge by the buyer will
substitute for conspicuousness. The dissent’s arguments were: 1)
that it was an unfaithful reading of the statute that undermined its
intentions; 2) That it would cause a parade of “swearing matches”
to determine actual knowledge where this should be unnecessary;
and 3) That an objective standard encourages forthrightness and
helps to further the goal of the statute.

20. § 2-714. Buyer's Damages for Breach in Regard to Accepted

Goods.

(1) Where the buyer has accepted goods and given notification (subsection
(3) of Section 2-607) he may recover as damages for any non-conformity
of tender the loss resulting in the ordinary course of events from the
seller's breach as determined in any manner which is reasonable.

(2) The measure of damages for breach of warranty is the difference at the
time and place of acceptance between the value of the goods accepted and
the value they would have had if they had been as warranted, unless
special circumstances show proximate damages of a different amount.

(3) In a proper case any incidental and consequential damages under the
next section may also be recovered.

21. § 2-715. Buyer's Incidental and Consequential Damages.

(1) Incidental damages resulting from the seller's breach include expenses
reasonably incurred in inspection, receipt, transportation and care and
custody of goods rightfully rejected, any commercially reasonable
charges, expenses or commissions in connection with effecting cover and
any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of
which the seller at the time of contracting had reason to know and which
could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of
warranty.

22. Moscatiello v. PCEC (SC of PA)

This case involved the sale of a faulty road paver. Seller attempted
to disclaim all warranties in their contract with buyer, and to limit
any incidental or consequential damages in the result of breach of
warranty. The disclaimers were obviously not conspicuous,
because they were contained in VERY small print on the back of
the contract, under a heading that alluded to “terms and
conditions” and not to a disclaimer of warranty. The interesting
portion of the case had to do with the enforceability of the
damages limitations. Whereas most damage limitations clauses are
enforceable, as long as they do not limit personal injury damages,
2-719, such a clause is not enforceable if it is found to be
unconscionable. As the Court quotes in Mosatiello,
unconscionability springs from “an absence of meaningful choice
for one of the parties, coupled with terms which are
unreasonably favorable to the other party.” It is very
questionable in this case whether the terms of the contract were
unconscionable. Moscatiello was a professional who presumably
had some meaningful choice as to whom to make business deals
with, and also presumably had some kind of bargaining power in
the deal. And, while he was no doubt hurt by the limitations of
damages, it does not follow that the terms were unreasonably
favorable. Nevertheless, the Court ruled in favor of the trial court,
probably because they were ruling on a j.n.o.v. motion, and the
standard of review was very strict.

23. Chatlos Systems, Inc. v. National Cash Register Corp (2nd Cir. 1980)
This case involved a first-instance interpretation of UCC 2-719(2)
and (3). The contract was between a Computer manufacturer and
consumer, and contained an exclusive warranty provision and a
limitation of damages under that warranty. The warranty was
limited in scope to “correcting errors in any program or routine”
and limited in time to sixty days. The Court upheld the trial court
judgment that this limitation of the warranty caused the warranty to
fail of its essential purpose. The trial court also ruled that the
warranty’s failing in its essential purpose caused the agreement’s
clause limiting damages to fail as well. It treated the warranty and
the limitation of damages under the warranty as one unit. The
 Court did not agree with this view. Instead, the Court reasoned
that the two things were separate and could exist completely apart
from each other, and that, as a result, a damages limitation clause
should not automatically be struck down with the warranty on
which it would have operated. Other Courts, however, choose
the opposite course. About whether “failing of the essential
purpose” causes the limitation to fail absolutely, or whether 2-
719(3), which allows consequential damages, is the proper
section to refer to even if it fails of its essential purpose (sub-
section 2).

C. Notice under 2-607(3)- This statute leaves a lot of grey area for court’s to define.
Courts have further refined the statute by interpreting it as treating merchants and non-
merchants differently. The statute says only that notice must be given within a
reasonable time after buyer discovers or should have discovered the defect. Courts often
hold that merchants “should have discovered” a defect in a relatively short period after
the deal, whereas consumers are given a longer time by default. Courts differ
significantly as to what manner of information constitutes notice of breach. One line
of cases holds that specific words must be used, while another line holds that the notice
may be substantially more vague. Finally, actual knowledge of the particular defect in
the particular product in question may make notice unnecessary in some courts.

D. Sources of Contract terms, other than Express Agreements and Code Default Rules

1. § 1-205. Course of Dealing and Usage of Trade.

(1) A course of dealing is a sequence of previous conduct between the parties to a

particular transaction which is fairly to be regarded as establishing a common
basis of understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation that it will be
observed with respect to the transaction in question. The existence and scope of
such a usage are to be proved as facts. If it is established that such a usage is
embodied in a written trade code or similar writing the interpretation of the
writing is for the court.

(3) A course of dealing between parties and any usage of trade in the vocation or
trade in which they are engaged or of which they are or should be aware give
particular meaning to and supplement or qualify terms of an agreement.

(4) The express terms of an agreement and an applicable course of dealing or

usage of trade shall be construed wherever reasonable as consistent with each
other; but when such construction is unreasonable express terms control both
course of dealing and usage of trade and course of dealing controls usage of trade.

(5) An applicable usage of trade in the place where any part of performance is to
occur shall be used in interpreting the agreement as to that part of the
performance.

(6) Evidence of a relevant usage of trade offered by one party is not admissible
unless and until he has given the other party such notice as the court finds
sufficient to prevent unfair surprise to the latter.

2. § 2-208. Course of Performance or Practical Construction.

(1) Where the contract for sale involves repeated occasions for performance by
either party with knowledge of the nature of the performance and opportunity for
objection to it by the other, any course of performance accepted or acquiesced in
without objection shall be relevant to determine the meaning of the agreement.

(2) The express terms of the agreement and any such course of performance, as
well as any course of dealing and usage of trade, shall be construed whenever
reasonable as consistent with each other; but when such construction is
unreasonable, express terms shall control course of performance and course of
performance shall control both course of dealing and usage of trade (Section 1-
205).

(3) Subject to the provisions of the next section on modification and waiver, such
course of performance shall be relevant to show a waiver or modification of any
term inconsistent with such course of performance.

3. § 1-201. General Definitions.

(3) "Agreement" means the bargain of the parties in fact as found in their
language or by implication from other circumstances including course of dealing
or usage of trade or course of performance as provided in this Act (Sections 1-
205, 2-208, and 2A-207). Whether an agreement has legal consequences is
determined by the provisions of this Act, if applicable; otherwise by the law of
contracts (Section 1-103). (Compare "Contract".)

(11) "Contract" means the total legal obligation which results from the parties'
agreement as affected by this Act and any other applicable rules of law. (Compare
"Agreement".)
 4. Nanakuli Paving and Rock Co. v. Shell Oil Co. (U.S. 9th Circ. 1981)
This case involved the interpretation of the appropriate active terms of a
Contract between a Paving Contractor and a seller of “asphalt.” The
express terms of the contract called for the price of the asphalt to be at
Shell’s posted price at time of delivery, F.O.B. Nevertheless, the Court
found that a proper interpretation of the UCC mandates that, unless a term
is “completely negated” by the terms imposed by trade usage, course of
dealing, and course of performance, that such terms resulting from any
of these may be entered into evidence.

On Appeal, Shell argued that Nanakuli had not entered enough evidence
on the trade usage issue. The Court disagreed, finding that they had
entered enough evidence for a jury to find that it is universal practice in
the Asphalt trade in Hawaii to price protect.

Shell also argued that its former willingness to price protect on the only
two prior occasions in non-escalable contracts should be held to be a
waiver as a matter of law. The Court disagreed with this too, and with
Shell’s interpretation of UCC 2-208, which says that ONE performance
shall not count, but goes no further.

Again, the Court also disagreed with Shell on their argument that the price
term constructed through trade usage and course of performance is
inconsistent with the express price term. Of Course, the express term
would apply in this case. But the Court also disagreed with this, finding
that the price term could in fact be construed as consistent with the rule
that, only in non-escalable contracts, that the price shall be protected.

E. Risk of Loss

1. UCC § 2-613. Casualty to Identified Goods.

Where the contract requires for its performance goods identified when the
contract is made, and the goods suffer casualty without fault of either party before
the risk of loss passes to the buyer, or in a proper case under a "no arrival, no
sale" term (Section 2-324) then
(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to conform
to the contract the buyer may nevertheless demand inspection and at his option
either treat the contract as avoided or accept the goods with due allowance from
the contract price for the deterioration or the deficiency in quantity but without
further right against the seller

2. § 2-503. Manner of Seller's Tender of Delivery.

(1) Tender of delivery requires that the seller put and hold conforming goods at
the buyer's disposition and give the buyer any notification reasonably necessary to
enable him to take delivery. The manner, time and place for tender are determined
by the agreement and this Article, and in particular
(a) tender must be at a reasonable hour, and if it is of goods they must be kept
available for the period reasonably necessary to enable the buyer to take
possession; but
(b) unless otherwise agreed the buyer must furnish facilities reasonably suited to
the receipt of the goods.

(2) Where the case is within the next section respecting shipment tender requires
that the seller comply with its provisions.

(3) Where the seller is required to deliver at a particular destination tender

requires that he comply with subsection (1) and also in any appropriate case
tender documents as described in subsections (4) and (5) of this section.

(4) Where goods are in the possession of a bailee and are to be delivered without
being moved
(a) tender requires that the seller either tender a negotiable document of title
covering such goods or procure acknowledgment by the bailee of the buyer's right
to possession of the goods; but
(b) tender to the buyer of a non-negotiable document of title or of a written
direction to the bailee to deliver is sufficient tender unless the buyer seasonably
objects, and receipt by the bailee of notification of the buyer's rights fixes those
rights as against the bailee and all third persons; but risk of loss of the goods and
of any failure by the bailee to honor the non- negotiable document of title or to
obey the direction remains on the seller
until the buyer has had a reasonable time to present the document or direction,
and a refusal by the bailee to honor the document or to obey the direction defeats
the tender.

(5) Where the contract requires the seller to deliver documents

(a) he must tender all such documents in correct form, except as provided in this
Article with respect to bills of lading in a set (subsection (2) of Section 2-323);
and
(b) tender through customary banking channels is sufficient and dishonor of a
draft accompanying the documents constitutes non-acceptance or rejection.

3. § 2-504. Shipment by Seller.

Where the seller is required or authorized to send the goods to the buyer and the
contract does not require him to deliver them at a particular destination, then
unless otherwise agreed he must
(a) put the goods in the possession of such a carrier and make such a contract for
their transportation as may be reasonable having regard to the nature of the goods
and other circumstances of the case; and
(b) obtain and promptly deliver or tender in due form any document necessary to
enable the buyer to obtain possession of the goods or otherwise required by the
agreement or by usage of trade; and
(c) promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper contract under
paragraph (a) is a ground for rejection only if material delay or loss ensues.

4. § 2-509. Risk of Loss in the Absence of Breach.

(1) Where the contract requires or authorizes the seller to ship the goods by carrier
(a) if it does not require him to deliver them at a particular destination, the risk of
loss passes to the buyer when the goods are duly delivered to the carrier even
though the shipment is under reservation (Section 2-505); but
(b) if it does require him to deliver them at a particular destination and the goods
are there duly tendered while in the possession of the carrier, the risk of loss
passes to the buyer when the goods are there duly so tendered as to enable the
buyer to take delivery.

(2) Where the goods are held by a bailee to be delivered without being moved, the
risk of loss passes to the buyer
(a) on his receipt of a negotiable document of title covering the goods; or
(b) on acknowledgment by the bailee of the buyer's right to possession of the
goods; or
(c) after his receipt of a non-negotiable document of title or other written direction
to deliver, as provided in subsection (4)(b) of Section 2-503.

(3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer
on his receipt of the goods if the seller is a merchant; otherwise the risk passes to
the buyer on tender of delivery.

(4) The provisions of this section are subject to contrary agreement of the parties
and to the provisions of this Article on sale on approval (Section 2-327) and on
effect of breach on risk of loss (Section 2-510).

5. Default Rule For Shipment Terms- Although it provides no support for this,
the Court in the Windows case claims that there is a strong preference for
Shipment Contracts under the UCC...Shipment Contracts are those in which the
seller is responsible only to put the good in the hands of the shipper, and the buyer
 bears the risk of loss thereafter. UCC 2-504 actually provides some support for
this position.

6. Windows, Inc. v. Jordan Panel Systems Corp. (U.S. App 2nd Circ. 1999)
In this case, seller ordered windows from buyer, and in a confirmation
letter stated that: “all windows to be shipped properly
crated/packaged/boxed suitable for cross country motor freight transit and
delivered to New York City.” The goods were damaged in transit. The
Court held that the UCC provisions dictated a finding of a shipment
contract here (2-504), and that since it was a shipment contract, that the
seller should not bear the risk of loss (2-509), because the contract did
not call for delivery at a specific destination, but rather gave only the
city. The Court declined to consider the earlier grounds on which the case
was decided (2-613), choosing instead to use the provisions more
specifically applicable to the situation.

F. Title

1. § 2-401. Passing of Title; Reservation for Security; Limited Application of

this Section.

Each provision of this Article with regard to the rights, obligations and remedies
of the seller, the buyer, purchasers or other third parties applies irrespective of
title to the goods except where the provision refers to such title. Insofar as
situations are not covered by the other provisions of this Article and matters
concerning title become material the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to their identification
to the contract (Section 2-501), and unless otherwise explicitly agreed the buyer
acquires by their identification a special property as limited by this Act. Any
retention or reservation by the seller of the title (property) in goods shipped or
delivered to the buyer is limited in effect to a reservation of a security interest.
Subject to these provisions and to the provisions of the Article on Secured
Transactions (Article 9), title to goods passes from the seller to the buyer in any
manner and on any conditions explicity agreed on by the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at the time and
place at which the seller completes his performance with reference to the physical
delivery of the goods, despite any reservation of a security interest and even
though a document of title is to be delivered at a different time or place; and in
particular and despite any reservation of a security interest by the bill of lading
 (a) if the contract requires or authorizes the seller to send the goods to the buyer
but does not require him to deliver them at destination, title passes to the buyer at
the time and place of shipment; but
(b) if the contract requires delivery at destination, title passes on tender there.

(3) Unless otherwise explicitly agreed where delivery is to be made without

moving the goods,
(a) if the seller is to deliver a document of title, title passes at the time when and
the place where he delivers such documents; or
(b) if the goods are at the time of contracting already identified and no documents
are to be delivered, title passes at the time and place of contracting.

(4) A rejection or other refusal by the buyer to receive or retain the goods,
whether or not justified, or a justified revocation of acceptance revests title to the
goods in the seller. Such revesting occurs by operation of law and is not a "sale".

2. § 2-501. Insurable Interest in Goods; Manner of Identification of Goods.

(1) The buyer obtains a special property and an insurable interest in goods by
identification of existing goods as goods to which the contract refers even though
the goods so identified are non-conforming and he has an option to return or reject
them. Such identification can be made at any time and in any manner explicitly
agreed to by the parties. In the absence of explicit agreement identification occurs
(a) when the contract is made if it is for the sale of goods already existing and
identified;
(b) if the contract is for the sale of future goods other than those described in
paragraph (c), when goods are shipped, marked or otherwise designated by the
seller as goods to which the contract refers;
(c) when the crops are planted or otherwise become growing crops or the young
are conceived if the contract is for the sale of unborn young to be born within
twelve months after contracting or for the sale of crops to be harvested within
twelve months or the next normal harvest season after contracting whichever is
longer.

(2) The seller retains an insurable interest in goods so long as title to or any
security interest in the goods remains in him and where the identification is by the
seller alone he may until default or insolvency or notification to the buyer that the
identification is final substitute other goods for those identified.

(3) Nothing in this section impairs any insurable interest recognized under any
other statute or rule of law.

G. Acceptance, Rejection and Tender

1. § 2-507. Effect of Seller's Tender; Delivery on Condition.

(1) Tender of delivery is a condition to the buyer's duty to accept the goods and,
unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to
acceptance of the goods and to payment according to the contract.

(2) Where payment is due and demanded on the delivery to the buyer of goods or
documents of title, his right as against the seller to retain or dispose of them is
conditional upon his making the payment due.

2. § 2-511. Tender of Payment by Buyer; Payment by Check.

<Text of current version of section. For text of earlier version of section, see
ante.>

(1) Unless otherwise agreed tender of payment is a condition to the seller's

duty to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any manner
current in the ordinary course of business unless the seller demands payment in
legal tender and gives any extension of time reasonably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an instrument on an

obligation (Section 3-310), payment by check is conditional and is defeated as
between the parties by dishonor of the check on due presentment.

3. Buyers have a right to inspect prior to acceptance of the goods (§ 2-513)-

Acceptance of the goods by the buyer is a prerequisite to the seller’s ability to sue
for the purchase price. The fact that the purchase price has already been paid does
not affect the buyer’s right to revoke acceptance after inspection.

4. § 2-513. Buyer's Right to Inspection of Goods.

(1) Unless otherwise agreed and subject to subsection (3), where goods are
tendered or delivered or identified to the contract for sale, the buyer has a right
before payment or acceptance to inspect them at any reasonable place and time
and in any reasonable manner. When the seller is required or authorized to send
the goods to the buyer, the inspection may be after their arrival.
(2) Expenses of inspection must be borne by the buyer but may be recovered from
the seller if the goods do not conform and are rejected.

(3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F.
contracts (subsection (3) of Section 2-321), the buyer is not entitled to inspect the
goods before payment of the price when the contract provides
(a) for delivery "C.O.D." or on other like terms; or
(b) for payment against documents of title, except where such payment is due
only after the goods are to become available for inspection.

(4) A place or method of inspection fixed by the parties is presumed to be

exclusive but unless otherwise expressly agreed it does not postpone identification
or shift the place for delivery or for passing the risk of loss. If compliance
becomes impossible, inspection shall be as provided in this section unless the
place or method fixed was clearly intended as an indispensable condition failure
of which avoids the contract.

5. Buyer’s Right to Reject Goods- The UCC adheres in most circumstances to

the “perfect tender” rule. However, this is not an absolute, as the name would
imply. The Good Faith obligations may prevent buyers form rejecting based on
“trifling” non-conformities, especially if the buyer were a merchant, in which
case the good faith standard demands that parties conform to “reasonable
commercial standards of fair dealing in the trade.” Also, Installment Contracts
differ from normal goods contracts, and rejection requires that non-conformity
“substantially impair” its value. Also, a buyer may not reject goods if 1) She has
already accepted them or 2) the seller has a right to cure the non-conformity. See
UCC 2-607(2) and 2-508.

6. § 2-601. Buyer's Rights on Improper Delivery.

Subject to the provisions of this Article on breach in installment contracts

(Section 2-612) and unless otherwise agreed under the sections on contractual
limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of
delivery fail in any respect to conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.

7. § 2-608. Revocation of Acceptance in Whole or in Part.

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its non-conformity would be cured and it
has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance or by the seller's
assurances.

(2) Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial
change in condition of the goods which is not caused by their own defects. It is
not effective until the buyer notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard to the
goods involved as if he had rejected them.

8. § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing

Breach After Acceptance; Notice of Claim or Litigation to Person
Answerable Over.

(1) The buyer must pay at the contract rate for any goods accepted.

(2) Acceptance of goods by the buyer precludes rejection of the goods accepted
and if made with knowledge of a non-conformity cannot be revoked because of it
unless the acceptance was on the reasonable assumption that the non-conformity
would be seasonably cured but acceptance does not of itself impair any other
remedy provided by this Article for non-conformity.

(3) Where a tender has been accepted

(a) the buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any remedy;
and
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-
312) and the buyer is sued as a result of such a breach he must so notify the seller
within a reasonable time after he receives notice of the litigation or be barred from
any remedy over for liability established by the litigation.

(4) The burden is on the buyer to establish any breach with respect to the goods
accepted.

(5) Where the buyer is sued for breach of a warranty or other obligation for which
his seller is answerable over
(a) he may give his seller written notice of the litigation. If the notice states that
the seller may come in and defend and that if the seller does not
do so he will be bound in any action against him by his buyer by any
determination of fact common to the two litigations, then unless the seller after
seasonable receipt of the notice does come in and defend he is so bound.
(b) if the claim is one for infringement or the like (subsection (3) of Section 2-
312) the original seller may demand in writing that his buyer turn over to him
control of the litigation including settlement or else be barred from any remedy
over and if he also agrees to bear all expense and to satisfy any adverse judgment,
then unless the buyer after seasonable receipt of the demand does turn over
control the buyer is so barred.

(6) The provisions of subsections (3), (4) and (5) apply to any obligation of a
buyer to hold the seller harmless against infringement or the like (subsection (3)
of Section 2-312).

9. § 2-606. What Constitutes Acceptance of Goods.

(1) Acceptance of goods occurs when the buyer

(a) after a reasonable opportunity to inspect the goods signifies to the seller that
the goods are conforming or that he will take or retain them in spite of their non-
conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such
acceptance does not occur until the buyer has had a reasonable opportunity to
inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is
wrongful as against the seller it is an acceptance only if ratified by him.

(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.

10. International Commodities Export Corp. v. North Pacific Lumber Co. (US
DC of OR 1991)
In this case defendant made arrangements to purchase beans from China.
The beans were inspected by the plaintiff upon receipt by the shipper, and
were found to conform to specifications. Upon receipt of the beans,
defendant discovered that some were dirty and not white enough.
Defendant complained but did not explicitly reject the goods. Instead
plaintiff attempted to have them approved by the FDA. The FDA refused
to approve them, and they sat in a warehouse. Finally, almost a year after
the agreement had been made, the defendant attempted to revoke his
acceptance of the goods. The Court found that his revocation was not
timely (2-606(1)(a). Also, the Court found that the burden was on the
defendant to prove that the beans did not meet specifications when
delivered to carrier. Defendant also failed to give proper notice.

11. § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.

(1) Where any tender or delivery by the seller is rejected because non-
conforming and the time for performance has not yet expired, the seller may
seasonably notify the buyer of his intention to cure and may then within the
contract time make a conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had
reasonable grounds to believe would be acceptable with or without money
allowance the seller may if he seasonably notifies the buyer have a further
reasonable time to substitute a conforming tender.

12. Bouen v. Foust (MO App. 1996)

In this case, the trial court awarded plaintiffs a refund of the full purchase
price of heating/cooling equipment purchased from defendant. The
heating/cooling apparatus was found at trial obviously to have failed to
meet the specifications in the contract, so the buyers had a right to reject.
However, defendant argued that the rejection was ineffective because 1)
they had already accepted the merchandise, and 2) They had not give the
chance to cure the defect. The Court held that UCC 2-608 gave the
plaintiffs the right to reject the goods, because they did so within a
reasonable time, and because they did not do so any later than they
“should have realized” that the goods were defective. Defendants also
argued that plaintiffs should have given them the chance to cure the
defect under 2-508. However, the Court rejected this argument because
the defect was obviously unable to be cured by the defendant, because the
defect involved large and obvious defects that made the product
completely different than what was promised.

13. REJECTION OF INSTALLMENT CONTRACTS- 2-612

14. PARTICULARS ABOUT MANNER OF OBJECTION 2-602-4

REMEMBER Design Plus Store Fixtures v. Citro...Table Case

a) § 2-602. Manner and Effect of Rightful Rejection.

(1) Rejection of goods must be within a reasonable time after their

delivery or tender. It is ineffective unless the buyer seasonably notifies the
seller.

(2) Subject to the provisions of the two following sections on rejected

goods (Sections 2-603 and 2-604),
(a) after rejection any exercise of ownership by the buyer with respect to
any commercial unit is wrongful as against the seller; and
(b) if the buyer has before rejection taken physical possession of goods in
which he does not have a security interest under the provisions of this
Article (subsection (3) of Section 2-711), he is under a duty after
rejection to hold them with reasonable care at the seller's disposition for a
time sufficient to permit the seller to remove them; but
 (c) the buyer has no further obligations with regard to goods rightfully
rejected.
(3) The seller's rights with respect to goods wrongfully rejected are
governed by the provisions of this Article on Seller's remedies in general
(Section 2-703).

15. Kesner v. Lancaster (SC of WV, 1989)

Buyers generally have two options if they wish not to accept a good under
the UCC. The two methods are covered by UCC 2-606 and UCC 2-608.
UCC 2-608 covers what constitutes rejection, while UCC 2-608 covers
revocation of acceptance. Acceptance is governed by the “perfect tender”
rule, generally, while revocation of acceptance may only take place when
the good is substantially impaired by the flaw or when the seller has made
representations to the effect that the flaws will be cured, and this causes
the buyer to accept. In Kesner, the Court used these rules in holding that
the buyer of a loader was entitled to revoke acceptance of it. The facts
were as follows. The buyer conducted a superficial inspection of the
loader prior to purchasing it, and found that it looked sturdy and the
engine ran well. The buyer accepted the loader pursuant to 2-606. After
attempting to use it, it broke down after only one use. A closer inspection
revealed that there were several severe problems that would have cost
quite a bit to fix. The seller argued, nevertheless, that the lower Court
erred in not granting summary judgment to him on the basis that the loader
was not substantially impaired by the defects found, under 2-608. The
Court explained that there is a subjective and an objective side to the
“substantial impairment” language of 2-608. The seller also argued that
the buyer was not able to revoke because he had been given an
opportunity to inspect and should have discovered the defect. However,
the Court held that the buyer’s inspection was reasonable, and that
therefore 2-608 was available to him.

16. § 2-609. Right to Adequate Assurance of Performance.

(1) A contract for sale imposes an obligation on each party that the other's
expectation of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either party the
other may in writing demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend any
performance for which he has not already received the agreed return.

(2) Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance offered shall be determined according to commercial
standards.
 (3) Acceptance of any improper delivery or payment does not prejudice the
aggrieved party's right to demand adequate assurance of future performance.

(4) After receipt of a justified demand failure to provide within a reasonable time
not exceeding thirty days such assurance of due performance as is adequate under
the circumstances of the particular case is a repudiation of the contract.

17. Hornell Brewing Co. v. Spry (NY App 1997)

In this case, a brewing company utilized the Anticipatory Repudiation
provision of UCC 2-609, in order to justify cutting off its sole distributor
in Canada, with whom the company had had a relationship for only a few
months. The Court held that the actions of the defendant demonstrated a
lack of credibility that justified non-performance by Hornell, under UCC
2-609.

H. Contract Formation Under the UCC

1. § 2-207. Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation

which is sent within a reasonable time operates as an acceptance even though it
states terms additional to or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different
terms.

(2) The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties agree, together with
any supplementary terms incorporated under any other provisions of this Act.

2. Diamond Fruit Growers v. Krack Corp. (1986)

This case involved a “battle of forms” between Krack, a manufacturer and
Metal-matic, a supplier of tubing for its machines. Krack sent a purchase
order for the tubing, which did not include a term about limitation of
damages. When Metal-Matic sent back its corresponding form, it did
contain a limitation on Metal-Matic’s liability, stating that it would not be
 responsible for consequential damages. The case used 2-207 to resolve
the issue. The Court held that: 1) The response by Metal-Matic was a
definite and seasonable expression of acceptance, but that a contract was
not formed because Metal-Matic’s acceptance was conditioned expressly
on Krack’s acceptance of the additional terms provided by Metal-Matic.
Thus, no contract was formed under 2-207(1). However, the Court held
that a contract was formed under 2-207(3), which provides that a contract
may be formed by conduct. In such cases, it goes on, the terms of the
contract will be a mixture of those terms on which the writings of the
parties agree, plus any default rules under the UCC that apply.

3. Hill v. Gateway 2000, Inc. (7th Cir. 1997)

This case dealt with whether a contract may be formed including all of the
seller’s terms, when a seller sends a package containing a product and
includes inside the package a contract, which provides that the failure to
return the product within 30 days will result in the formation of a contract.
The Hills argued their case on the basis of UCC 2-207, contending that the
terms included in Gateway’s insert were not an automatic part of the
agreement, because they were not merchants. According to Easterbrook,
this section does not apply when there is only one writing. For
Easterbrook, cases such as these are decided on the separate basis of
whether a contract may be formed when an insert inside the packaging of
a product represents the offer, which itself states that a failure to respond
will constitute an acceptance. It is not necessary for the case to be decided
this way, and Easterbrook followed his own opinion in ProCD in
order to decide it, not getting into the fineries of the arguments.

I. Statute of Frauds- overall, the S of F in the UCC is similar to the common law, but
there are some differences.

1. § 2-201. Formal Requirements; Statute of Frauds.

(1) Except as otherwise provided in this section a contract for the sale of goods
for the price of $500 or more is not enforceable by way of action or defense
unless there is some writing sufficient to indicate that a contract for sale has been
made between the parties and signed by the party against whom enforcement is
sought or by his authorized agent or broker. A writing is not insufficient because
it omits or incorrectly states a term agreed upon but the contract is not enforceable
under this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of

the contract and sufficient against the sender is received and the party receiving it
has reason to know its contents, it satisfies the requirements of subsection (1)
against such party unless written notice of objection to its contents is given within
 10 days after it is received.

(3) A contract which does not satisfy the requirements of subsection (1) but which
is valid in other respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are not suitable
for sale to others in the ordinary course of the seller's business and the seller,
before notice of repudiation is received and under circumstances which
reasonably indicate that the goods are for the buyer, has made either a substantial
beginning of their manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his pleading,
testimony or otherwise in court that a contract for sale was made, but the contract
is not enforceable under this provision beyond the quantity of goods admitted; or
(c) with respect to goods for which payment has been made and accepted or
which have been received and accepted (Sec. 2-606).

J. Consideration and “other quaintnesses”

1. § 2-205. Firm Offers- Something about this will almost certainly be on the
test! This is very different from the common law. If an offer is “firm”, the offeror
can be held to it in absence of any consideration whatsoever. The only proviso is
that it cannot last more than three months

An offer by a merchant to buy or sell goods in a signed writing which by its terms
give assurance that it will be held open is not revocable, for lack of consideration,
during the time stated or if no time is stated for a reasonable time, but in no event
may such period of irrevocability exceed three months; but any such term of
assurance on a form supplied by the offeree must be separately signed by the
offeror.

2. § 2-209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration

to be binding.

(2) A signed agreement which excludes modification or rescission except by a

signed writing cannot be otherwise modified or rescinded, but except as between
merchants such a requirement on a form supplied by the merchant must be
separately signed by the other party.

(3) The requirements of the statute of frauds section of this Article (?

(4) Although an attempt at modification or rescission does not satisfy the
requirements of subsection (2) or (3) it can operate as a waiver.

(5) A party who has made a waiver affecting an executory portion of the contract
may retract the waiver by reasonable notification received by the other party that
strict performance will be required of any term waived, unless the retraction
would be unjust in view of a material change of position in reliance on the waiver.
 CONTRACTS CHECKLIST
Fall 1996
Mooney
Lance LeFever

- Does a K. exist?
- Is there Cn., restitution, or reliance for enforcement?
- Was the Cn. bargained for?
- Is there an objectively manifested offer?
- Is there objectively manifested acceptance?
- Was the offer terminated before acceptance through
lapse, revocation, rejection, or death?
- Was there acceptance by partial performance prior to
termination?
- Was the offer and acceptance reasonably certain enough
to show an intent to K. and sufficiently definite to
ascertain breach and fashion remedy?
- Does Statute of Frauds apply?
- Is this a K. for transfer of real estate, surety sub-K
for debt of another, K. for sale of goods > $500, K. not
to be performed w/i 1 year, K. upon cn. of marriage?
- Assuming it applies, what pieces of paper will satisfy
S/F?
- Assuming it applies and no writing satisfies, what
circumstances might prevent party from asserting S/F?
- Is the K. voidable?
- Did a party lack capacity to K. (drunk, age)?
- Unequal exchange (generally not a defense)?
- Does pre-existing duty rule apply, fraud, mistake,
duress, misrepresentation?
- Is the K. unconscionable
- What rights and obligations does the K. create?
- Is K. for benefit of a 3rd party, and do circumstances
indicate parties intended 3rd party to have enforcement
rights?
- Were K. rights assigned?
- What likely consequences follow from the breach by one or
more of the parties?
- Formula A or B for expectation?
- Losing K. problem?
- Avoidability, foreseeability, Certainty problems?
- Liquidated damages problem?

CONTRACTS OUTLINE

A K. is a promise or a set of promises for the breach of which the

law gives a remedy, or the performance of which the law in some
way recognizes as a duty. R2§1

I. WHAT PROMISES WILL THE LAW ENFORCE?

A. Historical
1. Common law roots
a. writ of covenant (written promise under seal)
 b. writ of debt - fixed sum of money for already
received goods or services (benefit to
promisor)
c. writ of assumpsit - damages for injury to
person/property out of consensual undertaking
(detriment to promisee)
(1) A promise for a promise will support
assumpsit. Strangborough v. Warner
d. Through 18th Cent.
(1) "Equitable" theory of K.s (AKA "Portia,"
"Belmont") - K. must be inherently fair
or no/partial enforcement.
e. 19th Cent. - Mid 20th Cent.
(1) "Will" theory of K.s (AKA
"Conceptualist," "Shylock," Venetian") -
parties have "willed" a K. and courts
will enforce it.
(2) "Peppercorn" theory of Cn. - Courts will
not enquire into adequacy of Cn. if there
is a "peppercorn" to support it.
(3) Caveat Emptor - "let the buyer beware"
(4) "Meeting of the minds" theory of K.
formation: parties actual agreement
critical to enforcement.
f. Mid 20th Cent. - Return to "Equitable" theory,
except for a somewhat recent lapse to "Will"
theory.
B. Consideration - To constitute Cn., a performance (act,
forbearance, or change to a legal relation) or a return
promise must be bargained for (sought by promisor in
exchange for his promise and given by the promisee in
exchange for that promise). R2§71. It is the essence of
Doctrine of Cn. that, by the terms of the agreement, it
is given and accepted as the motive and inducement to
the agreement.
1. PURPOSE: Cautionary and evidentiary.
a. Cautionary - time taken to make exchange
indicates a weighing and thoughtfulness on
issue.
b. Evidentiary - promise more likely than not to
have occurred when supported by Cn..
2. Consideration for a promise may be (R2§71(3)):
a. A return promise
b. A performance which is
(1) an act other than a promise
(2) a forbearance
(3) creation, modification, or destruction of
legal relation.
3. Detriment need not be a "detriment in fact," but
merely abandonment of a known legal right. Hamer
v. Sidway
4. Abandonment of invalid legal claim may be Cn. if a)
relinquishing party subjectively believes (good
faith) it may be valid; and b) claim is objectively
 reasonable. Fiege v. Boehm. R2§74 abandons
requirement of objective reasonableness, imposes
requirement that claim be at least "doubtful"
because of facts or law, lesser standard.
5. Cn. may not be an action taken which is inherently
a condition precedent to the acceptance of a
gratuitous promise. Kirksey v. Kirksey.
6. Past Consideration/Moral Obligation
a. Past services are not bargained for, and,
generally, cannot count as Cn. Feinberg v.
Pfeiffer Co.
(1) Restriction eased somewhat to be
enforceable "to the extent necessary to
prevent injustice." R2§86.
b. Moral obligations arising from care of dead
son in the past cannot be Cn. for a subsequent
promise. Mills v. Wyman.
(1) EXC: Subsequent promise to pay a debt
expired under statute of limitations,
R2§82, Subsequent promise to pay a debt
discharged in bankruptcy, R2§83.
c. Court will imply a prior request for past Cn.
where the Cn. is material and substantially
saves life of another. Webb v. McGowin.
C. Restitution as an Alternative Basis for recovery
1. Implied K.s ( or quasi-K's or quantum meruit (value
of services)) are a "mythical creation of the law"
to allow for recovery of professional services (a
deserving claimant, not officious intermeddler) in
emergency situations. Cotnam v. Wisdom.
a. Restitution for implied K. is limited to the
value of the benefit which is acquired, viewed
from the perspective of the recipient. Hill
v. Waxberg.
b. Theory of restitution in implied K. is to
prevent unjust enrichment. Callano v. Oakwood
Homes.
c. π may not recover from a third party
beneficiary under an implied K. theory of
unjust enrichment, especially when alternate
means are available to recover losses.
Callano.
d. Measure of recovery for restitution is EITHER:
(1) what it would have cost to obtain
services from person in claimant's
position; or
(2) Increase in value to the other party's
property. R2§371.
D. Unsolicited Action
1. Reliance and the Bargain requirement
a. Act of moving a condition precedent to the
acceptance of the promise, may not constitute
Cn., is not reliance. Kirksey v. Kirksey
b. Phrasing of an offer that expresses
 indifference as to the result may indicate an
intent not to bargain. Kirksey.
c. Non-competition K. enforceable if reasonable.
C.A.B. v. Ingram.
d. Mere promise of continued employment is not
Cn. for agreement subsequent to original
employment K., but promise + actual
substantial performance in reliance=Cn. C.A.B.
e. Employee handbook not a K. because its
promises are not bargained for as an
inducement to employee promise of performance.
Bankey v. Storer
f. Unbargained for partial performance of offer
may be accepted by completing performance.
R2§51.
E. Reliance as an alternative basis for enforcement
(AKA Promissory estoppel)
a. A gratuitous promise which is relied on by
promisee to her detriment is enforceable.
Ricketts v. Scothorn.
b. A gratuitous promise is binding if
(1) promisor should reasonably expect it to
induce action by promisee or 3rd party;
(2) promise does induce action; and
(3) injustice can be avoided only by
enforcement, remedy to be limited as
justice requires (to the extent relied
upon). R2§90. Charitable subscriptions
or marriage settlement binding w/o proof
of action or forbearance. sub (2)
c. Gratuitous promise which results in action or
forbearance to promisee's detriment may be
enforceable by expectation remedy where
injustice cannot be otherwise avoided.
Feinberg v. Pfeiffer
d. Purpose of R2§90 is to prevent injustice, not
work justice. Cohen v. Cowles Media
e. Gratuitous promise of continued supply, even
in a terminable at will relationship, may
constitute promissory estoppel when
distributor relies on a seriously intended
promise, reliance on it was foreseeable and
reasonable. D&G Stout v. Bacardi.
f. When reliance results in loss of value of
borderline business, appropriate remedy is
reliance (diff. in lost sale value of going
concern instead of expectation of future
profits). Bacardi
F. Promise for a Promise
1. Has the party now suing bound itself
sufficiently enough to support cn. for the
promise it is now suing upon?
2. A promise for a promise will support assumpsit.
Strangborough v. Warner.
3. A promise which is bargained for is Cn. only if the
promised performance would be cn. R2§71.
4. Definitions:
a. Unilateral promise: duty on side of promisor;
right on side of promisee;
b. bilateral promise: duty and right on both
side.
c. Power: capacity to form a binding
relationship.
d. Condition: an even which must occur before
promise becomes enforceable
e. Explicit - actual promise by parties at the
time of creation
f. Implicit - created by court in absence of
explicit statements in light of statements at
time and subsequent conduct.
5. An express promise to hold note until demanded is
illusory because it promises nothing of substance.
Because promise is express, substantial performance
on promise is not part of cn. Strong v. Sheffield
a. Termination clause: terminable at will usually
illusory (EXC: employment); if it includes a
time period, usually upheld
6. Promise is illusory if promisor retains choice of
alternative performance unless
a. each alternative would be cn. alone; or
b. one alternative would be cn. and events voided
other, non-cn. alternatives. R2§77.
7. Satisfaction clauses of two types:
a. commercial value, fitness, utility: use
standard of reasonable person.
b. judgement, fancy or test: must be exercised in
good faith (implied promise). Mattei v. Hopper
c. breach of good faith obligation is a breach of
K. for which other party may seek damages
8. Conditional satisfaction clauses not illusory where
they are not unfettered grants of discretion.
Mattei v. Hopper
9. Concealed offer: I'll buy all the gas I need from
you if you promise to give it: appears to be
promise but not definite and certain: no obligation
to buy any gas: concealed offer because, unless
revoked, buyer sends order for specific amount,
terms now definite and certain; arguable
requirements K. leads to concealed offer argument.
10. A requirements K. is not invalid for want of
definiteness because it imposes a good faith
obligation to rq. amt. of fuel normally requested,
measured against prior requirements of the going
business concern. UCC 2-306 imposes no requirement
that price not be unreasonably disproportionate in
requirements K. Eastern v. Gulf.
11. Requirements K. invalid where it does not provide a
reasonable foreseeable standard for measuring
 requirements; may not be requirements K. because
“special BB glue” requirements illusory. Schlegel
Mfgring v. Coopers Glue.
12. Promise for sole marketing rights in return for 1/2
resulting profits did not expressly create duty to
seek and market goods, but a good faith obligation
to do so may be implied. Wood v. Lucy, Lady Duff-
Gordon
II. The Bargaining Process.
A. The Nature of Assent
1. Objective theory of intent: parties to a bargain
are bound by the outward manifestation of assent,
measured from the standpoint of a reasonable
person. Lucy v. Zehmer
2. Telegram cases: seller bound by telegraph co.'s
erroneous transmission of offer. Ayer v. Western
Union; contra Western Union v. Cowin
3. Frolic & Banter Rule: Objective theory of intent
N/A where purchase price of sale should indicate to
a reasonable person that proposed K. is a "frolic
and banter." Keller v. Holderman
4. Mistake by one party to convey subjective intent to
change a condition of the agreement during ongoing
negotiations does not relieve it of obligations:
obj theory. Laserage Technology v. Laserage Labs
5. Mutual assent=K. in absence of expressed intent not
to be bound; to avoid being bound, at least one
party must express intent not to be bound absent
writing. Consarc Corp v. Marine Midland Bank
B. The Offer: Classic notion = meeting of the minds
1. An offer is the manifestation of willingness to
enter into a bargain, so made as to justify another
person in understanding that his assent to that
bargain is invited and will conclude it. R2§24.
2. Seller's letter not an offer communicating a
definite intent to be committed to K. because
"would not be possible to sell w/o $16000"
indicates a starting point of negotiations. Owen
v. Tunison
3. Telegram not an offer communicating a definite
intent to be bound by K. because "lowest price for
Bumper Hall Pen $900" does not convey a willingness
to sell at that price to this particular buyer.
Harvey v. Facey
4. Letter a definite communication of intent to be
bound by listed terms because "we quote you x
price" in reply to buyers definite request for
offer, in conj. w/ add'l terms for immediate
acceptance, indicates willingness to be bound: key
is specific potential buyer. Fairmount Glass v.
Grunden-Martin Woodenware.
5. Doctrine of Mistake: offer rescindable when:
a. material issue;
b. clerical (as opposed to judgmental) error;
 c. prompt notification of mistake;
d. unconscionable to enforce; and
e. status quo ante can be restored w/o prejudice.
R2§153; Elsinore Elementary v. Kastorff.
6. Mistake burden on offering party when
a. allocated to party by agreement;
b. party aware of limited knowledge but acts
anyway; or
c. reasonable to allocate risk to party. R2§154
7. Doctrine of mistake does not extend to extreme
disparity in bids, to imply knowledge on part of
offeree that bid was a mistake, where offeree
neither knows nor has reason to know of mistake.
Heifetz v. Kiewit
8. Advertisements:
a. In general, newspaper ads do not constitute an
offer. Craft v. Elder & Johnston Co.
C. The Acceptance
1. Acceptance is a manifestation of assent by the
offeree in a manner invited or required by the
offer; Acceptance by performance requires at least
part of request be performed or tendered;
acceptance by promise requires offeree complete
every act essential to making promise. R2§50.
2. Requirement of notice in unilateral K.: acceptance
by promise must be preceded by reasonably diligent
attempt by offeree to notify offeror. R2§56.
a. Notice of acceptance generally required in
unilateral K., but may be dispensed w/ where
offeror, by terms of offer, manifests an
intention to dispense w/ requirement of
notice. Carlill v. Carbolic Smoke Ball Co.
3. Offer accepted, and indemnity clause enforceable,
where terms of offer ("should") refer to a
suggested, not required, method of acceptance.
Allied Steel v. Ford Motor Co.
4. Shipment of requested goods=acceptance of order for
prompt or current shipment. UCC 2-206; R.2d § 32;
R.2d § 62.
5. Silence and inaction
a. Generally, silence and inaction alone not
acceptance unless:
(1) offeree takes benefit offered;
(2) offer contemplates and offeree intends to
accept; or
(3) prior dealings. R2§69.
b. silence + retention of seller's goods + prior
business relationship indicating this was
regular practice of parties=acceptance. Hobbs
v. Massasoit Whip co. (sealskins); American
Bronze Corp. v. Streamway (retention of
buyer's order).
c. silence + retention of seller's goods not
acceptance where retention of goods was for
 storage only and imposed no further duty on
holder. Heiting & Sons v. Jack's Bean Co.
D. Termination of the Power of Acceptance
1. Lapse of an offer
a. Offer may lapse, if not stated, after a
reasonable time, depending on circumstances.
b. Offer made in face to face communication
ordinarily lapses at close of conversation.
Akers v. Sedberry; contra Caldwell v. Spears &
Sons
c. Reward for capture of arsonist advertised in
paper for a week not recoverable four years
later because it was intended to excite
vigilance of community to stop immediate harm.
Loring v. City of Boston
d. Offer on TV show lapsed at end of show.
Newman v. Schiff
2. Revocation and Rejection
a. Definitions:
(1) Revocation: a withdrawal of the power of
acceptance by offeror.
(2) Rejection: a termination of the power of
acceptance by offeree.
(3) Option K.: agreement to hold open a
specific offer to a specific party for a
fixed period of time. Toys v. FM
Burlington Co.
b. Jury question whether option K. accepted
according to terms of its offer when actions
of offeree indicate subsequent bargaining to
renegotiate better position. Toys
c. Jury question whether party may have waived,
or rejected, its potential rights under option
K, where subsequent actions may be so
inconsistent w/ intent to renew as to
constitute waiver. Toys
d. Option K. not supported by separate cn. for
period of option is only an unenforceable
offer. Dickinson v. Dodds; R.2d § 89
e. An offer is revocable by a 3rd party
communication in conjunction w/ action
inconsistent w/ offer. Dickinson
f. Offeree's power of acceptance is terminated
when the offeror takes definite action
inconsistent with an intention to enter into
the proposed K. and the offeree acquires
reliable information (but not necessarily true
information) to that effect. R2§43
g. Pre-offer financing may not be cn. for option
K. because not bargained for. Ragosta v.
Wilder
h. Equitable estoppel N/A to withdrawal of
unenforceable option because E.E. applies to
facts, and no facts stated were incorrect or
 not known to buyer. Ragosta
i. The Mailbox Rule
(1) Offeror may not revoke offer after
offeree mails acceptance. Adams v.
Lindsell
(2) Acceptance made in manner and medium
invited by offer operative as soon as put
out of offeree's possession, regardless
of actual receipt by offeror. R2§63(a).
(3) Acceptance under option K. not operative
until actually received by offeror.
R2§63(b).
(4) Revocation of offer not operative until
actually received by offeree. R2§42.
(5) Rejection not operative until received.
R.2d § 40
3. Death/incapacity of offeror
a. Not covered in class
E. Acceptance varying offer
1. not covered in class
F. Precontractual Liability
1. Contractor's proposal & extensive work an
appropriate basis for implied K. where work
resulted in benefit to person seeking K., but who
never gave contractor the K. Hill v. Waxberg
2. Restitution for implied K. is limited to the value
of the benefit which is received, from the
perspective of the recipient. Hill v. Waxberg
3. Option K. created by part performance: Where
offer invites an offeree to accept by rendering a
performance and not promise, an option K. is
created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
R2§45 (unilateral).
4. An offer which offeror should reasonably expect to
induce action or forbearance of a substantial
character on the part of offeree before acceptance
and which does induce such action or forbearance is
binding as an option K. to the extent necessary to
avoid injustice. R2§87(2)
5. Subcontractor's submission of an erroneous bid
includes an implied subsidiary promise to keep bid
open for a reasonable time, for which the general
contractor's reliance on it in submitting the
winning bid constitutes Cn. Drennan v. Star Paving
6. Promissory estoppel: A promise which promisor
should reasonably expect to induce action on part
of promisee or a third person and which does induce
such action is binding if injustice can be avoided
only by enforcement; w/ remedy limited as justice
requires. R2§90.
7. Distributors liable for promises they reasonably
should have expected to induce action on part of
hopeful franchisee, and for which injustice can be
 prevented only by enforcement of promise. Goodman
v. Dicker
8. Reliance/Promissory Estoppel principles n/a where
there is already a valid K., supported by Cn.,
which is terminable at will. Prince v. Miller
Brewing
9. Promissory estoppel a basis for recovery of lost
wages where employee quits old job, turns down
other job offers, to take job terminable at will
offered by new employer who terminates him before
he begins. Grouse v. Group Health
10. Promissory estoppel may be appropriate grounds for
recovery where owners promise may have induced
buyer to take action of a definite and substantial
character, and injustice may be avoided only be
enforcement. Ragosta v. Wilder
11. Promissory estoppel basis for enforcement of
promises made during course of failed franchise
negotiations which induced action and created
injustice. Hoffman v. Red Owl
12. Lost profits not recoverable under promissory
estoppel "reliance" theory of recovery because
profits are expectation. Hoffman (Bad law -
profits recoverable under reliance - profits not
expectation unless they are profits from K.)
13. Letter of intent to lease not unenforceable
"agreement to agree" because promises in letter
benefit both parties, and create binding agreement
to negotiate for lease in good faith. Channel Home
Centers v. Grossman
G. The requirement of Definiteness: two elements; 1)
intent to K.; 2) alleged K. sufficiently definite to
ascertain breach and fashion a remedy.
1. Promise to pay "a fair share of my profits" an
unenforceable moral obligation because a fair share
can mean virtually anything. Varney v. Vitmars
2. Offer cannot be accepted so as to form a K. unless
the terms are reasonably certain; terms reasonably
certain if they provide a basis for determining the
existence of breach and for giving of appropriate
remedy; one or more terms left open or uncertain
may be indication manifestation of intent is not
offer or acceptance. R2§33.
3. Language that rent "shall be renegotiated to the
then existing rate w/in the mall" is definite &
certain enough to be enforceable because it refers
to the then existing rate. Toys
III. The Requirement of Writing for Enforceability: Statute
of Frauds.
A. Statute of Frauds Requires writing for
enforcement of promises for:
1. agreement upon cn. of marriage;
2. transfer of real estate;
3. K. not to be performed w/in one year;
 4. surety sub-K. for debt of another;
5. K. for sale of goods > $500. UCC 2-201, NJ Stat.
Ann. 25:1-5.
B. Problems of Statutory Scope
1. The Suretyship clause
a. Classic surety K.: In order to induce bank C
to loan to A, B promises to pay if A defaults.
b. Look alikes not w/in S/F:
(1) A is not bound to pay, but B offers to
pay;
(2) A&B both to receive benefit from C; B is
co-principal
(3) MAIN PURPOSE DOCTRINE: B is acting
primarily to further his own economic
interests
(4) Novation or "New" K.: B substitutes in
for A w/ C's consent.
(5) B promises to A rather than C
2. Contracts not to be performed within one year
a. Must be no possibility that K. can be
performed w/i one year. If K. can be
terminated w/i one year by external operation,
then w/i S/F.
b. Examples: Y promises to care for X:
(1) for X's life - S/F N/A
(2) for 5 years - w/in S/F
(3) for X's life but not exceeding 5 years -
S/F N/A
(4) For 5 years but if x dies, K. Term - w/in
S/F.
C. Requisites of Writing and Signing
1. May be in several sets of papers. Marks v. Cowdin
D. Dispensing with the requirement of a writing
1. A party may be estopped from asserting S/F where
strict enforcement of S/F would result in either:
a. unconscionable injury to promisee; or
b. unjust enrichment to promisor. Monarco v. Lo
Greco.
c. Reliance on verbal promise sufficient to
defeat requirement of a writing. Monarco
IV. Policing the Bargain.
A. Capacity
1. Drunkenness: To be voidable on account of
drunkenness, party must be so drunk as to be unable
to comprehend the nature or consequences of the K.
Martin v. Harsh; Lucy v. Zehmer
2. Minors:
a. General rule: child's K. voidable if
disaffirmed w/i a reasonable time of reaching
age of majority
b. Necessaries exception: food, clothes, shelter:
intent of rule to prevent minor from making
improvident purchases.
c. Ratification exception: If after reaching age
 of 18 minor affirms his obligation, thus
removing power of disaffirmation. (what if
child continues payments/driving car after 18?
- what is reasonable period?)
d. Restoration: if disaffirmed, minor must pay
something back, sometimes under K. theory of
restitution, sometimes under tort theory of
deceit. GEN RULE: minor must give back
everything they still have. (but what about
reasonable rental value?)
B. Unfairness
1. Inequality of exchange not basis for voiding K.;
"parties of sufficient mental capacity for the
management of their own business have the right to
make their own bargains." Hardesty v. Smith
2. Inequality of exchange + oppressive restrictions on
owner's use of land make K. unenforceable in equity
action for specific performance. McKinnon v.
Benedict
3. Analysis of sufficiency of Cn. must be viewed
prospectively (at time made). Tuckwiller v.
Tuckwiller
4. Mere massive profit on sale of goods does not
create inequality of exchange. Black Industries v.
Bush
5. K. voidable as against public policy only 4
situations:
a. K. for penalty in guise of liquidated damages.
R.2d § 356
b. K. to induce public official to act;
c. K. to do illegal act;
d. K. for collusive bidding on public contract.
Black Industries
C. Overreaching: Traditionally: fraud, mistake, duress,
even innocent misrepresentation: remedy; recision or
avoidance at instance of victim
1. Pressure in Bargaining: Pre-Existing Duty
rule: must be reasonable temerity in face of
threat; pressure in bargaining is OK, but question
is to what degree; duress not threat of legal
right; but may not threaten at will.
a. Party not entitled to relief from K. for
coercion where that party's hands not clean
from coercive behavior, either. Undersea Eng.
& Const. V. Int'l Tel. & Tel.
b. Theory of restitution appropriate basis for
recovery of money gotten through extortion,
oppression, or undue advantage of victim's
situation. Moses v. Macferlan
c. The Pre-Existing Duty Rule: tension
between R2§73 and 89.
(1) Performance of a legal duty owed to a
promisor which is neither doubtful nor
the subject of honest dispute is not cn.,
 but a similar performance is cn. if it
differs from what was required by the
duty in a way which reflects more than a
pretense of bargain. R2§73
(2) Promise modifying a duty under a K. not
fully performed (executory K.) on either
side is binding
(a) if modification is fair and
equitable in light of circumstances
not anticipated by parties when K.
made; or
(b) if provided by statute; or
(c) to the extent that justice requires
enforcement in view of material
change of position in reliance on
promise. R.2d § 89
d. Coerced new K. unenforceable where employer
given no cn. for increasing wages and wage
hike induced by unjustified refusal to perform
prior K. Alaska Packers Ass'n. v. Domenico
e. Old K. may be rescinded by agreement of
parties, and a new one substituted in its
place on more favorable terms, where parties
tear off signatures of old K. Schwartzreich
v. Bauman-Basch
f. New K. unenforceable because claimant failed
to prove old K. was first rescinded/revoked.
Arzani v. People
g. Reliance not appropriate basis for recovery in
situation governed by classic K. supported by
cn. Arzani
h. Parties may modify (change a portion not
rescind K.) a material element of K. by mutual
oral assent w/o new cn. where mutual mistake
exists as to subject matter of material
element; pre-existing duty rule N/A. Watkins &
Son v. Carrig
i. Parties may not K. to reduce sum owed under
former K. because payment of sum already owed
cannot be cn. Foakes v. Beer
j. Pre-existing duty rule N/A for promise to pay
money to go forward w/ marriage because it is
really a promise not to conspire to
voluntarily to rescind K. DeCicco v. Schweizer
k. K. may be voidable on grounds of duress when
it is established that the promisor was forced
to agree by means of promisee's wrongful
threat precluding the exercise of free will;
party claiming duress must show no realistic
alternative, acted reasonably, & fought w/
some temerity. Austin v. Loral
l. Accord (agreement to pay less) and
Satisfaction (actual payment of lesser amount)
a subset of Pre-existing duty rule; defenses
 cn. and duress.
m. Accord & Satisfaction a q. 1) was there an
agreement between parties to accept payment as
in full; 2) was there cn., essentially a
second K. to settle claims under prior K.?
n. Accord & satisfaction requires a manifestation
of assent to debtors offer, not shown where
offer was in fine print & creditor did not
notice it. Kibler v. Garret & Sons
o. Payment of sum by debtor + explicit
declaration of conditions of its acceptance
binds creditor when accepted. Hudson v.
Yonkers fruit
p. UCC 1-207: used to be able to reserve rights
under attempted accord; intended to keep whole
transaction going; some cts seized on it to
undermine common law accord and satisfaction;
UCC 1-207 now amended.
2. Concealment and misrepresentation
a. So long as there is no false statement, mere
silence or "bare nondisclosure" of defective
merchandise is not actionable. Swinton v.
Whitinsville Sav. Bank
b. Recision of K. appropriate remedy where there
is nondisclosure of information coupled w/
misrepresentations bearing on info not
disclosed (half truths). Kannavos v. Annino
c. Misrepresentation of material fact ground for
recision even if innocent; misrepresentation
of law not ground for relief, but is grounds
where gross disparity in bargaining position;
party must exercise certain minimal diligence
in justifiable reliance on it; material
misrepresentations of law or opinion not
actionable unless created by fiduciary duty
(confidential relations)
d. Confidential relations grounds for avoidance
where there was a prior history of trust and
confidence between parties; factors are
disparity in age, education, business
experience; where confidential relation
existed and party asserting K. rights is one
in whom confidence was placed, claimant must
show bargain was "fair, conscientious, and
beyond the reach of suspicion." Young v. Kaye
D. Unconscionability and Problems of Adhesion
Contracts
1. Doctrine of strict construction prohibits
enforcement of exculpatory clause in lease for
injuries on sidewalk where injury actually occurred
on lawn. Galligan v. Arovitch
2. If a K. or term thereof is unconscionable at the
time it was made the court may refuse to enforce
the K, or it may enforce the remainder of the K w/o
 the unconscionable term, or it may so limit the
application of the unconscionable clause to avoid
an unconscionable result. R2§206; UCC 2-302.
3. UNCONSCIONABILITY is the absence of meaningful
choice on the part of one party w/ terms that are
unreasonably favorable to the other party; cross-
collateralization clause unconscionable where buyer
owed virtually nothing on some of items originally
purchased. Williams v. Walker-Thomas
4. Exculpatory clause not unconscionable b/c not 1)
against public policy or 2) relationship of parties
militates against it during acute housing shortage;
freedom to K., legislative problem. O'Callaghan v.
Waller & Beckwith.
5. Damages limitation on parcel stub not enforceable
because it does not give notice of its contents to
holder; issuer had reason to know party would not
manifest assent if knew of provision. Klar v. H&M
Parcel Room
6. Exculpatory clause in adhesion K. for vehicle
purchase is void as against public policy even
though a semi-public corporation; exculpatory
clause concealed; seller not insulated by buyer's
failure to read K. Henningsen v. Bloomfield Motors
7. Extreme disparity in purchase price vs. maximum
retail value may constitute unconscionability as a
matter of law. Jones v. Star Credit Corp
8. Forum selection clause enforceable because it is
not result of unfair bargaining position or
unreasonable decision to locate litigation in Fla.
Carnival Cruise Lines v. Shute
9. Franchise relations may be unconscionable
E. Illegality
1. Meretricious relationship between parties a ground
for refusal to enforce, except where business
portion of relationship can be separated from
parties' personal relationship. Thomas v. LaRosa
2. To be enforceable, non-competition K. must be 1)
written; 2) part of employment K.; 3) based on
reasonable Cn.; 4) reasonable in duration &
geographic limitation; and 5) not against public
policy. Non-competition K. not against public
policy because legislature has not placed limits on
such K. Hopper v. All-Pet Animal Clinic
3. K. to pay for services to obtain or defeat
legislation by means other than arguments addressed
to reason is an illegal K. Campbell Cty. v. Howard
& Lee
4. Money paid to bribe judge not recoverable under K.
theory. State v. Strickland
5. Illegality may be set up as a defense to K.
enforcement even though party may be alleging his
or her own culpability. Early Detection Ctr. v.
Wilson.
 6. Unilateral illegal conduct is enough to void K. if
there is a direct connection between the illegal
conduct and the obligation sued upon, regardless of
the culpability of the other party. McConnell v.
Commonwealth Pictures
7. Lack of licensing not a bar to recovery if purpose
of licensing is revenue raising; if purpose is
protection of public welfare, lack of licensing is
a bar to recovery; uncertified engineer may recover
expectation for work done. Town Planning & Eng.
Ass. v. Amesbury
V. Third Party Beneficiaries
A. Action may be maintained upon a contract, in an
appropriate case, by a person who had no part in
creating it: a "third party beneficiary K," i.e.; life
insurance creates donee beneficiary (AKA creditor or
intended beneficiary) who has right of enforcement.
Incidental beneficiary is a 3rd party who may enjoy
advantage through enforcement but has no enforceable
interest in enforcement.
B. 3rd party entitled to bring suit for K. to which he is
not a party if he is the beneficiary of the subject of
the K; promise to pay money to 3rd party is implied by
taking of money from debtor. Lawrence v. Fox
C. Unless otherwise agreed between promisor and promisee, a
beneficiary of a promise is an intended beneficiary
if recognition of a right to performance in the
beneficiary is appropriate to effectuate the intention
of the parties and either
1. the performance of the promise will satisfy an
obligation of the promisee to pay money to the
beneficiary (creditor beneficiary); or
2. the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the
promised performance (donee beneficiary)
3. An incidental beneficiary is a beneficiary who
is not an intended beneficiary.
D. "No legal duty rests upon a city to supply its
inhabitants with protection against fire," thus, no
add'l duty arose as a result of city's K. w/ company to
provide water for fire hydrants. H.R. Moch Co. v.
Rensselaer Water Co.
E. Users of toll road intended beneficiaries as to service
requirements of toll road, but death of motorist not
foreseeable as a result of breach. Kornblut v. Chevron
Oil Co
F. 3rd party claim recoverable where 3rd party is precisely
the claimant for whose benefit legislation was enacted
and for whom the service was to be rendered. Koch v.
Consolidated Edison Co
G. Two part test for 3rd party claims: 1) recognition of a
right to performance in the beneficiary will effectuate
intentions of parties; 2) circumstances indicate the
promisee intends to give the beneficiary the benefit of
 the promised performance. Legislation the action is
based on do not recognize a private right of action, and
provide a separate scheme for such claims. Davis v.
United Airlines
VI. Assignment and Delegation
A. Most contract rights having commercial value are
transferable. Assignment: creditor may institute a duty
running directly from its debtor to a 3rd party, the
assignee. Delegation: seller's delegation of its duties
(and accounts receivable) upon sale of a business.
B. Delegation deals with duty: may delegate unless
performer has interest in performance by specific
person; delegation does not extinguish duty on part of
person delegating duty unless extinguished by novation
C. K. rights may be assigned unless
1. The assignation would material change the duty of
the obligor, burden or risk imposed by the K., or
materially impair his chance of return performance,
or materially reduce its value to him; or
2. The assignment is forbidden by statute or is
otherwise inoperative on public policy grounds; or
3. assignment validly precluded by K. R2§317
D. It is essential to an assignment that the obligee
manifest an intention to transfer the right to another
person without further action or manifestation of
intention. R2§324.
E. Gratuitous assignment is revocable unless a signed
writing is delivered by assignor, or delivery of a
writing of a type customarily accepted as a symbol or as
evidence of a right assigned, and terminates if assignor
makes another, inconsistent assignment, dies or gives
notice of revocation. R2§332
F. Insuree's comment to wife that he didn't want former
wife (named beneficiary) to have benefits of life
insurance policies not a manifestation of intent to
irrevocably assign benefits. Cassiday v. Cassiday
VII. Remedies for Breach.
A. Measuring Expectation: goal is to put the injured
party in the position it would have been in had the K.
been performed.
1. Formula A: Loss in value - cost avoided
2. Formula B: Cost of reliance + anticipated
profit
3. Patient entitled to reliance damages only in breach
of physician-patient K.; reliance damages may
include pain & suffering from unforeseeable,
uncontracted for third operation to put patient in
status quo ante. Sullivan v. O'Connor
4. Overhead should be treated as part of gross
profits, recoverable as damages, and are not to be
considered as part of seller's costs; overhead not
a cost avoided because it was not avoided by breach
of K. Vitex Mfgring v. Caribtex
5. Lost volume seller entitled to loss in value (K.
 price) minus cost avoided (cost of making 2d
machine) for lost volume seller under UCC 2-708(2)
(resale formula: diff between resale price and
market price); resale of machine under resale
formula (UCC 2-706) applicable only if no remedy as
lost volume seller and machine sold as scrap; lost
volume seller must establish 1) would have made 2nd
sale absent breach, 2)could have produced 2nd unit,
3) it would have been profitable to do so. Davis
Chemical v. Diasonics
B. Problems of Losing Contracts
1. Possible types of recovery for breach in losing K:
a. Expectation under formula A or B (B easier)
b. Restitution: amount of market value of
services provided. US v. Algernon Blair;
R2§371
c. reliance: amount of expenses minus losses had
K. been performed. R2§349. (jurisdictions
split on whether K. price the ceiling).
d. Pro Rata: absorb portion of loss corresponding
to portion of work done (cost of
reliance/total anticipated cost times K price)
Kehoe v. Rutherford
e. Burden shifting: party in breach has burden to
show costs avoided by injured party as a
result of breach. Albert & Son v. Armstrong
Rubber
2. Subcontractor entitled to restitution damages under
R2§371 where his K., had it been completed, would
have been a losing K. under expectation damages.
United States v. Algernon Blair
3. Restitution interest may, as justice requires, be
either:
a. the reasonable value to other party to obtain
services from another; or
b. the extent to which the other party's property
has been increased in value. R2§371.
C. Limitations on Damages
1. Avoidability
a. damages are not recoverable for loss the
injured party could have avoided w/o undue
risk, burden, or humiliation. R2§350
b. Injured party has a duty to do nothing to
increase the damages flowing from breach.
Rockingham Cty. v. Luten Bridge
c. Wrongfully discharged employee has duty to 1)
make reasonable efforts to obtain other
employment and 2) accept reasonably similar
employment; employment not reasonably similar
where movie role is both different and rights
under employment K. inferior. Parker v.
Twentieth Century Fox
2. Avoidability and Problems of Defective Performance
a. Problem is to determine which appropriate
 measure of recovery: cost to complete
correctly by redoing work (ceiling) or
diminishment in value of the work done by the
defect (floor).
b. Diminution in value appropriate remedy for
breach of K. to publish books. Freund v.
Washington Square Press
c. A trivial and innocent breach does not
preclude action by breaching party; diminution
in value appropriate remedy for trivial breach
of home construction (in this case, zero).
Jacob & Youngs v. Kent
d. Cost to complete appropriate remedy for
willful breach of K. to level gravel pit (in
this case, $45,000 more than dim. in value);
breach efficient but ct. came to wrong
conclusion. Groves v. John Wunder Co.
e. Diminution in value appropriate remedy for
breach of strip mining restorative work
provision where the K. provision was merely
incidental to the main purpose of the K. and
the cost to complete grossly disproportionate
to the diminution in value; jury may have
measured subjective, not objective, diminution
in value. Peevyhouse v. Garland Coal & Mining
3. Foreseeability
a. Damages for breach should be those as 1) may
fairly and reasonably be considered as arising
naturally from breach; or 2) may reasonably be
supposed to have been in contemplation of
parties. Hadley v. Baxendale
b. Damages are foreseeable if they usually occur
(1) in the ordinary course of events; or
(2) the breaching party had reason to know of
special events that would cause damages;
lost profits not foreseeable if court so
determines. R2§351
c. Steel supplier's experience with bridge
construction creates reasonable assumption
that it knew its delay would necessitate
urgent construction, and make overtime costs
to do a "crash pour" a foreseeable damage.
Spang Industries v. Aetna Ins.
d. Designer could not foresee buyer would enter
into other K.'s to market designer's product
because double chopper-folder a new, unproven
design. Bockman Printing v. Baldwin-Gregg
4. Certainty
a. Royalties from sale of books not proven w/
sufficient certainty, because there is no
guarantee they would have sold; artistic
royalties speculative and generally hard to
prove w/ sufficient certainty. Freund
b. Damages not recoverable for loss beyond an
 amount that the evidence permits to be
established with reasonable certainty. R2§352.
c. The general rule is that an old business has
prior records to show lost profits but a new
business generally cannot prove lost profits
with any certainty; new business here can show
lost profits with sufficient certainty because
they have experience in the field, evidence of
other similar store, and liquor control
commission expert. Fera v. Village Plaza
D. Liquidated damages and penalties
1. Liquidated damages may be only at an amount that is
reasonable in light of the anticipated or actual
loss caused by the breach and the difficulties of
proof of loss. An unreasonably large liquidated
damage is an unenforceable penalty. R2§356(1).
2. To be enforceable, liquidated damages must be for
K. of a kind in which it is hard to ascertain
damages; must be a reasonable estimate of loss by
parties; liquidated damages are presumptively
reasonable; some courts require that the liquidated
damages must, in hindsight, be unreasonable.
Wasserman's v. Township of Middleton
3. Liquidated damages reasonable because damages for
delay in hwy. construction impossible to measure;
parties made a fair endeavor to fix sum for damages
in case of delay. Gustafson v. State
 Rees Page 1 of 46
CONTRACTS COURSE OUTLINE – know case names for Prof. Mooney’s classes.
USE LAW OFFICE MEMO design for answering essays
Per Prof – need to separate into packages by content: consideration, restitution and be able to draw up details of cases, Rest to
show all knowledge covered in class about that package. Need to be able to write everything you know about the subject.
State claims, support and defenses, support or negate. State remedies and how the court will determine which remedy is
applicable.
Always start with “The first issue likely will be”
Usually if he wants damages info, he will had numbers to the questions.
Make sure to keep performance and promise separate – prof want to make sure that clear that difference b/t the two.
Don’t have to quote restatements, just paraphrase and list R2§#.

1. Objective test of an offer?

2. Is offer definite enough?
3. What would find persuasive? Cases, common sense, possible testimony
4. Option K / Consideration

INDEX & Long exam outline

Essential Elements... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. . ... ... ... ... ... ... ... ... .. . ......5
Does a K exist? LACC (legality, agreement(offer & accept), consideration, capable parties)
Voidable K’s...Rest §7. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... . .. ... ... ... ... ... ... .. . ... ...5
Merchant of Venice 5
Chapter one: Bases for Enforcing Promises... ... ... ... ... ... ... ... ... ... ... ... ... ... . .. ... ...5
Assent :
Rest §17 Mutual understanding of an agreement + consideration
Rest §20: misunderstanding = no mutual assent
Objective test for assent 6
Lucy v. Zehmer: drunken sale of farm: use objective test of reasonable offeree 6
Consideration.. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...7
Historical Developments ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...7
Hamer v. Sidway: uncle/nephew’s vices/forbearance... ... ... ... ... ....... ... ...8
Rest§71:bargained-for; no peppercorns... ... ... ... ... ... ...... ... ... ... ...8
Fiege v. Boehm: paternity/good faith belief... ... ... ... ... ... ... ... ... ... ….. ...8
Rest§74: good faith belief .... ... ... ... ... ... ... . ... ... ... ..... ... ... ..... ..8
Feinberg v. Pfeiffer, part I: cont’d work not in reliance... ... ... ... ... ... ... ...8
Mills v. Wyman: father promise to pay Mills for caring for son ... ... .. ... ... ... ...8
Dementas v. Estate of Tallas (old truck for errands/past action not cn) .. ..... ...11
Webb v. McGowin: past act substantial material benefit & subsequent promise....8
Kirksey v. Kirksey: “move to the farm & raise kids” –gratuitous promise. .. ...8
CAB v. Ingram.(non-compete covenant).. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..8.
Strong v. Sheffield: wife promises for husband; illusory promise .... ... ... ... ...9
Mattei v. Hopper: satisfaction clause/leases ... ... ... ... ... ... ... .... ... .. ... ... 8.
Eastern Air v. Gulf Oil... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...9
Wood v. Lucy: exclusive sales Lady’s designs. ... ... ... ... .. ... .... ... ...... ... ...10
UCC 2-306: good faith... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...10

Promissory Estoppel/ Reliance as Consideration

Rickets v. Scothorn: (gdghter quits work on reliance) ... ... .. ... ... ... ... ... ... ...10
Rest §90: Promissory Estoppel (PRIAFER) ... ... ... ... ... ... . ... ... ... ... ... ... ...10
Feinberg v. Pfeiffer, part II (quits job in reliance) ... ... ... ...... ... ... ... ... ... ... .10
Cohen v. Cowles Media (test if injustice to be prevented) ... ... ... ... ... ... ... ...10
D&G Stout v. Bacardi (gives up better offer in reliance) ... . ... ... ... ... ... ... ...10

Restitution: an alternative for consideration... ... ... ... ... ... ... ... ... ... ... ... .. ... ... ... ... ... ... ...10
Rest §271: how to measure remedy... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...10
Cotnam v. Wisdom (MD’s & roadside emergency) ... ... ... ... ... ... .. ... ... ... ... ... ... ...11
Pyeatte v. Pyeatte (wife pays for husband to go to law school) ... ... ... ... ... ... ... ... ...11
Dementas v. Estate of Tallas (old truck for errands/no expect of pay) ... ... ... ..... ...11

Chapter Two: Bargaining Process... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .11
Offer... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...12
Rest §24: definition of offer... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. ... ... ...12
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5 elements of an offer 12
How to distinguish offer from preliminary proposal (5 elements) 12
Rest §26: preliminary negotiations 12
Mistake... ...... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .12
Elsinore School v. Kastorff (contractor clerical error in bid) ... ... ... ... ...... ... ...12
Rest §154: Who has liability for mistake? ... ... ... ... ... ... ... ... ... ... ... ... ... ...12
Rest §153: When does mistake allow to avoid? ... ... .. ... ... ... ... ... ... ... ... ...13
Donovan v. RRL (jaguar: specific ads) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13
Unilateral K’s and Notice... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...... ...13
Carlill v. Smoke Ball Co ... ... ... ... ... ... .. ... ... ... ... ... ... ... ... ... ... ... ... ... ...13
Bishop v. Eaton (notice to Greenland) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13
Rest §54 (timely notice) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...13
UCC 2-206(2): lapse if no reasonable notice
Lefkowitz v. Great Minn Store (man buys ladies things) ... ... ... ... ... ... ... ...13
Rest §46 (revoke ad by same medium) ... ... ... ... ... ... ... ... ...14
Definiteness
Owen v. Tunison (note to sell for $16k, no specific offer) ... ... ... ... ...14
Harvey v. Facey (notes to buy Bumper Hall Pen – no offer) ... ... ... ...14
Fairmont Glass v. Crunden (ten car loads – specific) ... ... ... ... ... ... ...14

Acceptance
Allied Steel v. Ford (indemnity holds Allied liable) ... ... ... ... ... ... ... ... ... ... ... ... ...15
Silence... ... ... ... ... ... ... ... . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...15
Rest §69: when silence/inaction can be acceptance... . ... ... ... ... ... ... ... ..15
Hobbs v. Massasoit Whip Co (eelskins for whips)

Termination of Power of Acceptance... ... ... ... ...... ... ... ... ... ... ... ... ... ... ... ... ...15
Lapse... ... ... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...16
Akers v. JB Sedberry: face to face offer lapses at end conversation
Loring v. City of Boston: offer lapses after reasonable time
Rest §41: time by objective std of reasonable man in offeree’s position
Revocation... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...16
Exceptions
OPTION K’s – Irrevocable offers 16
Dickinson v. Dodds (reliable 3rd party) ... ..... ... ... ... ... ... ... ... . ... ... ... ...16
Rest §43:revoked when find out no longer offering, even if by 3rd party 16
Rest §90: PRIAFER 10
Ragosta v. Wilder.(specific performance req’d).. ... ... ... ... ... ... ... ... ... ... ...17
Rejection./counter-offer. ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...17
Mirror Image Rule
Ardente v. Horan: offer rejected b/c conditions added
Death/Incapacity: Rest §48... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...17

Precontractual Liability 18
Quantum Meruit (recovery = as much as deserved)
Unjust enrichment (restitution)
Rest §45: option K created when performance begins in unilateral 16
Revocability of subcontractor’s bids
Drennan v. Star Paving Co: sub bound via implied subsidiary promise to general 19
Rest §87: when option K created by preparations in bilateral 19
Hoffman v. Red Owl (relies on promise to detriment) 19
Cyberchron v. Calldata (heavy equip K, no K b/c no deliver, but reliance) 19
Tribune Type I and Type II
Definiteness
Varney v. Ditmars: fair share of profits too indefinite
Westinghouse: not too indefinate
Baker v. Citizens: 7 days not enough time to forbear calling in loan
Farmers v. Maixner: 2 mos may be reasonable forbear of suit
Toys v. Burlington (mall option lease)

Chapter Three: Statute of Frauds...Use Monarco ANYTIME a SofF problem. ... ... ... ... ... ... ... ...20
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MY LEGS (writing required) 21
Rest §131: essential terms, subject matter & enough to show a K made
UCC 2-201: only qty of goods & info to show a K made
SWAP (exceptions) 21
Suretyship Exceptions (5) 21
Amelioration of the Statute
Estoppel
Rest §139: PRIAFER for statute of frauds cases
Monarco v. Lo Greco: farm for 20 yrs work 23
Part Performance
Johnson Farms v. McEnroe: like kind exchange property; bad faith 22
Restitution

Chapter Four: Policing the Bargain... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...23
Capacity 24
Keifer v. Fred Motors : minor could return b/c vehicle a necessity 24

Unfairness 24
Rest §79 (no requment of equivalency in values exchanged) 24
McKinnon v. Benedict (RV park v. view) 25
Rest §367: when specific performance may be refused 25

Overreaching
Duress: 26
Alaska Packers v. Domenico 26
Rest §73 - Pre-Existing Duty Rule 26
Rest §89 – how to make modification binding 26
Rescission and Modification... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .26
Schwartzreich v. Bauman.(clothing designer – modification not ok)..27
Watkins & Son v. Carrig (bedrock – ok to modify) 27
Scope of Pre-Existing Duty
Accord & satisfaction claim: part of debt paid for forgiveness of rest 27
Foakes v. Beer...(landlady v. doctor for loan interest)
De Cicco v. Schweizer..($ for Count to marry dghter)
Duress in Business 28
Austin v. Loral (subk refuses to ship w/o higher price) 28
Test for economic duress 28
Victim’s Options 28
Undue Influence: Relative status of the parties 28
Odorizzi v. Bloomfield School (wrongful homosex chgs)
Test 28
Fraud 28
Swinton v. Bank (termite house – no duty) 28
Kannavos v. Annino (apt not zoned properly - duty) 29
Rest §161 29

Misrepresentation

Unconscionability 29
UCC 2-302: unconscionable K’s will not be upheld 33
Std form (adhesion) contracts
O’Callaghan v. Waller: exculpatory clause bars tenants recovery for injury
Gallagin v. : exculpatory as matter of law v. public policy
Factors to consider when determining if clause void 30
Klar v. H&M Parcel room: clause on bag check does not bar recovery
Rest §211 30
Graham v. Scissor-Tail: arbitration clause w/i reasonable expectations of producer
Henningsen v. Bloomfield Motors: disclaimed warranty unconscionable
Duty to read and duty to disclose
Rest §80 31
Carnival Cruise v. Shute: should enforce forum selection clause
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The Bremen: clause ok 31
Unconscionability
Rest §208 (Unconscionability) 32
Defense of doctrine 32
Objection 32
Williams v. Walker-Thomas Furniture (uncon K not upheld) 33
Scott v. US (unconscionable bargain given only equitable damages) 33
Jones v. Star Credit (uses 2-302 to show uncon) 33
UCC 2-302: Unconscionability 33
Armendariz v. Foundation Health-arbitration clause 34

Public Policy 34
R2d §178: when term unenforceable due to public policy 35
Bovard v. American Horse: ct refuses to enforce illegal K (drug para) 35
In pari delicto: D can use illegality of K as defense 35
P’s response to illegality defense: 35
Moran v. Harrisa: factors used in Bovard
Clean hands doctrine 35
XLO Concrete v. Rivergate: “Club”; D can’t use illegality as defense 35
Factors to review
Rejoinders to defense of violation of public policy 36
Bribing Officials
Commercial Bribery
Licensing
Judicially created public policy
R2d §179 (restraint of trade and impairment of family relations) 36
Hopper v. All Pet : court modifies non-compete 36
CAB v. Ingram, II : ok for judge to modify non-compete 37
R2d §184 (enforce to extent reasonable)
Simeone v. Simeone 37

Chapter Five: Remedies... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...37
Specific Performance 38
Klein v. Pepsico 38
Laclede Gas Co. v. Amoco Oil Co 38
UCC 2-716 39
Northern v. Bliss 39
Expectation
R 2d §347: measuring expectation damages
Formula A (loss in value – cost avoided = damages) 39
Formula B (Cost of reliance + profit = damage)
Vitex: UCC 2-708 39
UCC 2-706
Laredo v. H&H Meat 40
UCC 2-712 “cover” damages 40
Losing contracts 41
US v. Algernon
Acme Process
Limitations on Remedies
Avoidance
R2d §350: Avoidance as limitation on damages 41
Rockingham Cty v. Luten Bridge
Parker v. 20th Century Fox 42
Avoidability and cost to remedy defect 42
Jacob & Youngs v. Kent 42
Groves v. Wunder 42
Peevyhouse v. Garland Coal 42
R2d §348: Alternatives to loss in value of performance 43
Foreseeability
Hadley v. Baxendale 43
R2d §351: court may limit foreseeable loss if disproportionate
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Kenford v. Cty of Erie 43
Redgrave v. Boston Symphony: P has burden of proving foreseeability
Emotional Distress 44
R2d§353: emotional
R2d§354: punitive if recoverable in tort as well
Certainty 44
R2d§352: reasonable certainty the std
Fera v. Village Plaza 44
Liquidated Damages and Penalties
Wasserman’s v. Middletown 44
R2d§356.test b/t liquidated damages or penalty 44
Gustafson v. State

Third Party Beneficiaries 44

Rest 2d §302: Defines intended and incidental beneficiaries
Assignment & Delegation 45

Essential Elements:
1. An oral or written agreement (offered, accepted lawfully)
2. 2 or more legally competent persons
3. an exchange relationship (consideration, terms bargained for)
4. at least one promise
5. enforceability

FIRST THREE QUESTIONS TO ASK:

1. Does a contract exist b/t 2 or more parties?
2. If so, what rights and duties are created by it?
3. What are likely consequences from failure of 1 or both parties to perform?

1. Does a K exist? LACC: Legality of object; Agreement (offer & acceptance); Consideration; Capable parties
Kinds of k’s:
• Unilateral: promisee at no time legally bound to perform. One makes a promise on condition that other performs;
other can accept by promise to perform or by actual performance.
• Bilateral: both have promised something for the other’s promise

Voidable K’s (§7): one or more parties can avoid the legal relations created by the K
• 5 Grounds: minority; K induced by fraud, mistake or duress; breach justifies other party to end K
• Usually only one party has power to avoid
• If both enter into a k by mutual mistake or both are minors, either can void
• Minors have power to void a K, so all their K’s are voidable
• Void K’s: not really a K at all (null) b/c law provides no remedy or duty of performance for the promise or
agreement

Merchant of Venice
Portia: equity; fairness; actually reads more literally than Shylock to come up with can take the flesh but spill no blood or
would be murder; in fact by making an agreement that would lead to death of citizen, Shylock has committed a violation.
Shylock: classical – certainty or injustice? Impersonal, testimony doesn’t matter, only written K – pound of flesh next to
Antonio’s heart. Refuses settlement of $ from B, then asks for that after Portia’s argument, but too late. Gets nothing, plus
has to give wealth to Antonio and the city.
Antonio: signs loan for B. so B has $ to woo his future wife. Antonio unable to pay due to reported mishaps with his ships;
Shylock says doesn’t want the $ anyway, wants the flesh b/c Antonio his enemy & he has plotted this all along.
Happy ending for all.

Chapter one: Bases for enforcing promises:

I. ASSENT
Rest §17: formation of a K requires a bargain in which manifestation of mutual assent to the exchange and a consideration.
Rest §20: can be no mutual assent if misunderstand material elements of the bargain or if know the other misunderstands
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1. Subjective: Assent policy: contractual obligation should not be imposed on a person who did not in fact agree to be
bound.
a. If too heavily stressed, policy of protecting reliance undermined.
b. Must be tempered by goal of protecting expectations of one who reasonably relied on the appearance of
assent.
c. 19th c : looked at each party’s actual understanding as a prerequisite to a K.

2. Objective (Learned Hand): Classical: 19th -20th: refuses to see any relevance in the subjective state of mind of the
parties and employs strict objective or external test for assent. If agreement apparent by reasonably interpreted
manifestations, a contract formed on terms reflected in manifestations.
a. Could lead to injustice where subjective evidence could cast light on meaning of manifestation.

3. Modern law: Assent is legally sufficient if each party, by the deliberate use of words or conduct, manifested
agreement to be contractually bound.
a. Rest §50: acceptance is a manifestation of assent to the terms in a manner invited or required by the offer,
can be performance or promise.

Objective test in modern law:

1. subjective aspect – prescribes legal std for determining assent and
2. evidentiary aspect – regulates what evidence is admissible to prove intent

1. Legal standard
a. Manifestation of assent is interpreted from the stdpt of reasonable person in the position of the party to
whom manifestation made.
b. We ask how the words or actions should have been understood if interpreted reasonably.
i. Balances assent with reasonable reliance.

2. Evidentiary:
a. Objective – signatures, spoken words, behavior
b. Subjective – testimony by a party as to what he thought, intended or believed when acting or speaking.
Questionable value and was completely excluded by classicists. Usually only given weight today if
matches objective info.

Duty to read: accountability principle to read document before signifying agreement with its contents.

Lucy v. Zehmer
Zehmer signed a hand written statement selling a farm to Lucy. Zehmer claimed a joke, Lucy got funding the next day and
hired an atty to see if title good, then told Zehmer ready to close. Zehmer refused, Lucy sued for specific performance.

o Party relying on the K cannot be expected to read the mind of a party whose acts lead to the conclusion that they did
intend to be bound by the K.
1. Offer written and signed by both D’s, after lengthy discussion and several prior discussions.
2. Completeness of K, including the examination of title.
3. Taking possession of offer w/no apparent request by D’s to give it back.
4. Appears a good faith offer and a good faith acceptance, followed by execution and apparent delivery of a K.
5. Mental assent of the parties is not necessary for formation of a K if the words or acts of one party have but
one reasonable meaning.
6. Law imputes to a person an intention corresponding to the reasonable meaning of the words and acts.

Mix of objective (based on the written statement and actions) and subjective (allowed testimony).
Notes:
1. What if price for farm $50 instead of $50k? This would have been evidence of a joke and court may have
refused to acknowledge it as consideration.
2. How is use of bad check different from the use of a peppercorn? Bad check isn’t even nominal
consideration. Looks more like fraud or misrepresentation (or a mistake).
Intent to be bound:
• Promisor may not be bound if the promise by content or circumstances make it clear not serious enough to make
them bound
• Optimistic statements by MD’s aren’t binding
• Statements b/t intimates or for social purposes are probably not binding
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• If goods (UCC) is there an intent to be bound?

II. Consideration: what promises should the law enforce?

CL: writs of covenant, debt, and assumpsit used to enforce promises. 1588 Strangborough v. Warner: a promise for a
promise will support assumpsit.
1. Historical review of Enforceability:
i. Covenant/Seal: used to enforce contracts made under seal
• Once a written promise sealed and delivered, covenant available to enforce it.
• Why is consideration important?
i. Evidentiary: providing trustworthy evidence of the existence and terms
of the contract
ii. Cautionary: making parties aware of significance of their acts. (limits
frivolous suits)
• UCC wipes out every effect of the seal re: contracts for sale.
• Half of states have abolished enforceability for covenant and others are limited.

ii. Debt: (NARROW SCOPE) enforced some types of unsealed promises to pay a fixed sum of money, incl.
promise to repay loans and promise to pay for goods or work that had been done.
• Quid pro quo: something for something; mutual consideration which passes b/t parties to a contract, and
which renders it valid and binding.
• Promisor’s obligation in debt was considered to rest upon receipt of a benefit from the promise.
iii. Assumpsit: a promise by which one assumes or undertakes to do some act or pay something to another.
(FIRST MODERN K & EMERGED FROM TORT LAW)
• Grew from cases where promise sought to recover damages for physical injury to person or property on the
basis of a consensual undertaking.
• Example: ferryman overloaded boat & horse drowned as trying to cross river.
• Underlying theme of misfeasance: the improper performance of some act which causes detriment to the
promisee.
• In latter half of 15th c courts extended to nonfeasance – where promisor had done nothing in pursuance of
the undertaking/act. Still promisee had to have incurred a detriment in reliance on the promise.
• By end 16th c a 2nd major extension – PROMISSORY LIABILITY MORE PREVALENT AND
FLEXIBLE: held that a party that had given only a promise in exchange for the other’s promise had
incurred a detriment by having its freedom of action fettered, since it was bound in turn by its own promise.
• In this way, began to enforce exchanges of promises
• By early 17th C, assumpsit had become a general basis for the enforcement of promises (doing away with
debt).
• Consideration had come to be the term to express the sum of the conditions necessary for such an
action.
o Idea of a benefit to promisor comes from debt; or
o Idea of detriment to promisee comes from assumpsit

Historical developments: Use to get a sense of general thought of the time of case.
1. Until 1800’s: Equitable and Fairn: equity and good conscience seller should recover based on this alone. Portia
a. Sound price doctrine: sound price warrants sound commodity
b. Makes sense b/c very few markets or fluctuations in prices.
c. Few contracts for future delivery
d. Ethical stds help insure inds would use property for community values and sense of stability.
e. Can be seen as flexibility and fairness, or chaos.

2. 1800-1900: Will theory: no longer fairness and equity, but fact that parties willed a bargain should be upheld.
Shylock
a. Commercial class began to develop, promissory notes started, more individuality.
b. Doctrine of nominal consideration “peppercorn theory”: promisee must incur some detriment or give some
consideration, even if very small .
c. Created risk takers b/c courts no longer inquired into adequacy of consideration.
d. “let the buyer beware”
e. breakdown of traditional social stds – individualism replaced community focus
f. hardened, impersonal ideas about contract law
g. should ask if this serves to enhance the wealthy and powerful?
h. Can be seen as certainty, or injustice.
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3. 1930’s: Began a shift back to something similar to equitable, though will theory still predominates.

Many K’s fall into one of 5 categories: sale of goods, real estate, construction, employment, or family.

Family K’s frequently informal and lacking in detail. Traditionally, courts reluctant to enforce, but enforcement is increasing
today.

Consideration: legal detriment to promisee or benefit to promisor AND 2. bargained for exchange

Hamer v. Sidway (NY 1891): Uncle promises nephew $ if abstains vices for 6 yrs; nephew does and executor refuses to pay
the assignee. P wins b/c 1) consideration can be either a benefit to promisor OR detriment to promisee and 2)legal detriment
can include forbearance of a legal activity (abstinence).
• The bargain theory of consideration: to be effective, the benefit or detriment must also be
bargained-for- must, by the terms of the agreement, be given and accepted as inducement for the
promise. §71
• This was a unilateral K: Consideration (cn) was nephew’s 6 yrs of abstinence, not his promise to
abstain – performance as consideration.
• Generally, law will not enforce gratuitous promises. Consideration needed for cautionary and
evidentiary policies. Many courts reluctant to inquire in to adequacy of cn. Eg, Seattle stadium
case. Unless cn is mere pretense (peppercorn) §71.

Fiege v. Boehm, (MD 1956): Boehm promises child support if Fiege does not assert [invalid] paternity claim. Finds out not
the father & renigs;
• Court applies 2 part test: P wins b/c 1) she believed honestly & in good faith had a valid claim
(subjective) and 2) the claim was reasonable. (objective)
• Rest 2d: §74: only need to show good faith
• Stairway to heaven problem: result similar to Fiege in case of legal uncertainty.

Bargaining: bargaining for something of value is required for consideration…can’t bargain for past acts
o Restmt 2nd §71: a performance or return promise must be bargained for.

Feinberg v. Pfeiffer, partI: unable to prove consideration by saying that she continued to work after the promise of a pension
was made. HELD: her working was not bargained for and is therefore not consideration. Lacked mutuality of obligation.
• Mutuality of obligation:
o Both parties must be bound, or neither is bound
o The undertakings on both sides must be real and meaningful when consideration = promises on
both sides (both must really intend to carry out their promise)

o Point: the one with the clause can’t just say for no reason they aren’t satisfied & want out of the K; has
to be more objective and reasonable than that to show they had good faith in committing to the contract
in the first place.

Mills v. Wyman: stranger cares for son who dies, father promises to pay and doesn’t.
• no K b/c action in past no consideration/bargain for the promise to pay.
• Classical doctrine that past consideration isn’t considered bargained for.

Webb v. McGowin: employee falls & disabled to prevent boss from being hurt.
• due to 1)substantial material benefit received and 2)subsequent promise to pay, a valid K b/c a detriment and legal
fiction that bargained for to allow justice.

Kirksey v. Kirksey: brother in law asks Kirksey to come and he will give her land; held detriment to Kirksey was just a
condition of accepting the gift rather than bargained for consideration, so no K.
o Gratuitous promise not enforceable b/c promisor is not trying to get anything from promisee.

Central Adj Bureau, Inc. v. Ingram , (1984)

All three D’s signed covenants of non-competition with CAB. All rec’d promotions and/or raises during emp, incl Ingram
moving to 5th highest paid employee. D Ingram started the formalities of his business(apply license and incorp) in debt
collection prior to resigning from CAB, and collected client lists and confidential info from CAB to use in his own
business=>intent to compete. Used personal contacts made while at CAB to solicit CAB customers. P wins.
• Length of time of emp makes K binding.
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• A covenant signed prior to, contemporaneously with or shortly after emp begins is part of orig agreement
and therefore is supported by adequate consideration.
• Generally, restrictive covenants in emp K’s enforceable if reasonable. Reasonableness applies to
consideration, geography and time.
• Mutual promises of the parties as to cont’d emp form a binding bilateral K w/ promise of employment =
sufficient consideration.
• Performance of the promise of working supplied the mutuality and consideration to make K binding. Ray
Moss
• IF full or substantial performance by one party to a bilateral K, the other party cannot refuse performance
after rec the promised benefits.
• Length of emp = substantial performance.
• In addition, consideration found in promotions and salary increases.

CONCURRING / DISSENTING OPINIONS

Covenants fail for lack of consideration
• State Ray Moss indicated that if no covenant not to compete in orig emp agreement, then any subsequent covenant
must have consideration other than cont’d emp under a K terminable at will.
• CAB did not present covenants until D’s had begun work. At that point, no longer the subject of free bargaining.
• Disagree with reasoning that consideration found in promotions and salary increases b/c of fundamental doctrine
that for an act to constitute consideration for a promise it must have been bargained for and given in exchange for
that very promise.
• Not reasonable to conclude that promotions & salary increases given years after signing of covenants were
bargained for and given in exchange of those covenants.

Promise as consideration:
• Promise can be express or implied from conduct or circumstances of the transaction

Strong v. Sheffield: Strong promised not to go to banks w/note & would go to Sheffield for payment ‘whenever he needed
$’: No agreement to forbear collection and no promise by Strong to do anything (no detriment) = no K.
• Illusory promise:
o If the promise of one has qualifications or limitations so strong that they negate it
o No obligation of one to do anything b/c of all the ‘loopholes’

Mattei v. Hopper: agree on price land, Mattei (P) adds clause re: getting leases, Hopper tries to say no K b/c of this. Mattei
wins.
Satisfaction clauses – 2 types:
1. Based on value, quality…Std of a reasonable person used to determine (ie., appraisal of a house,
market value of goods); or
2. question of one’s judgment – if promisor says not satisfied and this is in good faith (ie., really did try to
obtain leases and couldn’t; really tried to have land/house pass inspection, but it doesn’t, etc)

Eastern Air Lines, Inc. v. Gulf Oil Corp. (1975)

P Eastern and D Gulf have had a contractual obligation for some time. D threatens to discontinue providing fuel if P did not
pay more than the most recent contract. D claims no K b/c no mutuality of benefit. D’s claims rests on the situation at the
time of a particular method for determining price in the K, and unusual (but foreseeable) international circumstances causing
dramatic increases in their cost. P wins.
• Binding and enforceable requirements K under UCC 2-306
1. the K is not too indefinite and does not lack mutuality of obligation b/c party determining qty (Eastern)
must estimate and operate in good faith so that output will be reasonably foreseeable. (as per UCC 2-
306 (1)
2. K in question has an estimate.
3. Parties have consistently over the years relied on each other to act in good faith in purchase and sale of
the required qty of fuel spec in K.

1. Price fluctuations: under fixed price requirements K, seller runs risk that if mkt price rises, the buyer’s requirements
will escalate.
a. How to draft that seller might use to reduce this risk? Based on the output of the seller rather than the
requirement of the buyer.
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Wood v. Lucy(1917) : Lady Lucy employs Wood to sell her name and merchandise exclusively, then she sells on her own.
Held: Valid K b/c Wood in good faith that he would uphold his end of bargain and produce income (otherwise the agreement
b/t them doesn’t make sense).
o Implied promise of Wood to carry out his agreement and promise has value and was bargained for.
o UCC 2-306(2): a lawful agreement by either for exclusive dealing imposes an obligation by seller to use
best efforts to supply goods and best effort by buyer to promote their sale.

Promissory Estoppel (reliance) as a basis for enforcement

• Promise which foreseeably and reasonably induces reliance on the promise is consideration
• Promissory Estoppel: if person made a promise, prevents them from later stating that promise shouldn’t count as
consideration. A substitute for consideration that renders gratuitous promises enforceable.
• The act of reliance on the promise (to promisee detriment) provides substitute for consideration and differentiates
from bargained-for consideration.
Ricketts v. Scothorn: Ricketts given note for $ from gfather. He paid 1 yr, later died. Scothorn, executor, refuses to pay.
Held: Valid consideration due to Ricketts reliance on the promise.
o actions that induce a change of position for promisee establish promissory estoppel. Policy: equity and fairness in
upholding wishes of decedent.
o §90 (PRIAFER) – Promise, Reasonable, Induces, Action, Forbearance, Enforcement, Remedy
o Estoppel. The conventional estoppel case concerns a representation of fact made by one and relied on by the other;
the estopped party is prohibited from alleging or proving facts that would contradict the truth of his own earlier
representation if the other party has taken action in reliance on that representation. Cases like Ricketts concern not
a factual representation, but a promise and the estoppel idea is used to preclude asserting the defense of lack of
consideration. Therefore no right to a trial by jury b/c doctrine of promissory estoppel is essentially equitable in
nature.

Feinberg v. Pfeiffer , partII: Feinberg left work b/c relied on the promise of a pension. Detriment was her giving up a good
job.

Cohen v. Cowles Media Co (1992)

P, an assoc of a gubernatorial candidate, tells reporters damaging info about opposing candidate upon their promise to keep
his name confidential. P wins.
• He gave information (consideration) after bargaining for and receiving a promise of confidentiality. It
would be unjust not to uphold the promise.
• test is not whether the promise should be enforced to do justice, but whether enforcement is required to
prevent an injustice.

D&G Stout v. Bacardi: Stout gave up sale of business offer relying on Bacardi’s promise to keep working with them.
Bacardi backs out day after. Stout wins, b/c promise seems to be for reasonable amt of time and Stout reliance. Reliance
damages (amt of detriment)

PER PROF 2 Main issues in Promissory Estoppel:

1. Promise made or not?
2. IF so, was reliance on the promise reasonable and foreseeable?
3. IF both 1 and 2, sometimes question of which remedy most appropriate?
a. expectation or reliance

Restitution: Unjust Enrichment: As an alternative basis for recovery

• EXAM: In any instance where it’s too indefinite to form a K, but one has given benefit during preliminary
negotiations, need ask if restitution can be an alternative method of remedy

• 1)no actual agreement or agreement doesn’t qualify as a K, 2) benefit conferred results in unjust enrichment, 3) K is
implied in law for the purpose of having a remedy (quasi-contract)

• Remedies: 1) market value of goods/services or 2) net ultimate economic gain (either subjective = value of gain to
def based on needs; or objective = actual market value of gain)
o Rest §271 1. reasonable value or 2. extent of increased value or advanced interests
 Rees Page 11 of 46
• Unjust enrichment: 1)claimant must have intended to charge (based on objective reasonable person test – likely to be
determined by circumstances) and 2) must not have imposed it on the recipient (except for emergency, request or
acceptance) [officious intermeddler]

Cotnam v. Wisdom (1907): famous case: MD’s attempt to save Cotnam’s client & he dies. Cotnam refuses to pay.
o implied contract & purpose to prevent unjust enrichment.
o Remedy should be reasonable or market value of services b/c would have offered services regardless of victim’s
ability to pay.
o Emergency: 1) immediate action required, 2) advance assent impractical and 3) claimant has no reason to
believe recipient didn’t want the action to be taken.

• Contract implied in fact: from facts and circumstances parties intended a contract but wording of promises
inaccurate and court merely interprets what parties intended.
• Contract implied in law: a fiction of the law: quasi-contract, restitution, quantum: one who is unjustly enriched
should make restitution to the other.

Pyeatte v. Pyeatte: famous case b/c one of first allowing restitution b/t spouses. He promised to pay her grad school after she
paid his law school. He divorces after law school & says no K b/c too indefinite. Court agrees, but awards to her based on
restitution b/c of expectation of compensation and her extraordinary or unilateral effort for his benefit.
o Traditionally, restitution cases b/t spouses fail b/c services of each presumed to be gratuitous.

Not limited to the contract price: The main use of the restitution measure is that, in most courts, it is not limited by the
contract price. If the work done by P prior to D’s breach has already enriched D in an amount greater than the contract price,
this entire enrichment may be recovered by P. This makes restitution sometimes very attractive, compared with both reliance
and expectation measures.
Example: Contractor agrees to build a house for Owner for $100,000. After Contractor has done 90% of the work, Owner
repudiates. At trial, Contractor shows that Owner can now resell the mostly-built house for $120,000, not counting land.
Contractor will be permitted to recover the whole $120,000 on a restitution theory, even though this sum is greater than the
contract price (and thus greater than the expectation damages would be), and greater than the reliance measure (actual
expenditures by Contractor).

Dementas v. Estate of Tallas (1988) [old truck for errands case]

Tallas wrote and notarized a note promising $50k to Dementas for services performed. Died w/o leaving Dementas as an
heir as promised in the note. Dementas files claim for $ w/estate, which it denies. Court found note to be gratuitous promise
and unenforceable.
• there must be consideration, not past consideration, to establish a contract. Even if moral obligation were
valid in Utah, would not prevail b/c appears clear Dementas performed the duties w/ no expectation of
payment.
• What result under the Model Obligations Act? May not show intent to be legally bound.
i. Could state that intends to be legally bound in the note or could alter the will to show the gift.
ii. Why should this promise not be enforced? Gift, no bargain, no detriment to promisee b/c acts in
past, no moral obligation b/c the acts spread over time and appears clear Dementas never expected
payment at the time of giving the services.

CHAPTER TWO: Bargaining Process

o IF a benefit and/or detriment, but not BARGAINED FOR, then no exchange and no K.
o Actions in past cannot be consideration unless promisor receives 1. substantial material benefit and 2. subsequently
agreed to pay for the act. (court finding an exception in service of justice; ie. Webb v. McGowin)
o Bargain theory of exchange – must have detriment to promisee or benefit to promisor and detriment/benefit in
exchange for the promise. Bargain requirement would disallow past performance b/c promisor is then not looking to
obtain anything from promisee.

**1. Is there a benefit to promisor and/or a detriment to the promisee?

**2. Is there a bargain/agreement?

[Idea that courts protect individual freedoms; however, by enforcing whatever contract people agree to –indemnity K’s, US is
allowing big business to determine via coercion of smaller companies/individuals what freedoms actually are in a practical
day to day setting.]
Nature of Assent
 Rees Page 12 of 46
III. Offer
• An act where one person gives the other the power to create contractual relations b/t them
• Rest 2nd §24: offer is the manifestation of willingness to enter into a bargain, made so that the other person will
understand that his assent to that bargain is invited and will conclude it.
o Offer must contain 5 elements either express or implied:
 Must be communicated to be manifested
 Must indicate a desire to enter into a contract (specify performances to be exchanged and terms.
Offeror has control of what terms will be. Offeror may also prescribe the manner and time for
effective acceptance.
 Must be directed at some person or group of persons.
 Must invite acceptance.
 Must create the reasonable understanding that upon acceptance, a contract will arise w/o any
further approval being required from the offeror.

When are offer and acceptance issues presented?

1. Was a contract formed?
2. What terms were included in the contract?
3. Which jurisdiction governs the contract? Governed by juris where it was formed.

How to distinguish an offer from a preliminary proposal? (suggestions, not firm list)
1. Words used in the communication are the primary indicators of intent.
2. Comprehensiveness and specificity.
3. A communication not specifically directed to a particular person will generally not be seen as an offer.
4. Relationship of the parties.
5. Common practices or trade usages if members of same community or trade.

Rest §26: Preliminary negotiations: a manifestation of willingness to enter a bargain is not an offer if the receiver knows or
should know that the offeror doesn’t intend to conclude a bargain until he has made a further showing of assent.

• Mistaken bids: contractor made error in a bid submitted for a project

o Bid shopping – contractors may shop around before or after the project award among the subcontractors for
lower prices.
o May result in decrease in competition b/c subcontractors will pad their bids so can lower them later when
bid shopping occurs =>inflates contractor’s bid to disadvantage of owner
o May result in increase in competition – subcontractors driven to bid so low that they operate at a loss and
may use substandard work and materials – to disadvantage of owner.
o Owner can fight post-award bid shopping by requiring general contractor to list prospective subcontractors
in their bid. More common in government K’s.
--------------------------------------------------------------------------------------------------------------------
Elsinore Union Elementary School District v. Kastorff
Supreme Ct CA, 1960

Kastorff submitted bid to make additions to school. Next day realized made mistake, notified architect and Board in writing.
After receiving the letter, the board voted not to release. They sent written notification that award to him. Kastorff returned
the contract with letter explaining error and again asking for release. Board rec’d more bids & sought action to hold Kastorff
resp for difference in $. They claim that a bargain was made.

Lower court found for school. Kastorff appealed, quoting case law that where a contractor makes a clerical error in a bid on a
public work he is entitled to rescind.

In Kemper, bid submitted as honest mistake of computation and not negligence, had acted promptly to notify of mistake and
to rescind, city board accepted bid w/knowledge of the error. City had suffered no damage.

Notes p 149
1. Revocability: ordinarily a general contractor’s bid on a construction contract is an offer that is revocable before
acceptance. Governments often do not allow this.

2. Courts that have granted relief for mistakes have relied on clerical rather than judgment errors.
a. Rest 2nd §154: A party bears the risk of a mistake when
i. The risk is allocated to him by agreement of the parties, or
 Rees Page 13 of 46
ii. He is aware, at the time the K is made, that he has only limited knowledge with respect to the facts
to which the mistake relates but treats his limited knowledge as sufficient, or
iii. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to
do so.

3. If offeree knows or has reason to know of the offeror’s mistake at the time of acceptance, the offeror is not bound.
However, if the offeree is not familiar enough with the work to know if there is a mistake, is not considered
knowledge. (ie., contractors bid very low & accepted; court upheld b/c offeree didn’t know details/costs of kitchen
work so couldn’t know the bid too low).

4. Rest 2nd §153: Where a mistake about a basic assumption about the K of one at the time a K made has a material
effect on the agreed exchange that is adverse to him, the K is voidable if he does not bear the risk of the mistake
under rules in §154, and

a. The effect of the mistake is such that enforcement of the K would be unconscionable, or
b. The other party had reason to know of the mistake or his fault caused the mistake.

pg 150 Donovan v. RRL Corp, CA Supreme Ct, 1999

Donovan reads ad by Lexus for Jaguar, Vin # given, price. He goes for test drive and said would buy. Sales rep says ad price
error and gave correct price. Donovan refused to pay and sued for breach.
(1) dealer's advertisement to sell specific, unique automobile for an erroneous price was an offer to sell which customer could
accept by tendering the advertised price, and
(2) dealer's unilateral mistake did not vitiate the offer.

Unilateral Contracts and Notice

Necessity of giving notice is less clear if offeror invites acceptance by performance and not a promise
• If the person making the offer, expressly or impliedly indicates that it is sufficient to act w/o communicating
acceptance, performance is sufficient acceptance w/o notification.

Notes p. 161:
1. Acceptance in Carlill v. Smoke Ball Co was contracting flu after using ball per directions.
i. Which act bargained for? Using ball
ii. Condition of catching flu was the specific even to instigate reward by the ball co.
iii. Yes promise was conditional upon person catching flu

2. Bishop v. Eaton (1894) from US to Greenland? is leading case on necessity of notice of acceptance of a unilateral
K.
i. Normally no requirement to notify b/c doing act sufficient and knows bound when sees results of
act; however, if act is such that knowledge will not quickly come to the promisor, promisee is
bound to give notice w/i a reasonable time after doing that which shows acceptance. Rest 2nd §54.

3. None by section i, but if too long of time lapsed, offeree would need to notify b/c nothing specific in the ad stating
no notice necessary. Seems to imply no notice necessary – is this enough?
If bishop signs note and before sent notice, Frank calls and revokes. Is revocation effective? No, one day to notify
someone in a diff country doesn’t seem reasonable; could only revoke if Bishop waited too long to try to notify
Frank of the acceptance AND if the brother hadn’t told Frank that it was done. All hinges on how long between
signing and revoking – reasonable time necessary.

Rest 2nd §54: Necessity of notification to offeror

i. Where offeror invites offeree to accept by performance, no notice necessary unless offer requests
one.
ii. If an offeree who accepts by performance has a reason to know that offeror won’t learn of the
performance w/I a reasonable time, the duty of offeror to honor the K is gone, unless:
1. the offeree tries w/reasonable diligence to notify or
2. the offeror learns of the performance w/I a reasonable time, or
3. the offer indicates that notification of acceptance is not req’d.

UCC 2-206(2): where the beginning of a req’d performance is a reasonable mode of acceptance an offeror who is not
notified of acceptance w/i a reasonable time may treat the offer as having lapsed before acceptance.
 Rees Page 14 of 46

Lefkowitz v. Great Minn Surplus Store

P (Lefkowitz) responded to store add and was first person there for the item as the ad stipulated. Store refused to sell to him
b/c offer intended for women only.

o If the advertisement addressed to the general public is clear, definite and explicit and leaves nothing open for
negotiation.
o Performance was promised (sale of stole) in return for something requested (first person w/ $1).
o While an advertiser has the right at any time before acceptance to modify his offer, he doesn’t have the right, after
acceptance, to impose new or arbitrary conditions not contained in the published offer.
o *general offer, addressed via ad, can be revoked in similar notice as original ad (if there is no better way to do it),
even if all the potential offerees don’t see the revocation. Rest 2nd §46

Owen v. Tunison
Owen sent offer and Tunison sent note saying couldn’t sell for less than 16K cash. Owen sent msg accepting. Later D said
didn’t want to sell.

o Needs to include the words “I offer to sell”.

1. Doesn’t appear to court that Tunison sent an offer to sell.
2. At most was an intent to open negotiations.

o Need to be sure that written agreements are very clear as to their purpose.

Harvey v. Facey (day of September 11 terrorist attack destroying WTC)

Harvey sent telegram asking if Facey 1. willing to sell and 2 for what price. Facey answers with price only. Harvey sends
response that will buy at that price. Facey refused and Harvey sued for specific performance.

o Does the listing of an acceptable price consist of an offer to sell? No offer to sell. Only tells what price would be
acceptable, doesn’t show intent to sell.
1. P (Harvey) asked 2 specific questions of Facey.
2. Facey only answers #2, therefore at most this is an offer by the D’s and Facey would have to accept to be a
K.
3. No implied contract.

Notes:
1. For Harvey: Yes, I want to sell Bumper Hall Pen. I offer it to you for 900 pounds.
a. For Facey: No, I do not want to sell Bumper Hall Pen to you.
2. Generally, an offer can be accepted only by the person the offerer has invited to furnish consideration.

Fairmount Glass Works v. Crunden

Crunden (P) sues Fairmont for damages from breach. Key phrase in letters back & forth about an apparent purchase are
Fairmont telling Crunden “we quote you…(price and sizes)…for immediate acceptance”. Fairmont says amt too indefinite
(ten car loads) and that language of acceptance different so they are not bound.

o Is an offer binding when offeror says “for immediate acceptance” Yes. This language taken in context implies and
offer.
1. Normally quoting a price is not held to be an offer.
2. The language of ‘for immediate acceptance’ moves this beyond a price quote to what appears intended as
an offer.
3. Ten car loads was normal expression in the trade at that time, so not indefinite.
4. The D declined to furnish the goods before it rec’d the letter w/ slightly different language, so cannot base
its argument on the difference in language.

Notes:
1. If the Fairmont letter had been quoting for immediate delivery w/o the first Crunden letter, it would
still seem to be an offer b/c so specific.
2. This was not offer b/c no definite amt in offer “ in full car load lots” doesn’t say ‘in ten car loads’.
 Rees Page 15 of 46
IV. Acceptance: voluntary act of the offeree creating the contract. Once accepted, offeror is no longer able to withdraw w/o
liability.

Only the person to whom offer made can accept it – not assignable.
However, an assignee can accept an option offer b/c it is a K and assignee’s can perform K’s.

Unilateral: only way to accept is to perform.

Acceptance:
• must be a volitional act, performed freely, deliberately and with intent to enter a contract on the terms of the offer.
Determined objectively based on if a reasonable person in the offeror’s position would have understood the
manifestation as acceptance.
• only the offeree may accept the offer.
• acceptance must correspond exactly with the offer (classical view)
• nonconforming acceptance is actually a counteroffer, which voids original offer.

Indemnity agreement: one party undertakes contingent liability for a loss threatening another
-regularly enforced, even when loss is one attributable to fault of promisee (indemnitee)

Allied Steel and Conveyors, Inc. v. Ford Motor Co.

1955 Ford ordered machinery from Allied with an attachment re: broad indemnity provision for Allied to be resp for
negligence of its employees and of Ford’s emp. Allied starts the work and one of their employees enjured due to negligence
of Ford’s employees.

o Allied accepted conditions by starting work with Ford’s knowledge =>K. The form did not indicate an exclusive
means of acceptance and performance is acceptance.
Notes:
Would result have been different if offer had stated exclusive means of acceptance? Probably not b/c refers to
case law that if Allied began performance and Ford acquiesced, Ford estopped to object to K. So Allied
couldn’t expect to do the same thing themselves. Also, other case law cited that acceptance may be implied
from acts, Allied started and Ford allowed and some employees apparently even helped with Allied’s work
(ie., injured P).

3. Safeguards:
a. Pretrial discovery to reveal prior inconsistent statements or other evidence
b. Confidence in a jury’s ability to discern when a witness is untruthful
c. Fact that the man whose intent is at issue may well be a corporation or other org leading to the possibility
of conflicting sources re: intent, such as testimony from disaffected former employees.

Silence

• Not ordinarily seen as acceptance

• If offeror says “unless I hear from you w/I 48 hrs, you will be deemed to have accepted my offer” --- can’t hold
offeree who fails to reject.
o Rest 2nd §69: silence and inaction operate as acceptance only:
 Where offeree takes the benefit with reasonable opp to reject it and reason to know it was offered
with expectation of compensation (affirmative duty to act)
• Little boy mowing lawns and people then give him$; D sees this, allows boy to mow his
lawn, then refuses to pay. K valid.
 Where offeror has stated or given offeree reason to understand that assent may be manifested by
silence or inaction, and offeree by being silent intends to accept.
 Where b/c of previous dealings it is reasonable that the offeree should notify the offeror if he does
not intend to accept.
• Hobbs v. Mssasoit Whip Co – seller sends eelskins, as has done previously, but this time
buyer refuses to pay = had a duty to act & silence =K

Unsolicited merchandise – are not liable for it if do not use it. However, UCC indicate that things received in the mail w/o
request are gifts. Katz idea that ‘right to be let alone’. Freedom from contract may be more important than freedom of
contract.

Termination of the Power of Acceptance

 Rees Page 16 of 46
• After an offer made, giving the other the power of acceptance, that power can be terminated:
1. by lapse of the offer,
2. by revocation,
3. by offeror’s death or incapacity, or
4. by offeree’s rejection

Lapse:
• expiration of acceptance period
• if period not stated – lapses after a reasonable period of time
• reasonable time depends on circumstances

Akers v. JB Sedberry, 1955: Akers offers resignation in conference w/employer. Conf continued & few days later employer
accepts; sued breach K & won. Offer made by one to another in a face to face conversation is deemed good only to close of
conversation.

Loring v. City of Boston, 1844: City run in papers ad for reward for apprehension & conviction any one setting fire to city
bldg in 1837. In 1841, P caught & had convicted a person. No reward, b/c no longer notorious/ not reasonable time.

Rest 2nd §41: in general the question is what time would be thought satisfactory to the offeror by a reasonable man in the
position of the offeree.

Revocation:
• basic rule in common-law: offeror can terminate offer any time before accepted
• effective upon receipt
• exceptions:
o is if a firm offer (only merchants) or
o option contract (or offeree’s part performance or detrimental reliance = temp irrevocable)
 (irrevocability is the defining element of an option contract)
o rest §45: if begin performance of a unilateral K, irrevocable for a reasonable period of time
o reliance §90 (PRIAFER)
o rest §87: in bilateral, preparations create temp irrevocable if PRIAF

Option or Irrevocable Contracts

• promise by an offeror that limits the offeror’s power to revoke is an option contract
• usually expresses, directly or indirectly, a fixed period within which offeree must ‘pick up’ the option
• three ways to create: consideration, ‘firm offers’ under UCC, and reliance in unilateral or preparations in
bilateral by the offeree
• consideration: CL says must have at least nominal, otherwise, revocable
 REST §87 says must have OR must have a writing that says there was at least nominal
consideration, even if the consideration never paid

Dickinson v. Dodds – no consideration for the option

Court of Appeal, England, 1876

Dodds gave Dickinson a note on Wed saying would sell property and that offer open until 9am Friday. No consideration for
the offer = no option. Dickinson hears from reliable source that Dodds selling to someone else. Tries to accept.
• No consideration for the promise, so Dodds free to end the offer at any time up to acceptance.
• Rest 2nd §43: Ability to accept offer ends if offeror manifests lack of intent to continue the offer – even if
finds out via reliable 3rd party

Problem, p179
A offers to sell B Greenacre for $1k, to remain open 5 days. On day 4, B rec’d info from cty that had rec’d deed for
Greenacre from A to C. Info reliable, B believed it, but thinking potential for error, notified A of acceptance on 5th day. Info
from cty was wrong, but A refused to perform. Contract?

No b/c no consideration so no option k = revocable up to time of acceptance. A has given a specific offer for specific
property, amt and to remain open specific time. B accepts within time frame. No indication that A took definite action
inconsistent w/ intent to enter proposed K b/c info from city was wrong. Different from Dickson, b/c there the offeror did
take action.
 Rees Page 17 of 46
No, IF A had turned a deed into the city and B found out about it, but the deal fell through, then would no longer be a K b/c A
took inconsistent action and B learned of it via reliable means.

UCC 2-205: Firm Offers: offer by merchant to buy or sell goods in signed writing which gives assurance that offer held open
is no revocable for lack of consideration during that time, or if no time indicated then for a reasonable time. Can never
exceed 3 months. Must be signed by offeror if offeree provides such a writing.

Ragosta v. Wilder – reliance in unilateral (no reliance found, only preparations)

Ragosta sent an offer to buy property with check for $2k and started financing. Wilder sent counter-offer, w/performance as
acceptance. Wilder revoked prior to performance, but P’s say started performing. No k.
• Could only be accepted by performance. P’s had not given consideration so no K or option K. P’s had not
performed (giving D the $88k) as per the offer and did not establish elements for equitable estoppel, so
Wilder could withdraw offer. What they did perform (getting financing) was not the invited performance,
nor even preliminary prep to perform b/c they did it before he sent an offer.

4 elements of equitable estoppel: 1. party to be estopped must know the facts; 2. party being estopped must intend that this
conduct be acted upon or acts must be such that the party asserting estoppel has a right to believe it so intended; 3. latter must
be ignorant of the true facts; 4. party asserting must rely on conduct of party to be estopped to his detriment.

Preparations in Bilateral may create a temporary irrevocable offer

• §87: if PRIAF before acceptance and which does cause AF, binding as option to the extent necessary to
avoid injustice: Drennan v. Star Paving: sub-contractors

Death or incapacity: depends on if offeree learns of the death/incapacity; practically rarely a consideration as most often
offeror is a corporation
Rest §48: offeree’s power of acceptance is terminated by offeror’s death or incapacity.

Problem: p185
Earle comes in to see if has claim v. executor of his Aunt. He has written note from her that if he goes to her funeral, he
should receive $5k. He tells you on at least 2 occasions she said if he came she would pay expenses plus $5k. He went.
Answer: Yes. K. Bargain he would come to funeral (detriment in time, expenses) and she would pay $5k plus expenses. He
performed according to the agreement. Conditional promise – he has to perform before he receives the $. Like Hamer v.
Sidway.

Rejection:

Counter-offer kills offer. “I’ll sell to you for $10” “no, but I’ll give you $8”. “no way”. “ok I’ll buy for 10”. No K b/c
rejected the original offer.

Mere inquiry: “would you take $8?” “no way”. “ok I’ll buy for $10”. K b/c never rejected the offer.

Operation of Law – offer was for something illegal, or the thing becomes illegal

Mirror image rule: acceptance must be on terms proposed by the offer w/o the slightest variation (common law). Anything
else a rejection and counter-offer.

Ardente v. Horan, RI 1976

Buyer rec’d offer to buy property; returned with conditions and $. Rejected, no K b/c acceptance can’t have
conditions, must be definite and unequivocal.

Exceptions:
1. Implied term: if court finds that the condition was actually implied in the original offer.
2. IF additional term is only a wish, but not command.
3. If both parties assume bound and carry out agreement w/ no lawsuit.

Typical disputes:
1. one party claims no K while other says a K exists
2. some performance and dispute as to performance so parties differ as to which terms control.

Notes:
Last shot rule: last to complete offer or counter-offer prior to performance is controlling.
 Rees Page 18 of 46
Rejection of an irrevocable offer
Rest 2nd §37: power of acceptance under an option K is not terminated by rejection or counter-offer, by revocation or by
death or incapacity of the offeror, unless requirements are met for the discharge of a contractual duty.

Humble ex: Humble gave consideration for an option K. Prior to expire date of option, wrote to owner for better terms.
Then wrote again saying would take orig terms. K?
Yes, b/c the counter-offer rule is not applicable in option K.

Mailbox Rule: Rest§63

• Once acceptance put in mail/posted, offeror cannot rescind and offeree cannot reject the offer; except OPTION
which is effective when received by offeror. Rest 2nd §63
• Revocation only effective on receipt, not on dispatch

Forms and UCC

Precontractual Liability
Typically, neither party to contract is bound until an offer has been accepted and K formed.
Until then, neither party safe in acting in reliance on the prospect of a K.
US firm in giving parties freedom to negotiate w/o risk of precontractual liability imposed by law. Judicial reluctance to read
an offer as a contract. Assumption that party entering negotiations in the hope of gain from a K bears the risk of loss
resulting if other party breaks off negotiations.

UNIDROIT: Principles of international commercial transactions. Similar to Restatements, but international in scope and
incorporate principles from common law, civil law. Generally applicable only if the parties agree to them.

Exceptions.

• Option K under Rest 2nd §45 – if offeror invites acceptance by performance, option K created when offeree begins
the invited performance.

• Problem avoided if the offer seeks a promise as acceptance and either a promise is given or one can be inferred from
offeree’s conduct.

Quantum Meruit (like unjust enrichment): recovery = “as much as deserved”; implied contract
1)valuable services rendered or materials furnished
2) planned to charge
3) services/materials accepted, used and enjoyed
4) D knew P sought to be paid

Unjust enrichment:
1) benefit to D by P;
2) D knows of the benefit;
3) acceptance or keeping benefit by D makes inequitable to keep w/o payment of its value

From Hornbook: Four areas courts willing to impose Precontractual liability:

1. unjust enrichement resulting from the negotiations = restitution
2. a misrepresentation made during the negotiations = reliance damages
3. specific promise made during the negotiations (made to interest the other in negotiations and that the other has relied on –
ie Hoffman v. Red Owl)
4. agreement to negotiate in good faith.

Duty to make restitution of benefits rec’d during negotiations the most fundamental ground for Precontractual liability.

• If during negotiations one party has given a benefit to the other, the recipient may be required to make restitution
• Restitution leaves uncompensated for reliance.
• Misrepresentation another avenue for reliance remedy, but rare and only if one engages in fraud.

Hartford Whalers Hockey v. Uniroyal: Whalers provided

 Rees Page 19 of 46
Brooklyn Bridge hypo: If you walk across the BB I’ll give you $20. You start to walk and I revoke. Under classic K law, not
bound b/c revoked prior to acceptance (which was complete performance) – unsatisfactory.
§45: creates an irrevocable offer (option K) when begins performance and must remain open a reasonable time. (unilateral K)

Drennan v. Star Paving Co: LANDMARK CASE: CA Supreme, 1958

Subcontractor Star provides bid to general, Drennan. Drennan rec’s the project and goes to notify Star; Star rep
revokes b/c they made a mistake before Drennan can say they got it; Drennan spends months and $ to get an alternate.
Traynor states D’s mistake should not bar recovery – loss should fall on party who caused it. B/c they knew turning
in bid to general was likely to be accepted, didn’t state bid revocable =>an implied subsidiary promise that will not revoke for
a reasonable time, general bound and shouldn’t pay for their mistake. No consideration needed b/c uses reliance as a
substitute for consideration. Drennan had no way of knowing their bid was a mistake & he tried to mitigate damages.
Rest§90: merely acting in justifiable reliance on an offer may serve to make the promise binding.
Court takes §45 implied K and states should also find in a bilateral K b/c of justice factors (ie., the injustice of
Brooklyn Bridge hypo) & promissory estoppel of §90 => mixes to come up with what later becomes
o §87: Option K binding if in writing & signed, gives nominal consideration, and proposes fair exchange w/i
reasonable time or PRIAF (promise reasonably induces action/forbearance) before acceptance is binding as option
K to extent needed to avoid injustice.

Promissory Estoppel plus limited remedy as per §90:

Hoffman v. Red Owl Stores :
Reliance on preliminary promise – gave up bakery, bought and sold a grocery, moved based on promise would be
able to contract for a Red Owl franchise; court says §90 ought to apply to more commercial situations to give some remedy
even where promise is indefinite.
**an expansion of promissory estoppel to create a c/a from failed negotiations (prior to this, only a means to get damages
from a gratuitous promise).

Cyberchron v. Calldata
“heavy computer” case
No K – relied on promise that terms would be worked out – no K, no restitution b/c no product delivered. But reliance
remedy like in Hoffman, costs really incurred on reliance = the remedy.

Channel Home Centers v. Grossman

“gross fraud in the mall” case
Mutually binding obligation to negotiate details in good faith.
1. intent to be bound? 2. was agreement definite enough? 3. consideration for promise to proceed in good faith.
Could have found consideration just in both promising to negotiate
From notes:
Tribune Type I contract: fully binding preliminary agreement; preliminary only in that parties want a written memorial of it;
all terms have been agreed, parties have agreed to be bound, recognizes that a K has been made.

Tribune Type II contract: binding preliminary commitment: parties agree on certain major terms, and commits them to
obligation to negotiate the open issues in good faith.

Definiteness

To have a K, must have both 1. parties agreed to be bound and 2. agreement definite enough to be enforced.

Cardozo: “Indefiniteness must reach the point where construction becomes impossible”

Definiteness functions:
1. For court to determine if a K has been broken, must know what specific terms of K were
2. Promisee’s expectation interest – to calculate damages to put promissee in position in which it would have been had the
promise been performed, must be able to determine the scope of the promise with precision.

Example: Varney v. Ditmars, NY 1916, refused recovery on ground that matter was pure conjecture “employer’s promise to
pay a fair share of the profits”.

Court must interpret the agreement before finding too indefinite to enforce.
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Look to : preliminary negotiations, prior communications, references to external sources of terms (ie., gov
regulations), trade usages; course of dealing b/t parties prior to transaction or course of performance after their agreement
may also provide terms. Implied terms, ie., Wood v. Lucy.

“reasonable efforts” or “good faith” sufficient if can be determined via an external std.

It is enough if the agreement provides the means for making its terms definite by the time that performance is called for; ie.,
cotton cases wouldn’t know how much until cotton harvested; output and requirements K’s the same. Also K’s that have
particulars of performance to be specified by one of the parties (satisfaction clauses?)

Relational contracts: encompass most generic agency relationships. A K is relational to the extent that the parties are
incapable of reducing important terms of the arrangement to well-defined obligations. 67 Va.L.Rev. 1089 (1981) Goetz &
Scott

Offers of Job security: An oral promise which has as its effect the alteration of an ‘at will’ employment relationship must
contain terms that are ascertainable and definitive in nature to be enforceable. Sayres v. Bauman, 425 SE2d 226 (W.Va.
1992)

Restitution: party who has performed under an agreement that is unenforceable for indefiniteness is entitled to restitution.

Problem: Forbearing on a claim: would Sheffield have been bound if she had written to Strong: “I will be resp for my
husband’s debt if you will not bother him about it for a reasonable time” and if Strong had done nothing about the note for 2
years?

Baker v. Citizens, MN 1984: 7 days was not a reasonable time; a promise to forbear from
calling in a debtor's outstanding loans, whether verbal or implied, can be sufficient consideration to support a mortgage and a
loan guarantee by a third-party guarantor

Farmers v. Maixner, ND 1985: left to trial court to decide if 2 mos reasonable; agreement to forbear bringing suit in return
for personal guarantee constituted good consideration.

Toys v. Burlington, Vt 1990:

Toys entered into lease in a mall owned by Burlington. Lease for 5 years, with option to renew for another five years w/price
to be negotiated, they notified of intent to use, couldn’t agree on price, Burlington ad & Toys had to find alternate site.

Defendant moved for summary judgment, arguing that: (1) the option provision in the lease is actually an unenforceable
agreement to agree – court says no it was binding option
(2) even if a valid option existed, it was never effectively exercised by plaintiff – court says a matter of fact issue b/c Toys
waffled so long – leave to jury
(3) if plaintiff had a right of renewal, it waived it through its conduct -- Jury has to decide.

Notes.
1. What consideration supported the option? Reliance by Toys on the renewal of the lease.
What did exercise of option require? Notice 1 yr in advance. Could have drafted rent terms more clearly? Could have given
specific amts, or could have based on rate of inflation index or some other business indicator.

Chapter Three: Statute of Frauds

Basic rule: a k w/i scope of statute may not be enforced unless a memorandum of it is written and signed by the party to be
charged (against whom enforcement is sought)

Dble edged: prevents scoundrel from enforcing a bogus K, but may prevent enforcement of a genuine oral K.

1. Does K fall w/i statute?

2. If yes, is the K reflected in a writing that satisfies the statute? If yes, enforceable
3. If no, does case fall w/i one of the exceptions that permit enforcement despite noncompliance?
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1. What type falls w/i statute? (MY LEGS)
• Marriage
• Year : K’s that performance can’t be completed w/i 1 year of being entered into
(if any possibility that performance could be completed w/i a year, doesn’t fall under statute)
• Land
• Goods if $500 or more (UCC §2.201)
• Surety – answer for debt of another w/ gratuitous purpose (not for own gain)

2. Is K reflected in writing that satisfies the statute? Courts finding less & less
• A written memorandum: no formal requirement beyond this, can even be lost by the time of the litigation – prior
existence and contents can be proven by oral testimony; technological analogs of writing can be held to satisfy the
statute provided they serve its evidentiary purpose.
• Rest 2d §131: essential terms stated w/ reasonable certainty & enough to show a contract made & what the subject
matter is. UCC §2.201: only the quantity of goods sold must be noted, beyond that “sufficient to indicate a k for sale
has been made b/t the parties”.
• Must be signed by party against whom K is to be enforced: the party disputing the K; a signature is any mark or
symbol w/intention of authentication “x” or initials enough. UCC §1.201 and Rest §134. Can be stamped signature;
some cases even allowed letterhead.
• Exception to signature: UCC§2.201(2): (don’t have to know this, just extra info)
1. Both parties are merchants
2. w/i reasonable time one sends written copy to other w/signature of sender
3. recipient knows contents
4. recipient doesn’t give written objection w/i 10 days.

3. Exceptions SWAP
Specially manufactured goods (UCC) not suitable to anyone else, beginning made
Written merchants confirmation (UCC): 2 merchants, 1 sends another letter saying this confirms our deal – binds
recipient (plaintiff’s signature binds defendant); unless w/i 10 days send back letter denying. Merchants have
to respond back.
Admissions – to extent that admit the agreement in court or pleadings
.make oral (unenforceable) promise for 100 casebooks at $10. Send and decide don’t want and send back,
statute of frauds as defense. Call as witness: Did you make a deal to buy 100 casebooks: If say yes,
admission – lawyer can object that irrelevant and immaterial – all cases judges will say answer it. Objection
2 – privilege of self-incrimination (terrible b/c limited to criminal). Objection 3 – privilege of statute of
frauds, if make answer what is use of statue? This works only in KY. Every other juris says no privilege of
statue of frauds, judge says answer. ONLY way to get out is to LIE. Works b/c no ADMISSION to the deal.
Handle by pre-trial motion to dismiss due to statute of frauds, so never get to trial and the admission.
Performance – to extent have performed, enforceable. But not to entire contract, just to extent performed.
[circumstances following K formation provide evidence that a k was made, so that it is too technical to insist on compliance
w/ the statute
protection of the interests of a party who suffered a detriment in justifiable reliance on the oral K

Suretyship: FIVE EXCEPTION fact patterns (IF A is the borrower, B is potential surety, and C is bank)
1. A is not bound to C =>B promise to C is original and not a surety
2. A & B both receive and derive benefit from goods from C – partners, no surety
3. Main purpose doctrine: B’s primary purpose is for own benefit = no surety
a. Power v. NFLP: Power agreed to take over the debt only to try to get the license to sell NFLP
cards. Win based on promissory estoppel
4. Novation: creates new K – makes promise to original B and no surety
5. Promise is to A rather than C
a. Langman v. Alumni: they promised the donor not the bank, so no surety

IF K is unenforceable for noncompliance, must raise an affirmative defense to deny existence of K. One unenforceable,
restitution available.

Whether or not orig K subject to statute, if a modification makes it fall w/i, the modification must be in writing.

Amelioration of the Statute:

• Effect of non-enforcement when statute of frauds applies, may be limited by:
o Part performance
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o Estoppel
o Restitution
All in §139.
• Reason? Law should not permit a P to commit fraud by taking advantage of statute of frauds.

§139: basically promissory estoppel/reliance for statute of frauds cases: 1)promise 2) D should reasonably expect to induce
action or forbearance and 3) such occurs. 5) Enforceable if that is the only way to avoid injustice; 6) remedy limited as
justice requires. To determine if injustice can be avoided only by enforcement: other remedies (esp cancellation and
restitution)?; definite and substantial nature of action or forbearance in relation to remedy sought; does action/forbearance
show there was a promise or is there other clear evidence of the promise?; reasonableness of the action/forbearance; was
action/forbearance foreseeable?
PRIAFER: P(promise) R(reasonably) I (induces) A(action) F(forbearance) E (enforceable to avoid injustice) R (remedy
limited as justice requires)

PART PERFORMANCE/ Reliance

1. Past performance exception: parties may begin performance after forming a K, which may provide reliable
evidence that a K was made.
a. The performance satisfies the function of the statute
b. Generally require some prejudice to have be suffered in reliance
c. Some courts recognize only if one party has completely performed.
d. UCC §2.201 incorporate for sale of goods: only for what has been done
i. Seller has started making goods that are specially made for the buyer that would be
difficult to resell
ii. Enforcement only to extent goods made and accepted or goods delivered and accepted

Johnson Farms v. McEnroe, ND Supreme Ct, 1997

Johnson has oral agree to buy McEnroe farm, McEnroe wants like-kind exchange. Exchanged 1 prop for ½ of the farm.
Converted to an option K (until April) for rest. M renigs when thinks can sell rest for more $. Johnson wants specific
performance based on part performance or return of $ pd above price agreed to for ½ (restitution c/a if part performance
loses). Gets to go to trial b/c part performance enough evidence to take to jury to decide.

Doctrine of part performance: 3 acts that can make oral K enforceable:

1. paying the K price, 2. taking possession, 3. making improvements.
2. generally need 2 of the 3, but one may be enough.
3. Is the part performance consistent ONLY w/inducement by existence of the alleged oral agree?
*This case interesting b/c normally improvements need to be putting a structure/something lasting on the property; but in this
case court permitted the platting (~$6k value) to be enough.

Why is past performance an exception:

• Performance is probative of that agreement existed
• Otherwise, P suffered cost w/o compensation
• D would have enjoyed unjust enrichment

Rest 2d §139: called reliance rather than part-performance; evidentiary element also part of the rationale.
REMEDY: generally only restitution; reliance is rare unless a definite benefit given to D (in this case the court suggesting
giving the $6k as reliance damages is very rare b/c that gave no benefit to D, just a prep move by P.
Restitution problematic: some cases say part-performance is part of law of restitution.

Real property transactions: Requirements for part-performance vary from state to state.
• Some indication that part performance can lead to specific performance, but not to damages
• Restricted to cases of equitable relief

SIDEBAR: What is the consideration for the option? Original option doesn’t need consideration b/c part of the original deal
(?)
What is consideration for the extension of the option? None. The waiver by D of not ending the option is good
enough for the extension.

Promissory Estoppel
 Rees Page 23 of 46
Rest 2d §139: compliments §90; adaptation of promissory estoppel for statute of frauds. The forbearance or actions
corroborate the existence of an agreement.
Opposing view states that take risk if agree to oral k and do not get it in writing; to ameliorate would make statute of
frauds meaningless. (Ozier v. Haines)

Monarco v. Lo Greco, CA Supreme Ct, 1950 (FAMOUS CASE PER PROF)

“20 yrs on the farm” case
Spouses agree to leave their property to Lo Greco (Christie) in exchange for his working on the farm. Christie gives up other
opportunities; works on farm ~20 yrs, but prior to death step-father decides to leave his ½ to his other son (Monarco) who has
not participated in the business at all.
Issue: Is Monarco estopped from relying on statute of frauds to defeat the oral K?
MOST (incl this state) will not apply statute if elements of unjust enrichment or detrimental reliance.

Held: Yes. Both unjust enrich and detrimental reliance in this case – Step-father (and Monarco) unjustly enriched by
Christies 20 yrs of work; Christie relied on the promise of the land to give up other opportunities = unconscionable injury.

Neither damages for breach nor value of services rendered adequate.

Remedy: Court may enforce the agreement if this is the only way to avoid injustice (§359 specific performance available if
other damages inadequate to protect expectation interest).

***This case important b/c: prior to this in estoppel cases there had to be a representation that the Statute was being abided
by (we don’t need writing in this case, I’ll give you the writing later, etc); in this case the judge says that is irrelevant, people
are really relying on the underlying promise that is in the K, not the assurances of meeting Statute of frauds requirements.

2. Judicial admission exception:

a. Permits enforcement despite noncompliance if the party admits there was a K in some court
manner (pleading, testimony)

3. Reliance: estoppel and promissory estoppel

a. Equitable estoppel to protect reliance on a false factual assertion (limited); ie one says a signed
written and other acts in reliance on that
b. Promissory estoppel: one justifiably relies on oral K as a promise and suffers some detriment. CL
and §139.
i. §139: promise reasonably expected to induce reliance
ii. justifiable and substantial reliance
iii. need to enforce to prevent injustice

CHAPTER FOUR: POLICING THE BARGAIN: what kind of promises will law enforce
• Some situations where K may meet formal requirements such as assent, consideration and compliance w/ statute of
frauds, but still refuse to enforce
• Fraud, threats, Bargaining abuses
• To some extent based on moral conviction
• Legislature, courts and administrative agencies must work together to protect consumers

Three types of policing concerns:

Generally, cn is present and issue is more elusive as below:

1. Status of parties – disqualifies certain classes of persons from entering K’s (minors, married women and mentally
infirm by hx)
a. Is it innate (age) or
b. Based on circumstances (consumer protection)

2. Behavior of parties – how did they bargain.

a. Duress or fraud
b. Differences in bargaining power
c. Public protection policy – Ie., K to kill; shouldn’t allow this behavior

3. Substance of the bargain – inequality in the bargain itself

a. Generally courts will not inquire as to value of consideration
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b. However, there are a # of limiting principles to prevent routine enforcement of unequal bargains
Five areas:
1. Capacity
2. Unfairness
3. Overreaching
4. Unconscionability
5. Public policy

Capacity
Person who shows assent has full legal capacity unless:
• Under guardianship
• Infant (minor)
• Mentally ill or defective
• Intoxicated

Often lack of capacity just renders K’s voidable.

Variation in law from state to state; protecting minors from themselves v. protecting creditors
General rule: infants K is voidable during infancy and after a reasonable time w/i reaching majority ORS 109.510 – majority
= 18.
Thought to be a privilege = minors K is voidable but not void – option for minor to enforce, but other cannot enforce v. minor
Exceptions by statute in some states. Insurance, banking, educ loans are examples
Broader judicial creation for necessaries: food, clothing, shelter – some minors really need to buy these so law
should make K’s enforceable so merchants will sell them; not too large an expenditure, so protection need lessened
2 common issues: 1. ratification: if minor reaffirms obligation after reaching majority, then bound (disputes arise in implied
ratification – usually involves passing of time – how long is too long to disaffirm before bound?) Usually more time allowed
if other side has finished performance; however, if continue to receive/buy goods, then should be held to shorter time b/c
more harm to merchant if don’t disaffirm early
2. restoration requirement: even if court allows to disaffirm, what do have to return to merchant? Usually based on
restitution (give back benefit rec’d) or tort of deceit (if K had a representation that at least 18 & lie about that):: general law –
all states say minor must return anything still has (car); whether minor must give more varies from state to state and case to
case; sometimes depends if minor is P or D – P sues D for purchase price b/c P wrecked car – generally no restoration; if she
pays cash, wrecks, sues to get $ - generally will have to pay for depreciation in value (if any $ left over will get back)—not as
sympathetic if minor has cash

Kiefer v. Fred Motors

Minor had right to return vehicle; recovers entire purchase price. Did not have to pay depreciation (restoration) b/c dealer
didn’t estab tort of deceit (even though signed saying 21 when bought car).
Dissent: For minor, vehicle was a necessary and thus right to disaffirm should not have existed.

Mental illness: party who does not understand nature and consequences of actions lacks contractual capacity: §15 (not on
exam) Generally court will look to substantive fairness of deal if question of one taking advantage of one mentally ill.

Unfairness: Conventional Controls

• Lesson: hard to win one of these cases

• Inequality of exchange in the bargain
• Is it proper for courts to see that neither suffers disproportionate gain or loss?
• Rest 2d §79: if requirement of a consideration is met, there is no addt’l requirement of equivalence in the values
exchanged.
• Implicit judgment that a promise should be enforced whether or not something of equal value was given for it.
• Regardless, several limiting principles:
o Duty of good faith and fair dealing in K performance and enforcement (but not in K formation) (Rest2d
205) What about Channel and Red Owl (Precontractual liability to act in good faith – generally not until
something more – note of intent to negotiate in good faith in Channel, extensive actions by Hoffman due to
Red Owl promises)
o Traditional equity courts often refused to enforce if exchange highly disproportionate
o In cases at law, lack discretion to weigh equities and must look to other reasons, such as conflict with estab
public policy or manipulating doctrine of consideration to serve ideal of fairness, including deciding if any
bargain has even been made
 Rees Page 25 of 46
McKinnon v. Benedict, WI Supreme Ct, 1968
[367-Mckinnon-RV Park-No Specific Performance if cn grossly inad; terms unfair; sharp dealing; disproportionate hardship]

McKinnon (D) [lots of business exp] loans $5k & promises to help drum up business to Benedicts (P) [jeweler w/no $] to
purchase a resort. In return they promise not to develop the area next to his property for 25 yrs. 4 yrs later (shows good faith
attempt, no misrepresentation of their intentions), when resort failing, they start to build a RV park. McKinnon sues for
specific performance b/c $ damages inadequate.
2.. Found consideration (interest on $5k loan instead of loan itself) to be so inadequate as to be unconscionable. 1. Benedict
unable to deal at financial arm’s length & due to necessity, agreed to oppressive terms.

•Two public policy arguments: 1. Equitable principal that K’s that are oppressive will not be enforced in equity and
2. restrictions on use of land is disfavored[#2 today going out of favor]. Restrictions on use of land should be
resolved in favor of free use of the property.
• Court looks at both the time of the K formation (1 & 2 above) and the time of the litigation (hardships too great)
• For specific performance rquest, must claim $ damages inadequate
• K fails to meet test of reasonableness that is needed for enforcement of rights in an action in equity; too one-sided
• Injunction should not be granted if that would shock the conscience of the court – if inconveniences & hardships
outweigh benefits. (PORTIA type gain – hardship to Antonio far greater to gain of Shylock)
• Rest2d§367: specific enforcement of a K may be refused if the consideration is grossly inadequate or terms
otherwise unfair, or enforcement will cause unreasonable/disproportionate hardship or loss to D or it was induced
by sharp practice, misrepresentation or mistake
• Alternate view: Corbin on K’s: although a K is harsh, oppressive and unconscionable it may be enforceable at
law; but court has discretion not to enforce equitable remedies against one who suffers.
______________________________________________________________________________
• Specific performance is not a matter of right as damages are, but may be withheld at court’s discretion: unusual to be
enforced.

• Coase Theorem: [Coase godfather of law & economics]: legal entitlements do not impact resource allocation; when
few transaction costs, whether trees cut or not doesn’t depend on outcome of case: ie., if worth $10 to Mk if $5k to
B, negotiate a deal to keep the trees. [[not on test]] Coase Theorem only works when no transaction costs (costs in
this case)and when parties happy to get together to negotiate (by this time they were probably angry); while legal
entitlements in cost free transaction world do not impact allocation of resources, do impact distribution =>makes big
difference to the 2 parties – if MK wins, keeps trees and $;

• Says free bargaining will always decide

• Problem: 1. imaginary world of free bargaining & putting price on legal entitlement difficult; 2. legal
entitlement greatly effects distribution of wealth – rich would always win

Tuckwiller v. Tuckwiller, 1967, p317 “old lady dies on family farm and nepharious executor” case

Old lady had Parkinson’s, asked neice to care for her to her death, signed agreement stating such and that would leave farm to
her. Neice leaves job & starts to care for her. Old lady ill, has ambulance drivers witness the paper, dies few days later w/o
chging will.
• Test for determining if K unfair or if consideration is sufficient is prospective, based on circumst at time.
• Although prior service cannot serve as consideration, it can be considered in determining if K is fair and cn is
adequate
• Once essential fairness of K and adequacy of consideration found, fact that real estate answers that legal remedy (at
discretion of court) can be specific performance as easily as damages.

Black Industries v. Bush, 1953, p320 “unhappy middleman” case

Black (D) arranged to supply parts made by Bush (P) to Hoover & Standby, which in turn would use them to fulfill govern K.
Black’s compensation would be difference in price chgd by Bush and price paid by Hoover & Standby. Black pd to get parts
to make product. Bush did not perform the order. Bush’s defense is K is void for public policy b/c Black’s profits were so
great and passed on to gov and public in form of increased prices. Bush asks for summary judgment: Court says no.

• In order to declare a K, entered into freely and w/o fraud, void as against public policy, the K must be invalid on the
basis of recognized legal principles. 1. K by D to pay P for inducing public official to act a certain way; 2. K to do
an illegal act, 3. K which contemplates collusive bidding on a public K.
 Rees Page 26 of 46
• Rule: relative values of the consideration in a K b/t business men dealing at arm’s length w/o fraud will not affect
the validity of the K. Rest 81

Overreaching

• Shouldn’t allow advantages from gross unfairness in bargaining

• Duress, fraud, mistake
• Ordinary remedy is to allow the victim to rescind or avoid the K
• Duress: wrongful act or threat that overcomes the free will of a party/impermissible pressure
 Violence or threats; imprisonment; taking or keeping property; threats to breach K
 Usually remedy is restitution (undo unjust enrichment)
o Victim can sometimes compel restoration - $ pd and property transferred
o Promise obtained by duress may not be enforced v. victim
o Economic coercion recognized (threats to a person’s property)
o Limits:
1. *Victim must show at least some resistance
2. Substance of threat: threats to business interests, life & limb, making someone an offer they
cannot refuse
3. Nature of threat: criminal or tortuous injury threatened
4. *However,it is NOT duress to threaten legal action (that is legally okay to do) (Chouinard v.
Chouinard)
o Limits to threats of lawsuits: have to have a basis for the c/a for it to be ok
o Some threats of lawsuits may be duress, as in Pacelli: mid-marriage property agreement not ok
Example: employer gets a benefit from employee under threat of discharge, where employee can be fired at will.=> unjust &
inequitable threat
However, not duress to threaten to fire an at will employee.

Typically, D will raise pre-existing duty rule or duress to try to avoid enforcement of modification of K.
Prof says duress today a better argument than pre-existing duty rule.

Alaska Packers’ v. Domenico, US Ct Appeals, 1902

Emps agree to be pd $50 for fishing; get to the plant and demand $100 or won’t work. Co rep signs agreement b/c no other
way to get fishermen. Co only pays on original. Upheld.
o Classical doctrine: Pre-Existing-Duty Rule: §73: performance of an owed (executory) duty is not
consideration if it was already owed the promisor: duty must be legal (not voidable, ie by a minor)
• Unless doubtful or honest dispute about the duty or
• Even a pretense of new consideration for the modification
• Must be executory: if duty executed and $ paid, then can claim under duress, but
not pre-existing duty
o Basically, refused to perform & coerced higher pay.
• Exception from case: if co voluntarily waived the emps breach of first K
o Minority: can modify K with just consent as consideration(AL)-basically does away w/pre-existing duty
rule
o Minority: others say chg must be in writing & signed, no extra consideration needed (seal/covenant idea)
o Rest §89: can modify a promise in K if not fully performed (executory):
 Fair in light of unanticipated chg of circumstances
 Provided for in statute
 Justice requires enforcement b/c of chg in circ. due to reliance on promise
 See Rest §89 for several examples
(Arzani v. People of NY – how 89 came into being: union asks sub for higher $, contractor
agreed w/sub to pay ½, sub pays, contractor reniggs & upheld based on pre-existing duty-
court says no termination of 1st K and no consideration for the oral agreement =
unenforceable).
89 will trump 73 if your facts fit it. [as 90 can trump 71]

Persuasive agreements all focus on duress, not just the pre-existing duty.

Rescission and modification:

 Rees Page 27 of 46
IMPORTANT question: was the modification due to free & fair bargaining and were both parties happy with the new
deal?

Schwartzreich v Bauman, 1921 (a rest §89 example)

S contracted to work for $90/wk. Gets better offer of $115 prior to starting work, B (needed S) offers $100 wk. They sign
new agreement and destroy old. New is binding. No duress.
o An existing K is terminated by consent of both parties (rescission) then a new one can be executed in its place. (this
is still good law)
o Make sure a rescission; even better bargain higher pay for an added duty = new consideration for the modification

Watkins & Son v. Carrig, 1941 , p333

P (Watkins) excavating cellar for Carrig. Solid rock encountered; D agreed orally to higher price, relying on this P does
work. Court goes through each exception and finds for P. “fundamental justice and reasonableness” in a close case. (§89
supports this)
• Parties agreed to rescind the written terms in favor of the oral. D says didn’t rescind and then create new
K, says all one transaction =>modification w/o consideration.
1. =this court says that on these facts, a modification is a partial rescission
2. Any mutually agreed upon rescission is in itself a K

Courts reasoning for P and info to use to trump §73:

• the special price was fair and the D rec’d reasonable value for it
• a result accomplished by proper means = no duress
• changed circumstances make it okay
• meets reasonable needs of standard and ethical practices of men in their business dealings

Per prof: a classic mistake case: K was to excavate easy ground; turns out both mistaken, on those facts can rescind on
ground of mutual mistake; this court turned down the mistake

Rest §89 says should use the unanticipated chg of circ (better offer) reasoning, as rescission followed by immediate re-K for
new promises is fiction and could lead to unfair modifications.
**use both arguments as appropriate b/c get to same conclusion per Prof.

Scope of PreExisting Duty Rule

o Consideration is only a test of the enforceability of an executory promise
o Means that when payment made or performance given, recipient can’t be required to make restitution on the ground
that nothing was given in exchange.

1.Controversy in which part of debt paid as agreement for forgiving the rest
Commonly known as accord & satisfaction:
Accord (agreement to take lesser amt) Satisfaction (payment of the lesser amt)
Three ways to defend against accord & satisfaction claim:
1.§73-no consideration for the modification: no compromise
2.agreement response: Kibbler case, print too small on check that said “pd in full”-not likely to win [full
payment ck – is for less than promised amt –often if cash it, will be upheld under accord & satisfaction] –
Prof refers to his new conceptualism article, that this is one more example of those w/$ protecting
themselves
3.duress: most likely to win

Foakes v. Beer: (1884-England): Beer, creditor, had judgment v. Foakes (debtor). Agreed to forgo interest; he pd
principal. Later she recovered the interest. “payer of a lesser sum cannot be satisfaction of the whole” =>in agreeing to
pay the interest judgment, he did no more than he was supposed to do in the first place.
Controversial case: businessmen recog future value of $ better than no or less $

2. Less common problem, does rule apply when pre-existing duty is owed not to promisor but 3rd party

De Cicco v. Schweizer: (1917 NY): Prior to wedding, parents agree to give bride $ every year for life. Stopped
paying, couple assigned to 3rd party (de cicco). Cardozo found orig agree was to try to induce the groom to marry
her. Said neither able to withdraw alone, but together they could terminate by mutual consent. The consideration
then, was that they did not do so, but married in reliance on the promise. (Rest 73 ex)
o This case later cited by Cardozo as a start of promissory estoppel.
o Brillant Cardozo end run around consideration doctrine
 Rees Page 28 of 46
McDevitt v. Stoakes: gambler offers jockey $ to win the race; not upheld b/c jockey already had duty to the owner to
try to win.
o Most gambling K’s aren’t enforced, this distinguishes it from De Cicco, an honorable family bargain
o Unlike de cicco, doesn’t induce jockey not to break his promise to owner

Duress in Business
-economic duress or business compulsion

Austin Instrument v. Loral Corp, 1971

Loral (D) contract w/Navy and awarded Austin subcontract. Later, Loral rec’d 2cd Navy K and told Austin would award
them only parts on which they were low bidder. Austin replies by saying 1)Loral has to award them all the parts and 2) Loral
has to pay more for the parts under the 1st contract, incl those already shipped. Austin stopped delivery on the 1st K. Loral
could not find another supplier and acceded to the demands.
Once all rec’d under both K’s, Loral notified Austin it would seek recovery for the price increases. Austin first sued for an
amt remaining under the 2cd K. Same day, Loral sued for the price increases on the 1st K based on economic duress.
Trial: Austin won and Loral’s c/a dismissed. Appellate confirmed. Highest court reverses and remands for damages to be
calculated for Loral. Say that a question of law that lower courts did not apply correctly to the facts, say no dispute about the
facts. Says classic case of duress.
• K is voidable for duress when party forced to agree to it by wrongful threat that limits his free will
• Existence of economic duress: proof that 1) immediate possession of needful goods is threatened, 2)could
not obtain the goods from another source and 3) the ordinary remedy for breach would not be adequate.
Dissent: there was a dispute about the facts. Austin says they stopped shipments only for a routine vacation period. Both
agree a registry of other suppliers that Loral chose not to use. Say Loral may not have been reasonable and may have created
the duress by not using one of those.

Victim’s Options: must victim resist the duress and find a reasonably satisfactory remedy for any resulting injury.
Pawnbroker case – D says P could have gone to law to regain property instead of overpaying debt. But court said P might
have had such an immediate want of his goods that an action would not be satisfactory. Since then, allowance made for the
delay to go to court.

Status of the Parties: Undue influence

-inability to bargain at arm’s length

Ordorizzi v. Bloomfield School, 1966

P arrested for homosexual activities, resigns after principal threatens to make chgs public. Chgs dismissed, tries to rescind
resignation b/c duress and undue influence. Dismissed, reversed – only says a c/a present.
• Undue influence = overpersuasion, coercive in nature, overcomes the will w/o convincing the judgment, taking
advantage of mental or psychological vulnerability of other
• Very rarely see outside family context
• Test: 1. subjective: a. undue susceptibility in one and b. excessive pressure by other, and
2. objective pattern: several of following elements present:
1. discussion of transaction at unusual or inapprop time
2. holding transaction in unusual place
3. insistent demand that business be finished at once
4. extreme emphasis on consequences of delay
5. use of multiple persuaders v. single
6. absence of 3rd party advisors
7. statements that no time to consult financial or legal advisors

• Often these types of cases involve confidential relationship of some kind

o Must show bargain 1)fair, 2)conscientious and 3)beyond the reach of suspicion to defend v. undue
influence

Fraud: obligation to disclose info to the other when bargaining: concealment and misrepresentation

Swinton v. Whitinsville Sav. Bank, MASS supreme ct, 1942

D (bank) sold Swinton house that bank knew to have termites. P spends $ for repairs and termite control to save the house.
Chg of concealment. D wins b/c court doesn’t want to impose on every seller or buyer so as not to take away bargaining
 Rees Page 29 of 46
advantages. Plus slippery slope of making seller liable for every thing wrong. Could defend v. that by offering line of
suggestions for limits.

• Rule of nonliability for bare nondisclosure (relick of classical K law)

 No fiduciary duty
 No half truth

Now, some statutory protections and some courts require that dangerous conditions be disclosed.
• Bare nondisclusre rule has fallen largely into disfavor and no longer exemplifies dominant American values. Unlikely
seller would get away with this today.

Kannavos v. Annino, MASS supreme, 1969

Annino & realtor know apt bldg converted in violation of city zoning. Kannavos buys apt bldg from Annino, after Annino’s
realtor advertised it as an apt bldg & discussed the income/expenses. Clear he intended to use it as rental. City brings action,
Kannavos sues to rescind.
Trial court overruled demurrer and granted rescission. Annino appeals, affirmed.
• Different from Swinton: 1. Kannavos could have found out the condition via public records, whereas in Swinton, no
way to find out w/o experts – this is in favor of the seller; 2. Once sellers said anything about the apts or took
affirmative action that was misleading, they were bound to be honest (speak fully and fairly) about all
material information.
• P is not barred from recovery when they rely on fraudulent representations, even if they did not use due diligence to
find info.
• If total silence, assume Swinton rule would have applied – not an explicit reaffirmation of Swinton – unsure if
Swinton would be decided in the same way now
Variations:
1. What if no ad, but bldg divided into 8 apts; seller knew buyer likely to use it as rentals:
2. What if not divided into units, but seller knows buyer intends to divide it into units & is unaware of zoning problems:
Should think hard about putting seller’s into those obligations.
Rest §161: A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the
following cases only:
a) he knows disclosure of the fact is necessary to prevent some previous assertion from being a misrep or from being
fraudulent or material

Misrepresentation: §159
• Even innocent misrep can allow rescission – Yorke v. Taylor (told wrong value of property)
• Concealment and nondisclosure are varieties and grounds for rescission
• Must be about a material element
• Some degree of diligence req’d by one who relies on another’s statement
• Must be a misrepresentation of fact, not opinion

Unconsciounability ***most interesting chapter of book per Prof.

• relatively new concept: out of growth of very large firms, and use of std contracts
• doctrine w/o content – requires courts to delve deeply into facts of cases and make subjective determinations – no
bright lines as in classical
• politically controversial
• gained notoriety under UCC 2-302: K that will shock conscious of the court will not be enforced: allows more direct
policing
o prior to 2-302, courts used adverse construction, manipulated rules of offer & acceptance, contrary to
public policy arguments, contrary to dominant purpose of the K.
• elements of substance and process: absence of reasonable choice combined w/ unreasonable power on the other side
• use of strict construction: court twists language into something that it was not intended to be, see p367
• **normally will not win – will limit the scope by finding a delineation b/t cases in order not to follow precedents

Std form (adhesion) contracts: elements of status, behavior and substance remain a focus of concern
• Avoid juridical risk: danger that court or jury swayed by irrational factors to decide against a powerful D.
• Dangers: offer means for stronger to impose its will upon weaker, may be no opportunity to bargain (take it
or leave it K), used by party w/ advantage of time and expert advice v. party w/no real opp to really
understand clauses
• Must determine if party can reasonably be held to have seen understood and assented to the unfavorable
terms and thus be bound by them
 Rees Page 30 of 46
O’Callaghan v. Waller: (1958, ILL)
Tenant fell on property of landowner. D says an exculpatory clause bars tenant from recovery. Trial finds for P, appellate
overturns and supreme says clause is good.
• K’s where one seeks to relieve self of consequences of his own negligence are generally upheld, unless:
1. would be v. settled public policy to do so, or
2. something in the social relationship that prevents upholding it
Ex: common carriers, shippers of freight

Dilemma between freedom of contract v. protection of others:

• Freedom of contract is basic to our law. But when that freedom expresses itself in a provision designed to
absolve one of the parties from the consequences of his own negligence, there is a danger that the standards
of conduct which the law has developed for the protection of others may be diluted.
• Also a judicial unwillingness to step into std form K’s and exculpatory clauses, think should leave it to
legislature

• Dissent: should really look at how many people it will effect (public/private are just labels)
o The distinction can result in injustice: disparity in bargaining power too great
o “judges need not be more naïve than other persons” : no freedom of K

• Factors to consider when determining if clause should be deemed void:

1. importance the subject has for physical and economic good of group agreeing to release;
2. their relative bargaining power;
3. amt of free choice actually available when agreeing to the exemption; and
4. existence of competition among the group to be exempted.
Note: most states now provide by statute exculpatory clauses re: landlord negligence in residential leases are ineffective.

Typical reasons favoring legislature

• Political legitimacy: judges typically unelected whereas legislators are elected
• Legislatures can act more systematically
• Judges less equipped to understand these problems than are legislators, who have committees, interest groups,
researchers etc

Judges instead
• What about this particular client
• Anthony Lewis (NY Times columnist): a judge may be more equipped to decide a difficult divisive
question, can look very deeply into one particular case & therefore may understand the overall situation
better than a legislature that takes broader but more superficial view.

Klar v. H&M Parcel room: clause on bag check does not bar recovery
Patron leaves pkg, receives but doesn’t read claim ck. 3rd party comes to retrieve, has been delivered elsewhere. Sues.
Court finds the ck was for the purposing of claiming parcel, not to form a K.
• must give adequate notice and receive assent
• Rest §211: if one gives assent, but the other knows he wouldn’t have if he had known the K contained a
particular term, that term is then NOT part of the agreement.

***today claim-stubs probably enforceable: looks like notice b/c they put up signs and mark in bright bold letters the
disclaimer – courts then willing to say taking the ticket is acceptance
***hospitals cases are really hard: about to check-in for an emergency & hospital makes one sign negligence release clause –
tend to favor the plaintiffs b/c they really have no choices against a hospital
**sports cases: high risk - almost uniformly being upheld b/c of inherent risk of the sport (scuba, skydiving) – sometimes if
can prove gross negligence will throw out exculpatory clause – either b/c doesn’t specify gross negligence or it’s against
public policy

Graham v. Scissor-Tail: arbitration clause w/i reasonable expectations of producer

Graham contracts with Scissor-Tail to produce several concerts. Arbitration clause. Clause held ok. K was unconscionable
on other grounds: that the arbitrator was too biased toward performer.
• 2 judicially imposed limits on contracts of adhesion in CA:
1. must fall w/i reasonable expectations of the weaker or adhering party
2. cannot be unduly oppressive or unconscionable
 Rees Page 31 of 46
Adhesion K: term signifies a stdzd K, which, imposed and drafted by the party of superior bargaining strength, relegates to
the subscribing party only the opp to adhere to the contract or reject it.

• Most states will not enforce just b/c a contract of adhesion

• CA is odd in saying a two part test 1. is it an adhesion contract, then 2. does it fall outside the judicially
imposed limits above

Review by Prof: dilemma of Unconscionability: freedom of K v. dilution of protection of others

Henningsen v. Bloomfield Motors(1960-landmark case): disclaimed warranty unconscionable

Henn bought new car, wife injured when steering fails 10 days after car delivered. Small print clause on back of purchase K
that D says disclaimed the implied warranty. [normally would allow damages for pers injury caused by defective parts]. Trial
for P’s; Supreme of NJ affirmed.
• In absence of fraud, one who doesn’t read a K before signing is still bound.
o K should be result of free bargaining of parties w/same economic equality
o However, this case a std form K for mass use, buyer takes it or leaves it and must take it to buy an auto
• Reason those offering services of public or quasi-public nature held to fair dealing (and understanding consent if
offeror trying to limit liability) is b/c public generally has no other means of fulfilling the specific need represented
by the K
o This is the case here b/c AMA std K for majority of the dealers = gross inequality of bargaining power
o Must be arm’s length negotiation on the subject of the clause – where there is no competition, no where
else for consumer to find that product w/o the clause, can be no arm’s length
 Notice: Public policy not clearly defined; however limitation of liability not upheld if unfairly procured: if not
brought to buyer’s attention and he wasn’t made aware of it, or if not clear and explicit (not understandable); takes
away significant rights buyer would otherwise have
o In this case no dispute that didn’t call attn to the exculpatory clause, it was in small print and there were no
words indicating a limited warranty
o Wouldn’t have been hard for co. to bring it to public’s attn if they wanted to
 Understandability: Was written in such a way that no reasonable person would understand that exculpatory clause
prevented claims for personal injury
Difference from O’Callahan:
• there she conceded notice; here doesn’t look as if even aware of the clause
Law review article: Slawson, 84 harv L Rev 529, Std form K’s: these K’s are akin to a law but haven’t been democratically
imposed; only way to manage for courts to take place of legislature and represent the party w/no power

DUTY TO READ:
• CL: in absence of fraud, one who signs a written agreement is bound by its terms whether he read and understood it
or not, or whether he can read or not (Cohen v. Santoianni,1953)
• Exceptions include std K’s that are unintelligible=will not be enforced as a matter of law
• Various legislative interventions to make clearer – bold print, colors, etc.
o Fight is to what extent is it ok for legislation to control terms of K and who has power to influence them?
Usually those w/ most bargaining power

FORUM Selection Clauses

1. Courts have traditionally expressed hostility to choice of forum clauses
2. Rest §80: ok unless unfair and unreasonable
3. The Bremen v. Zapata (1972): Factors that made reasonable to uphold clause: 1) b/t companies of 2 diff nations; 2)must be
freely bargained for, 3)must be capable of litigating in the forum, 4)must not deprive P of day in court; 5)forum clause should
control absent a strong showing that it should be set aside. 5) Clause was a vital part of the agreement.
District & appellate denied motion to dismiss based on the clause, but Supremes vacated & remanded for above
reasons, basically it was a very complex deal involving int’l travel and appropriate to assume that forum carefully bargained
for and figured into costs.

Carnival Cruise v. Shute: should enforce forum selection clause

*unusual b/c Supreme Ct rarely gets involved w/private K cases
Shutes buy tickets from WA vendor, Mrs. injured in int’l waters, sues in WA district ct. D says forum selection should
control. District upholds clause, appellate reverses; Supremes uphold clause.

1. reasonable forum clause may serve these purposes:

i. cruise line has special interest in limiting fora b/c passengers from all over
ii. dispels any cost/time re: deciding where can sue
 Rees Page 32 of 46
iii. saves passengers $ by limiting litigation costslower ticket prices
3. FL is not a remote alien forum (as The Bremen) and not a local dispute better decided in WA than FL
appellate had said they were infirm and forcing them to go to FL would disable them from suit
4. doesn’t meet heavy burden of proof req’d to set aside the clause.
5. No indication of fraud, overreaching; P’s given notice; PPB is in FL; didn’t use to try to discourage legitimate claims.
 Supremes say lower courts misread Bremen to say that if those factors were not met, couldn’t uphold. Bremen was upheld
b/c a complex int’l deal and would expect full bargaining on forum selection, and court would look for negotiation in a
similarly complex deal, whereas just common sense in Carnival that people would not negotiate a similar clause for a routine
purchase of tickets sold to people from many different states.

Dissent (stephens/marshall): Court didn’t look to the facts. They paid, then rec’d the tickets w/the clause. Another clause
said they couldn’t get their $ back, so their choices were 1. cancel their vacation and lose their vacation $ or 2. take the
chance that no injury would occur.
• Common law subjects terms in K’s of adhesion to a reasonableness std.
• Traditional K theory wouldn’t allow w/o showing P knew and voluntarily consented to terms
• Traditional rule that seek to limit place or court of c/a are invalid as against public policy
• Forum selection clause would have clearly been unenforceable prior to The Bremen.
• The general prohibition v. stipulations that lessen, weaken or avoid right to trial should be construed to apply to
manifestly unreasonable stipulation in these passenger’s tickets.

Class review by Prof: how to balance freedom of K w/ fairness and decency in exchange transactions.
No clear rules in area of adhesion K’s:
Extract arguments parties make, criteria courts adopt, factors that have led past courts to their decisions on the facts in each
instance – those go into outlines & be able to apply.

Unconscionability:
Primarily in consumer contexts; more reluctant in commercial K’s.
Equitable origins, decided by judge. Both UCC and Rest characterize as a matter of law.
UCC 2-302 comment: principle is one of the prevention of oppression and unfair surprise; need to abuse greater
power; otherwise, just the fact that one party more powerful does not make uncon. (only to sale of goods-one of most
controversial sections in UCC 2; comment 1 to pacify those who opposed: prevention of oppression & unfair bargaining
power, not the disturbance of advantages of superior bargaining power)primarily procedural (duress, fraud), NOT
substantive (imposing terms on other) courts have paid little attn to the last comment b/c can’t turn blind eye to substance
of terms
R 2d §208: If K or term is unconscionable may make K or that term unenforceable, or may limit the use of the term
in order to prevent an unconscionable result. (applies to all K’s)
States that theoretically possible to have a K oppressive as a whole, even if no weakness in bargaining
process and no one term which is unconscionable.

Defense of the Unconscionability doctrine:

In order to try to reconcile w/ bargaining process, 1967 Prof. Leff offered a split:
• Procedural Unconscionability: fault or unfairness in the bargaining process (naughty bargaining conduct
per Leff)
• Substantive: fault or unfairness in the bargaining outcome – unfairness of terms
Much of case law has emphasized element of unfair surprise, which prevents knowing assent and thus no bargain. Now also
includes unfairness of terms.

Suggested norms by Eisenberg, 1982, p402

1. Since bargain principle rests on fairness & efficiency, can apply specific unconscionability if there is no fairness or
efficiency.
2. Specific uncon closely related to how relevant market deviates from competitive market
3. Distinction b/t procedural and substantive uncon is too rigid to help develop specific uncon norms.

Objection to Unconscionability: Epstein, 1975

• Principle of freedom of K central to classical K doctrine
• Only two reasons not to enforce k:
• Proof of some defect in K formation process (duress, fraud, undue influence), OR
• Incompetence of the party against whom agreement to be enfoced.
• Uncon can police these two and increase admin of K law
• Use in substantive dimension (terms) undercuts right to K and does more social harm than good
 Rees Page 33 of 46
• Same if view from public policy: public policy requires that those of age & competent understanding have
the liberty of K and that K’s entered freely and voluntarily should be enforced by courts.

TEST under UCC and REST 208:

1. Bargaining unfairness; bargaining behavior (procedural) and
2. Unfair or oppressive terms (substantive).
Generally need both, but if one overwhelmingly strong, may uphold, ie outrageously unfair terms. However, also
needs at least some procedural problem b/c courts can’t adjust a K just b/c one overpaid, underbid or otherwise made
a bad deal.

Most common substantive reason is unfair terms, however, if terms fair, but undue pressure in the process, could still
be voidable.

Campbell Soup v. Wentz, VERY unusual case. Uncon b/c market dramatically chgd & unfair to hold the carrot farmer to
$30/ton when market chgd to $90/to. Threw out the whole K b/c several terms uncon of lg buyer Campbell v. small farmer
Wentz.

Williams v. Walker-Thomas Furniture, 1965, US Ct Appeals, LANDMARK CASE

[no court wants to leave poor unsupported, but also don’t want to leave them unable to access goods or be overly
paternalistic]
Furniture store used a contract that allowed purchases on time, with store retaining ownership until completely paid.
However, also said that any payments would be split “pro rata” between all purchases made, so that buyer never paid
anything in full, and company could repossess any merchandise not completely paid for if buyer defaulted. Cross-
collateralization (dragnet) clause – allows store to retain security interest in each item until every one paid in full.

Williams says they are unconscionable K’s; D’s imply ok b/c buyer agreed to the terms; Trial and DC appellate upheld K’s,
saying Congress should enact legislation to protect buyers b/c no statutes or case law to prevent sharp and irresponsible
dealings. Remanded by US Ct of Appeals b/c possible to have unconscionability, but lower court needs to decide if this
particular clause was uncon.
• Ct Appeals says court does have power to refuse to enforce unconsc K’s. Other juris have done so.
Supreme of US in Scott v. US: If a K is unreasonable and unconscionable, but not void for fraud, court can
give equitable damages to party who sues for breach damages, but not FULL damages b/c would be uncon
to do so.
• Most famous definition of uncon 1) absence of meaningful choice (procedural) + 2)terms which are
unreasonably favorable to other party (substantive).
• Meaningful choice can be negated by gross inequality of bargaining power (procedural)
• If little bargaining power and thus little real choice, signs unreasonable K w/little or no knowledge of its
terms, cannot have given consent (an exception to the duty to read & understand before signing of §70).
• To determine reasonableness or fairness, primary concern must be terms of the K considered in circ
existing when K made.
Critics say that by disallowing is paternalistic & therefore no business will sell to this class of people b/c of the risk.

Possible Defense by company: show freedom of choice, that K was well known to her, not hidden in fine print (procedural);
price ok b/c willing to offer to people w/poor credit & deserve compensation for providing that service therefore not
fundamentally unfair (substantive).

Price Unconscionability- just a few cases

Jones v. Star Credit Corp, NY appellate, 1969

Home salesman sold welfare recip a freezer for $900, which had value of $300 at the time sold. Issue: is transaction and K
unconscionable under 2-302 of UCC? Yes. Already paid enough to allow for profit of merchant and fairness to purchaser.
UCC 2-302: 1. if court as matter of law finds K or any clause uncon at time made, may refuse to enforce the K or the clause
or limit or modify the clause to avoid uncon result.
• Price is a term that can be reviewed for unconscionability.
• Limited financial resources of purchaser, known to sellers, should be considered.
• Value disparity leads to conclusion that knowing advantage was taken of P’s.
• Meaningfulness of choice essential to making of a K, can be negated by gross inequality of bargaining
power.
• Merchants can build in some $ to account for risk of lending, but not this much.
 Rees Page 34 of 46
Frostifresh v. Reynoso : other famous price uncon as matter of law case: SP speakers deceived into buying home freezer at
high price wanted to keep the freezer. Appellate said Reynoso had to pay net cost of freezer, plus reasonable profit, trucking,
service and interest charges. P.412

In both cases, company came out well. Will not act as deterrent. Critics want to punish = very controversial.

Commercial cases:
• Courts less willing to find uncon when bargaining position more likely to be equal and where experienced
traders less likely to be unfairly surprised by terms. (ie., Continental Air v. Goodyear)
• However, Gianni Sprot v. Gantos, held uncon b/c large business in garment industry able to impose clauses
on small indep manufacturers.
• Franchise agreements: one area where imbalance found w/some regularity

Arbitration Agreements: Supremes held generally enforceable under Fed Arbtration Act, Circuit City v. Adams, 2001; more
and more common and upheld.

Armendariz v. Foundation Health, CA supreme, 2000

2 employees signed arb clause at app and later when employed, 1 yr later terminated; filed under FEHA due to
discrimination. Co sought to enforce arbitration clause, P’s say can’t make them arbitrate antidiscrimination claim, that some
terms uncon and the uncon terms render entire arb agree unenforceable.
Trial – for P and invalidated K. Appellate reversed, saying damages terms uncon and contrary to public policy, but rest
should be enforced (severable-takes out offensive part). Supreme reversed and upheld trial court. No need to severe b/c
arbitration clause itself is unconscionable.

US Supremes have held arb clause ok if meet min requirements: 1) neutral arbitrator, 2) adequate discovery, 3) written
decision that permits limited judicial review, 4) limits on costs of arbitration

Uses Scissor-Tail test: If k is adhesive, then fist look at statutes and then look to judicial test: 1)must be w/i reasonable
expectations of weaker party; 2) cannot be unduly oppressive.

CA uses procedural (oppression or surprise due to unequal bargaining power) and substantive (overly harsh or one-sided)
elements.

• Arbitration agree limited to employee claims re: wrongful term

• Arb imposed in adhesive context lacks fairness and mutuality if it requires one party, but not the
other, to arbitrate all claims arising out of the same transaction.
• Compounded by limiting damages for employees, but not employer

Don’t overuse Unconscionability: [e&e advice]

• courts only have statutory power to grant relief for uncon for sale of goods. Despite Rest 208, common law
has some courts reluctant to extend uncon to cases that do not involve equitable relief.
1. even when available, most commonly used in consumer transactions when unworldly ind has entered bad K b/c of
high pressure or other bad marketing practices by large, sophisticated bus. Sometimes applied b/t commercial
entities, only rarely.
2. Concerned w/improper bargaining and unfair terms, but discrepancy in bargaining power is relevant, even though
not primary focus of uncon. Must abuse the power, not just have it.

Public Policy
• Should not enforce b/c contrary to public policy – both P and D harm society if upheld
• Prof thinks waning somewhat: immoral reasons no longer strong, used to be a major leg
• Two primary types:
1. Violate specific laws – illegal.
a. Even if the law is not specific to formation of a K, if there is a criminal code
prohibiting the behavior, understood as clear expression that K’s are unenforceable
for policy reasons.
i. Exceptions: usury and gambling statutes make K’s in violation of them
VOID.
2. Statutes silent, but courts derive policy from legislation related to the subject of the
agreement. Courts intuit that v. public policy.
 Rees Page 35 of 46
• Illegality precludes enforcement and restitution. §197 [LOOK UP}
• R2d§178: Promise or other term is unenforceable on grounds of public policy if 1) statute provides or 2) the interest
in its enforcement is clearly outweighed in the circ by a public policy v. enforcement of such terms. Factors for
court to consider:
i. In weighing interest in enforcement:
1. parties justified expectations
2. any forfeiture that would result if enforcement denied and
3. any special public interest in the enforcement of the particular term.
ii. In weighing public policy v. enforcement:
1. strength of the policy via legislation or judicial decisions
2. likelihood that refusal to enforce will further the policy
3. seriousness of any misconduct involved & how deliberate it was
4. directness of the connection b/t misconduct & the term.
*****Professor LIKES §178!!!!

Bovard v. American Horse, ct of appeals, 3rd district, CA, 1988

Ralph bought AH from Bovard, signing promissory notes. Bovard sues for non-payment. Trial revealed AH made jewelry
and drug paraphernalia. Ct held that though manu of the para not illegal, against public policy b/c marij illegal. Cn contrary
to public policy and K illegal and void.
Bovard appeals. Court used Moran and R2d§178 factors, decide little reason to enforce (D got back all the legal equipment
so no unjust enrichment) and strong public policy reason not to enforce. Upholds as illegal and void.
• Contrary to public policy is question of law
• When court learns K is illegal, has duty to refrain from enforcing it
• Deciding if violates public policy is subjective.
 Therefore courts cautious in applying; An “unruly horse, carries one into unknown and uncertain
paths”
 Must be entirely plain that violates public policy (balancing with freedom of K)
 Factors from Moran v. Harris to consider:
• Nature of conduct
• Extent of public harm
• Moral quality of conduct in light of stds of community
• In pari delicto: in circumstances of equal fault, the D’s position is more compelling.
D can use illegality as a defense to suit to enforce an illegal K

P’s response to illegality defense:

1)In pari delicto defense:P sues on K; D responds illegality defense; P then says not in pari delicto (I’m innocent)
Liebman v. Rosenthal – allowed recovery b/c Rosenthal much more guilty than Liebman (Jew bribed official in war torn
Germany to sneak out jewelry, he refuses to return jewelry)
2) Degree of involvement of this K so low and so remote from public policy, should enforce anyway.
-------------------------------------------------------------------------Fri class ends---------------
Review: when does public policy trump freedom of K?
1. Often appear under illegality, traditional label
2. Two primary sources of public policy: 1)statutes; 2) judicially created (covenants not to compete infringing on
restraint of trade, ie CAB)
3. Defense is diminishing and probably a good thing b/c many of decisions appear based on outdated views of morality
(unwillingness to enforce K’s of cohabitants)
4. Restitution is a possibility in this area, even if court refuses to enforce K on its terms, to prevent unjust enrichment
(have to be careful so that doesn’t undermine the fundamental public policy)

Courts sometimes use a clean hands doctrine: “he who comes into equity must come with clean hands”.
Other courts use it to say the court has to keep clean hands by protecting its integrity.
-like McKinnon v. Benedict – court wouldn’t uphold when one extracted very unfair deal

XLO Concrete v. Rivergate, NY, 1994

XLO, subcontractor, and Rivergate, general, K for construction project. XLO fully performed and Rivergate refused to pay,
saying K part of an extortion and labor bribery operation “Club”. Court says reject D’s defense that K should be held illegal
per se under the Donnelly Act (state antitrust law). Needs to go to trial b/c too much info they don’t have that needs to be
decided.
Balance b/t unjust enrichment and enforcing K’s
• Antitrust defenses not favored b/c of danger of unjust enrichment; upheld only when judgment would result in
enforcing conduct made illegal by antitrust act (Donnelly Act)
 Rees Page 36 of 46
• However, cts must look to overriding general policy of not letting people get benefit for nothing when they claim to
be purchasing the benefit.
• Thus, K legal and doesn’t call for illegal conduct is not voidable simply b/c it resulted from an antitrust conspiracy.
• Factors to look at:
o If K price excessive and fails to reflect market price
o Unlawful use of market power to inflate K price and resulting anti-competition must be assessed
o Is there unjust enrichment?
o Would allowing illegality defense void whole K or allow recovery under quantum meruit
(restitution)?
o In pari delicto? Relative culpability, bargaining power, knowledge of parties should be considered
[if in pari, D can use illegality as a defense]
o Public policy: is it mitigated by statutory remedies? IF so, statutes can apply; D’s argue will be then that
those statutes are all the legislature wanted to be applied (not too persuasive-risky to infer
from silence that legislature intends K’s to be enforced)
Rejoinders to defense of public policy:
1. In pari delicto
2. Degree of involvement is too remote from the illegality
3. in locus penitentiae: if can convince court has repented and done everything possible to undue negative effects.

Bribing Officials:
State v. Strickland: Briber could not recover damages for breach of K to commit a crime
“parties of that ilk are left where they are found, to stew in their own juice”
Proper line:
o K to pay for services to obtain or defeat legislation by other means than use of argument is illegal K. (ie., using
personal or political influence apart from appeal to reason)

Commercial bribery:
o To make unenforceable, must be direct connection b/t the illegal transaction and the obligation sued upon.
o Problem w/denying recovery, is one is unjustly enriched.

Licensing Laws
General Rule:
1. IF licensing statute is merely a revenue measure or merely an economic reg (to ensure adequate but not too adequate
supply of a service or product) K entered by an unlicensed person likely to be enforced. Penalty of operating w/o
license will be sufficient punishment w/o adding on penalty of refusing to enforce the K’s. B/c no strong public
policy.
2. On other hand, if licensing statute is for protection of public’s health, safety or morals, then ordinarily will not
enforce K by unlicensed person. Strong public policies. Ex, attorneys.
a. Restitution an option if clear value conferred

Judicially created public policy

o No clear statute, and court must be satisfied that strong public policy can be articulated
o Guiding principle to protect some aspect of the public welfare
o R2d§179: Public welfare policies against 1. restraint of trade and 2. impairment of family relations
o Overlap with unconscionability great in judicially created public policy: ie., Simeone case

Hopper v. All Pet Animal Clinic, Wy, 1993

Hopper vet signed no compete. Not to practice small animal med w/i 5 miles of Laramie for 3 yrs. Fired and started another
practice. All Pet sued for injunction and damages.
Supreme: B/c 3 yrs unreasonable, remand for modification to enjoin for 1 yr from date of termination and uphold district
findings damages not proven.
o CL policy v. K in restraint of trade one of oldest and most firmly estab. R2d§185-88.
o Initial burden on employer to prove reasonable and fair & necessary for business interests
o Freedom to K and freedom to work in conflict
o Rule of reason (R2d§188): restraint reasonable only if
1. no greater than req’d to protect employer
o geography, time and practice scope limits must be reasonable
2. no undue hardship imposed on employee
3. is not injurious to public
o Loss showing unfair competition: 187 of their clients went to Hopper’s new practice + over 50% of her new practice
based on small animal medicine
 Rees Page 37 of 46
o Practice restriction: reasonable b/c she could practice large animal or in another part of cty
o Public will not suffer if enforced
o Durational limit should be reasonably related to legitimate interest which employer seeking to protect: 1 yr
reasonable, 3 yrs not.

Karpinski v. Ingrasci: scope of prohibited activity oral surgery/dentistry. {{NEVER USE AND/OR}}
Too broad b/c parties were both oral surgeons, so prohibiting general dentistry went beyond scope of protecting employer.
Provided that if covenant broken, $40k liquidated damages court says cannot have both injunction and unrelated sum.
Could still prove actual damages.

DeMuth v. Miller, 1995, p. 440; covenant not to compete upheld

Fired due to rep gay org on TV. Court upholds covenant, saying no violation of public policy. The sep issue of
discrimination in work place should be addressed w/legislature.

Howard v. Babcock, 1993, covenant not to compete upheld

Attys agreed to reduce partnership shares if they left (covenant not to compete). 3 left and sued for full share amt. Court
upheld. States law practice no longer learned profession and much more like a business, therefore no special reason why not
to compete just b/c law.

CAB v. Ingram, II, TN, 1984

Chancellor found terms of non-compete unreasonable and modified. Issue: did Chancellor have authority to modify to
make reasonable? Held: Yes.
o Historically, all or nothing at all approach; reason that courts modifying gives courts power to make private
agreements and that is not ok.
o Then moved to blue pencil judicial modification, to strike only the offensive words of the term to make it
reasonable.
o Critics say may destroy the intent of the K and emphasizes form over substance
o Prof says a ridiculous rule
o More recent is Rule of reasonableness: unless circ indicate bad faith on part of employer, a court will enforce the K
to the extent reasonably necessary to protect the employer’s interest w/o imposing undue hardship on the employee
when public interest not harmed.
o In adopting, still maintain in general courts can’t create new K’s; exception in non-compete area
o Opposition/dissent: will allow employers to insert oppressive terms w/knowledge court will correct if it
goes to trial; further employer often given atty costs, so they have no reason not to litigate; may provoke
needless litigation

R2d§184: as long as term is fairly bargained for, it will be enforced to extent reasonable

Simeone v. Simeone, PA, 1990

Couple with prenup separates. Husband says limited to $25k per the K and he already pd during the 2 yr separation. She
says 1)not a reasonable provision, 2)she wasn’t fully informed of what rights she was giving up, 3)duress b/c presented
5pm night before wedding. Trial and appellate upheld prenup. Supreme of Pa says must uphold.
• Geyer: (1987) prenup valid if
1. made a reasonable provision for the spouse (substantively reasonable) or
2. entered after a full and fair disclosure of financial positions of both and statutory
rights being sacrificed (procedurally reasonable).
• Court says no longer valid b/c assumes women weaker and law has advanced to recognize equal states of men
and women; would be too paternalistic to uphold Geyer
• Consideration of knowledge of parties and reasonableness of their bargain is inappropriate
• Prenups should be evaluated same as any K
• Looking into reasonableness would undermine purpose of prenups
• Reluctant to interfere w/power of persons to put what they regard as acceptable distribution of their property
into a K
• No duress b/c ample evidence that she had 6 months to consider & talk about it
Dissent: so unfair that should not be enforced by a court.

CHAPTER FIVE: REMEDIES FOR BREACH

R2d§344
1. Expectation interest: (what expected to have) being put in as good a position as if the K had been performed; this is the
default generally-§347;
 Rees Page 38 of 46
2. Reliance interest: (what spent) being reimbursed for loss caused by reliance on the K by being put in as good a
position as if the K had not been made
3. Restitution interest: (what gave to other party) restoring any benefit conferred on the other party.
Measured by either (per §371)
1. reasonable value to the other party or
2. extent of increase in value

4. Equitable remedy: Specific performance(R2d§359): only if damages would be inadequate to protect expectation interest.

I. Specific Performance

• Equitable remedies: injunction or specific performance

o Generally courts grant substitutional relief (money damages).
o Modern trend toward awarding more frequently (UCC 2-716)
• CL courts generally did not grant specific relief
• Must show 2 items in pleading
o 1) Adequacy test developed: equity would stop if remedy of damages was adequate
o 2) Equitable remedies are discretionary
• Major Exception: real property (land) b/c each parcel ‘unique’
• Other Exception: heirloom cases (ie., Picasso or some very unique)
• Court will not order specific performance for personal service
o To avoid involuntary servitude or disputing parties having to work together
• Court will only grant injunctive relief if employee’s services are unique or extraordinary
• b/c of special skill (opera singer) or 2) b/c of special knowledge of the employer’s business (CAB)

Klein v. PepsiCo, US Ct of Appeals, 1988.

Klein wanted to buy used corp jet. Klein made offer, subject to factory inspection satisfactory to Klein plus a definitive K.
Accepted the offer by telex, noting $100k downpay to be wired. District court found a K formed at this point.
Inspection revealed needed repairs; PepsiCO agreed to pay for repairs (district court finding). The PepsiCo Chair then
decided to pull the plane from the market (1 day before closing).
Issue on appeal:
1. Was a K formed?
-appellate court will only reverse if district made clear error .

Defense: PepsiCo claims no K b/c

1) parties did not intend to be bound until a written memorandum. Therefore, argues right to withdraw. [district
based K on Janus’ acceptance and conduct of parties]
2)condition of satisfactory inspection was not met. Since unwilling to accept plane as is, condition not satisfied.
[district said this satisfied when PepsiCo agreed to make the repairs].
 no clear error re: if a K existed and affirmed.

District ordered specific performance. Prof says this is accurate b/c going to be very difficult to determine market price of
this plane. Some utility in offering party precisely what bargained for unless a reason not to do it (ie., personal services).
Issue on appeal:
2. If a K, is specific performance appropriate?
o No. Only allowed if goods unique and they are not based on testimony
o Just b/c he couldn’t find one at the same price is no reason to justify specific performance.
remand for trial on damages: 1. Not unique, 2. Damages not inadequate

Laclede Gas Co. v. Amoco Oil Co, 1975

Laclede v. Amoco for breach of K, seeking injunction.
Written agreement, w/specific terms: Amoco supplier, Laclede distributor. L should give A 30 days written notice to stop if
expected chg in business (propane to natural gas). L had right to cancel clause. No provision for Amoco to cancel. Amoco
exp a shortage and limits all customers to 80%, Laclede objects, bad relations start. Later Amoco notifies of increase price,
Laclede objects. Amoco sends letter terminating agreement due to lack of mutuality.
District: K invalid due to lack of mutuality b/c Laclede had right to terminate but Amoco didn’t (=lack of consideration),
denied injunction. Reversed.
-unclear if Laclede will be able to continue to obtain propane from 2 other K’s after those K’s end
-important b/c uses propane to meet demand at peak times
-testimony they probably couldn’t get similar long-term K
specific performance proper
 Rees Page 39 of 46
UCC 2-716: seeks to further a more liberal attitude that some courts have shown toward specific performance of K’s of sale.
Specific perf no longer limited to goods which are already specific or made so at time of K. Test of uniqueness must be
made in terms of total situation.
• Output or requirements K’s involving particular or peculiarly available source/mkt present typical
commercial specific perf situation (In the past only heirlooms or priceless works of art)
• May also be granted in other proper circumstances (inability to cover demand is strong evidence of other
circ)

Northern DW Ind Dev v. Bliss, 1968

General contractor to modernize for 27mil. N sought specific perf to speed up work; Court denied b/c impractical and not
spec circ or in public interest.
• Perf of K for personal services, even if unique, will not be enforced

Efficient breach: If A can breach K w/B and thus gain enough extra $ for itself to pay off B (putting in situation would have
been in) and still retain $ for itself, then efficient breach b/c A has gained value. Some scholars think this is good and
efficient. P466.
Free Market Value Idea: prof likes this:

Review: 4 fact patterns re: should court grant specific relief instead of damages: Yes – Laclede & Walgreen; No – Klein &
construction case
Measuring Expectation:
Expectation interest: (what expected to have) being put in as good an economic position as if the K had been performed; this
is the default generally
§ 347 Measure of Damages in General
Subject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as
measured by
(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform.

Formulas most valuable in construction or service K’s and owner breaches[should always come out the same under
either formula]
Formula: (A): damages = loss in value (+ other loss) – cost avoided – loss avoided

Example 1: K = $1k; cost $900: repudiates prior to performance-even if 5 mins after make K
Loss in value $1k – cost avoided $900 = $100 damages.
Example 2: same, breach after part performance. $500 spent.
Loss in value $1K – cost avoided $400 = $600 damages.
Example 3: finished
Loss in value $1k – cost avoided $0 = $1k damages.
Loss in value is not always K price, ie., construction K’s where payments for progress:
Pd 300, loss in value 1k-300= 700 – 400 cost avoided = 300 damages (+300pd = the 600 as above)
-----------------------------------------
Formula (B): damages = cost of reliance + profit – loss avoided + other loss
Cost of reliance + profit = damage (per prof)
Example 1: Cost reliance $0 + avoided profit $100 = $100 damages.
Example 2: Cost reliance $500 +100 avoided profit = $600 damages.
Example 3: Cost reliance $900 + 100 avoided profit = $1k damages.

1. If supplier injured & breach of recipient’s promise to pay: must determine supplier’s cost avoided, since loss in value is the
$ the recipient failed to pay.

2. If recipient injured & breach is supply: must determine recipient’s loss in value, since cost avoided is the $ it has not yet
paid.

Not: use 2-708 only if can’t use 2-706.

2-706:
Vitex Manu v. Caribtex, 1967, p472
 Rees Page 40 of 46
Vitex closed its plant in Virgin Islands. Caribtex negotiated and agreed with Vitex to have Vitex process wool for Caribtex
to import to US (able to avoid tariff if processing increased value by 50%). Caribtex breached b/c unsure they could avoid
the tariff. Vitex had re-opened plant and made all necessary prep & demanded Caribtex supply the product. Then sued.
Court calculated damages of diff from gross profits and projected costs to get lost profits. [Formula A: K price of $31k = loss
in value – what costs would have been $10k = cost avoided = 21K damages]. Caribtex says court should have included
overhead of Vitex as a cost (which would reduce amt of lost profits). Wrong at simplest level b/c overhead costs are NOT
avoided. Court says no and affirms.
2-708: measure of damages for non-acceptance or repudiation by buyer is diff b/t mkt price and unpaid K price plus any
incidental damages, less expenses saved in consequence of buyer’s breach. If this measure inadequate to put seller in as good
a position as performance would have, then measure of damages is profit (including reasonable overhead) which seller would
have made from full performance plus any incidental damages w/allowance for costs reasonably incurred and credit for
payments or proceeds of resale.

Example: formula A: if had already spent $5k as start-up costs, 31K-5K(cost avoided b/c 5K already spent)=26K damages
**do not include overhead costs in cost avoided b/c costs go on and aren’t avoided. (basically, they would have
included this built into the loss in value price, don’t subtract it out, so it’s still in damages awarded)
HOWEVER, 2-708 would allow recovery of overhead by seller. Basically, court is saying if they changed it at all,
they would make Caribtex pay overhead rather than subtract from Vitex’ damages.

Laredo Hides v. H&H Meat, 1974, p476

Laredo agreed to buy hides from H&H output K for 3-12/72. Laredo sent payment, which was delayed, H&H found to have
unjustifiably cancelled K at that point. Laredo had K w/tannery and had to buy product on open mkt to meet. Mkt price
steadily increased.
Judge trial = D wins. P appeals. Court reverses and calculates damages, using UCC 2-712. Laredo acted promptly and
reasonably to find a ‘substitute transaction’. Damages = diff b/t cover price and K price, plus incidental costs of higher
transport costs. Cover price was market price in this case.

UCC 2-712: (will not be on exam)

1)After breach buyer may “cover” by making in good faith and w/o unreasonable delay any reasonable purchase or K to
purchase goods in substitution for those due from seller.
2)Buyer may recover from seller as damages the diff b/t cost of cover and the K price, plus any incidental damages, less
expenses saved due to seller’s breach.
3)failure of buyer to use cover doesn’t bar him from other remedies.

Notes: 4 & 5 on pg 479

UCC 2-706
K price – resale
Personal services K: Important per professor
1) piano teacher loses 1 K’d student and replaces with another – no damages b/c didn’t lose anything
2)contractors are different – law assumes they have infinite capacity, and if one breaches with them, they can recover
b/c law assumes they could have finished that K and a replacement K.

R.E. Davis Chemical Corp v. Diasonics, US Ct Appeals 7th, 1987, p480

Davis K to buy diagnostic equip from Diasonics. Davis pd $300k deposit. Prior to entering agreement w/ Diasonics, Davis
made K’s to estab med facility to use the equip. Those K’s breached w/ Davis, then Davis breached w/Diasonics. Diasonics
later resold the equip. Davis sued for restitution of the deposit. Diasonics claimed entitled offset as a “lost volume seller”,
having lost profit from one sale when Davis breached. Therefore, entitled to lost profit of K w/Davis under 2-708 as
expectation damages.
Trial court awarded Davis $300 plus interest, less Diasonics’ incidental.
• majority states lost volume sellers can recover lost profits under 2-708.
• Idea that could have sold the “resale based on breach” PLUS the contracted item if the K had not
been breached
• Appellate reverses and District needs to calculate Diasonics damages based on sale to Davis and sale to
resale buyer (if Diasonics can show capacity to make both sales, that it would have been profitable to make
both sales, and that it would probably have made the second sale absent the breach

Notes: In practice, outcome may turn on who has burden of proof on issue of lost volume. Courts generally put burden on
seller.
Two arguments: (from Islamic Rep of Iran v. Boeing, 1985).
1. Market is one in which supply exceeds demand.
 Rees Page 41 of 46
2. Most juris: under 2-708, seller need only show that it could have supplied both to the breacher and the resale
purchaser.

Losing Contracts
Classical courts tended to force expectation on losing contractors.
Learned Hand, Albert & Sons, put burden of proof of cost avoided on breaching party. Intended in messy cases to give
benefit of doubt to non-breaching contractor.

US v. Algernon, 1973, p488

Grants restitution instead of expectation (this was a progressive move).

Partial performance, $37 k owing for that performance, but court finds would have lost more.
If had used expectation: Formula B: cost of reliance $37k+ anticipated profit (- a number > $37k) = 0. Basically, if granting
expectation would cost more than I owe you, don’t owe anything.
Restitution: allows to recover value of benefit conferred.

Acme Process – one case that granted reliance damages, lot of start-up, but hadn’t delivered any guns to Israeli gov; Israeli
breached. Expectation wouldn’t be adequate; restitution not possible b/c no deliver; sued for reliance – cost of reliance.

Review: Vitex teaching application Formula A and don’t include overhead in cost avoided. Make sure pro rata share of
overhead is in the final damages so that doesn’t make all the other contracts of the year less profitable. LV-CA=D
Davis: when to use formulas: CR +AP=D: loss volume seller these formulas apply: difference b/t seller who has
only one car to sell, buyer breaches, sells next day for less – don’t need formulas – just diff in orig K price and sales price.
BUT lost volume seller – use formula to give lost profit b/c lost 1 sale when person breaches, even though made the second
“resale”.
Formulas contractor or supplier of services, doesn’t fit well for buyer of goods.
Laredo: 2-712: cover price less contract price = damages; in sale of goods case; burden on seller to prove cover
unreasonable
Algernon: use restitution
No majority rule. Consider various possibilities:
How to calculate losing contracts: Formula A & B
What alternatives: restitution, reliance
How to convince court
Learned Hand places burden on breaching party

Limits on Damages
Avoidability, foreseeability, certainty (contract damages to be recoverable must be reasonably certain)

Avoidability: Sometimes said injured has a duty to mitigate damages, really incurs no liability for failure to mitigate,
however, injured party is precluded from recovering for loss that it could reasonably have avoided. [but if talk in terms of
duty to mitigate, everyone will understand]

R2d §350: Avoidability as a limitation on damages

1) Damages are not recoverable for loss injured could have avoided w/o undue risk, burden or humiliation;
2) Injured party can recover to extent he has made reasonable but unsuccessful efforts to avoid loss.
Rockingham Cty v. Luten Bridge Co, 1929, p492
Cty entered K w/Luten. One month later notified refused K (b/c public pressure not to build). Luten continued, then sued for
full contract price. Appellate reverses trial grant to P, saying:
• After cty gave notice, while K still executory, P could not proceed to build it and recover K price.
• After P rec’d notice, should have treated as breached and sued for damages (including lost profit). LV-CA=D or CR
+AP (on entire contract)=D
• Further claim of restitution, but court denies b/c no benefit to Cty
o If had been a benefit to cty, avoidability will trump restitution b/c basic principle can’t do something after
breach that increases damages
• Williston: 1)P cannot hold D liable for damages which could have been avoided
o Why? Work useless to D, but he has to pay full price; P may recover his profit & spend his time elsewhere

American law rejects constructive service common in England (if stand ready & willing to work all year, but co. doesn’t need
the work – get paid for whole year)
 Rees Page 42 of 46
In America:If fired, have 2 obligations before can collect whole years pay: 1. must try to find another job; 2. if someone
offers alternative employment, I have to take it if comparable to job originally held. The second job $ will be deducted from
the original contract.
Harder: if head coach fired, would have to take similar but lesser jobs? No firm answer, lawyer should advise reasonable
possibility if doesn’t take the job, firing co. can deduct from the original co. anyway.
Generally, items like moving expenses don’t figure into circumstances court considers.

Parker v. 20th Century Fox, 1970 (Shirley Maclaine case)

In order to reduce damages, at least in movie star case, employer has to show substitute employment comparable
substantially similar, not inferior and substantially different.
2)In general, employee has duty to mitigate damages by seeking comparable employment. (not in this case)

3)Avoidability and Cost to Remedy Defect

• Cases of defective, rather than incomplete, performance raise problems of avoidability
• Incomplete – can usually arrange to have someone else complete, so that damages are cost to complete the work
rather than loss in value. Ie., blder breaks K by failing to finish roof of bldg; damage is cost to have roof completed,
not loss from inability to use bldg
• Total cost to remedy a defect, where undoing some work is included, may be greater than loss in value, creating a
windfall if the damage is awarded, but the work not undone and re-done.
• Balance of cost to complete with loss in value
• Cost to complete is standard remedy; but if blder’s perf defective – more difficult to decide – sometimes loss
in value b/comes right measure – almost always when loss in value less than cost to complete (ie., Jacob &
Youngs case).

Jacob & Youngs v. Kent, 1921 – still a leading authority on both issues
P built country house for D and wants last of payment. D refuses, b/c P didn’t use the kind of pipes required by the K. D
discovered and required the work be re-done, P refused b/c meant demolishing and re-doing. P wins and is affirmed.
• 1st issue: can builder recover on K even though he breached? Normally, no. However, is promise to pay K
dependent on blder’s promise to build on specifications or is indep, meaning owner has to pay even if bldr breached.
Where breach trivial and innocent, then the two promises are indep and blder can recover, even hasn’t fully
completed as per K  substantial performance
• 2nd issue: what are owner’s damages b/c of breach? Cost to complete or diff value? Measure should be difference in
value, which is nominal or nothing b/c similar pipes were used and defect was insignificant in relation to the project;
breach not willful, but carelessness
• Generally cost of replacement is damage, to allow owner to complete the work, UNLESS it is grossly & unfairly out
of proportion to the good to be gained, then difference in value is more appropriate
• Both issues – equity and fairness more important
• Dissent: D had a right to contract for what he wanted and to receive it.

Groves v. John Wunder Co., MN, 1939, p513

Groves leased to Wunder land for gravel excavation, with stipulation Wunder grade the land a certain way. Wunder didn’t.
Cost to do so $60k, adding value of $12k to the property.

D’s should be liable for reasonable cost of doing what they promised to do, were paid to do, and willfully didn’t do.
Posner: Groves court wrong – inefficient use of resources to grant 60 for 12.; efficient breach idea. Would consider specific
performance. Prof says $12k is right number here.

Peeveyhouse v. Garland, OK, 1962

Peeveyhouse leased their farm for coal mining to Garland, Garland to do restorative work at end of lease. Didn’t do it. Cost
$29k, would increase in value $300.

Says Groves the only case allowing cost of performance when that cost greatly exceeded loss in value.
Says restorative incidental to the main K. Gives diminution in value of the $300.

Prof says this case diff from Groves b/c Groves investment property & here the family farm. Ought to try to find actual
damage to the aggrieved party in all cases – Groves $12k b/c just an investment & that’s the value; here try to find
“indifference point” – at what number will they be indifferent to either getting the land restored or the money.
4th remedy: subjective diminution in value – don’t care about market price, care about value to person of having their farm
damaged. Jury found $5k, and this probably realistic.
- what about value to future generations, to environment: maybe higher $ to force strip miners to refurbish as they
promise – so far courts don’t explicitly mention this. A good argument for the P.
 Rees Page 43 of 46
Dissent: says not incidental, but central to the bargain.
Note: OK Supreme in 1994 give a solution: parties can specify measure of damages in the K.

Issue of economic waste in all three cases: should breach be excused b/c of economic waste? Prof. seems to say yes.

R2d §348: Alternatives to loss in value of performance

2) if breach results in defective or unfinished construction and loss in value not proven sufficiently, may recover a)
diminution in market price or b) reasonable cost of completing or remedying defects if that cost not clearly disproportionate
to probable loss in value to him.

Don’t increase; mitigate if possible; cost to complete or diminishment in value; Posner specific perf; Prof subjective
diminution in value

Foreseeability

Hadley v. Baxendale, 1854

Hadley owned mill; shaft broke; had to stop operations until rec’d new one. Sent broken one as model via Baxendale carrier
service; dispute in facts re: if clerk notified of situation or not. Due to negligence, Baxendale delayed delivery by several
days; Hadley sues for lost profits during those days. Baxendale says damages too remote and they should not be liable.
New trial needed; judge should use this rule:
where 2 parties have made a K which one has broken, damages should be those 1) fairly and reasonably flow
normally from the breach itself, or 2) those that reasonably were contemplated by both at the time of the K as
a probable result of breach (incl spec circ).
Exception: if special circumstances known by D’s, then would be damages ordinarily following from the breach
under the special circ.
No loss of profits can be used here b/c court found D not aware of the special circ.
Consequential Damages: not arising naturally, but only as a result of special circumstances; ie., personal injury in auto
breach – damages both diff in how auto actually is and how warranted to be, plus consequential damages of personal injury.

R2d §351: court may limit damages even for foreseeable loss if in circ justice requires to avoid disproportionate
compensation.
Tacit agreement test: only recover in breach K action those damages the breaching party would have agreed to pay if had
asked it at time entered into K. narrows range of K damages. Fell into disfavor. (Prof doesn’t like this test). UCC rejects.
Foreseeability not as big a problem today: damages need only be reasonably foreseeable.

Delchi v. Rotorex, 1995

Rotorex agreed to provide compressors. Not made to specs.
-can recover expenses incurred that would not have been incurred if product made to specs, in addition to lost profits.
-lost profits on future K’s: harder to recover, 2 defenses: foreseeability and certainty.

Kenford v. Cty of Erie, 1989

Cty supposed to build stadium, Kenford to donate land & sues for loss in value of property around area.
Court says no b/c 1) not foreseeable: cty did not contemplate assumption of the liability for these damages (close to a tacit
agreement test); Kenford took his own risks and 2) b\c damages too speculative.
• Foreseeability limits liability for unassumed risks and diminish risk of business attempts.
• Seems to be a movement back to tacit agreement – under tacit, damages foreseeable b/c everyone knew they would
be buying the property w/plans for increased value –maybe a taxpayer protection decision, doubt this will
foreshadow movement back to tacit agreement (no indication they would have agreed to pay, even though
foreseeable-stronger argument for defendant, even stronger than Hadley v Baxendale)

P. 533 problem: More modern trend in foreseeability: bldg bridge, steel supplier very late in delivery, contractor faced w/
hiring extra crews to accelerate to finish on time or winter the job and start next spring. Chose the first. Incurred large
telescoping (acceleration) costs & sued for those as consequential damages for late delivery; defense not foreseeable; court
says anyone involved in construction in upstate NY would foresee – contractor wins. Like Delchi Carrier – perfectly
foreseeable under Hadley v. Baxendale stds.

Redgrave v. Boston Symphony

P has burden of proving by preponderance that harm foreseeable and w/i contemplation of parties.
 Rees Page 44 of 46
Emotional Distress
Courts reluctant to award
• R2d§353: excluded unless breach also caused bodily harm or K or breach is of a kind that serious emotional
disturbance was a particularly likely result
• Rule: Generally, only if 1) personal in nature (burying body) and 2) breach will necessarily or reasonably result in
mental suffering, and 3) parties should know from nature of K that such suffering will result from breach
• Most common in actions for breach of employment K’s – generally find reasons to refuse
• Punitive damages awarded only in most unusual circ when D acted in extreme deviation from reasonable stds of
conduct
• R2d§354: punitive damages only recoverable if conduct causing breach also a tort where punitive damages available

Certainty
• R2d§352: precludes recovery for loss beyond amt evidence establishes w/ reasonable certainty
• Often certainty and foreseeability go together.
• Courts tend to be sympathetic w/clients who tried hard to estab certainty
• P.536 Hendricks case: future losses of K’s not entered into, foreseeable, but not certain enough to recover.

Fera v. Village Plaza, 1976

• New business/interrupted business distinction: if already estab, reasonable prediction can be made re: future based
on past. If no history, profits often too uncertain for recovery. (Corbin on K’s)
However, in this case, trial court noted the extensive testimony on both sides re: new business’ future, and MI supremes
affirmed b/c say matter of fact and trial court decided.

Evergreen: K to construct drive-in. Contractor delayed several months, so theatre couldn’t open until 1 year later. Court
denied any lost profits from that year. Prof. says very strict, b/c reasonable that could have used 2cd & 3rd year profits to
estimate what that year’s profits would have been.

Liquidated Damages and Penalties

-K damages to compensate parties for breach, not to create damages that penalizes or pushes unduly into performing.
Aggrieved party just gets put into place would have been w/o breach.
-general std, liq dmages must 1) constitute good faith & reasonable estimate of anticipated damage at time K was entered
into (foresight). 2) even in hindsight, must bear reasonable relation to actual damages. Some suggestion 2cd part falling
away.

Wasserman’s v. Middletown, 1994

Wasserman & town of Middletown entered into commercial lease for town owned property. Clauses: 1) if town canceled
would pay Wasserman’s a pro-rata reimb for improvement costs (this is okay) & 2) damages of 25% of Wasserman’s ave
receipts for 1 year (this is problem). Town cancelled and sold, refused to pay damages. Affirmed, but reversed for trial on
damages.
Problem: need to decide if ok liquidated damages clause or a not-ok penalty clause-good defense that gross receipts have
nothing to do with calculating actual damages
• Liquidated damages: sum agrees to pay if breaks some K promise, arrived at by good faith effort to estimate actual
damages that will probably occur due to the breach – legally recoverable as agreed.
• Penalty: fixed, punishment, threat designed to prevent a breach – unlawful.

3 possible standards:
1. Reasonableness of forecast of either anticipated or actual losses the test to determine b/t the two. R2d§356.
Deemed presumptively reasonable & party challenging must prove unreasonableness.
2. Must be reasonable in light of both anticipated and actual damages. Prof favors.
3. Reasonable in light of anticipated. Better for those wanting to uphold, b/c hindsight doesn’t count.

Gustafson v. State, 1968

P contractor, sued state for liq damages state had withheld b/c P had completed project late. Old road kept open throughout;
P argument liq damages doesn’t bear reasonable relation b/c no damages b/c old road open all along; court still sustained liq
damages b/c thought reasonable since state used a table for all across the state, thought a good faith effort to estimate
damages. State’s argument: why do you think we paid you to build the new road? Better, more convenient for citizens.
Can’t tell w/certainty how much inconvenience, but fact bldg evidence it is better for state/citizens.
• Where liquidated damages are fair and reasonable attempts to fix just compensation for anticipated loss caused by
breach, they are enforced.

3rd Party Beneficiaries

 Rees Page 45 of 46
Rest 2d §302: Intended beneficiary if right to performance is appropriate to carry out intent of contracting parties and 1)
performance of the promise satisfies an obligation to pay $ to the beneficiary OR 2) circ indicate the promisee intends to give
beneficiary the benefit of promised performance.
Incidental beneficiary is one who is not an intended beneficiary.

Big Issue: Did contracting parties intend this contract they made to benefit a 3rd party in a significant way?
Argument re: is appropriate as matter of public party to all non-contracting parties to sue?
Two interesting:
1. Lawyer promises testator in such a way that portion of estate to favored nephew. Fails to do it properly, nephew sued
lawyer as 3rd party beneficiary – court said appropriate case for 3rd person to be able to sue, however, all lawyer promised
was not to be negligent & nephew loses. Now rule different, intended beneficiaries can sue if lawyer messes up will.

Incidental beneficiary: car salesperson commission is too incidental to be considered 3rd party intended beneficiary.

2. Municipal cases: Cardozo, 1930’s, NY: A city contracted w/water co to provide water to fire hyd & homes in the city;
large fire, several bldgs burned b/c couldn’t get enough pressure. Mock’s bldg burned sued water theory couldn’t estab neg;
sued as 3rd person beneficiary to promise to keep water at certain pressure. Decided he could not recover; said K had 2 parts:
1 water to ind residents, 2 certain level pressure; residents intended beneficiaries 1st and not 2cd. Gymnastics – worried
about crushing liability problem to make water co liable to all citizens.
Still difficult problem

Assignment & Delegation

A and B have K. When can A assign rights to C?

R2d §317: Contract right assignable, unless the assignment 1) would materially increase B’s burden of performance or its
risk of not receiving return performance or 2) precluded by contract itself or precluded by statute. Valid assignment to C
requires manifestation of intent to transfer the right (usually not a serious issue).

Generally, right to buy & sell goods assignable.

Personal in nature, probably not assignable. Ie., painting a portrait, golf lessons. If A sells company to C and B doesn’t want
to work for C for some reasonable reason.

Is a gratuitous assignment enforceable? Does A have right to revoke the contract right she assigned to C?
R2d§332:

What’s legal standard

What do need to do to make one
When is gratuitous assignment revocable?

When may B delegate his duties to D? Or, when must A accept performance of B’s obligation from D?
R2d§318: One may delegate, unless promisee (A) has substantial interest in having B perform the duties.

B is still liable to A, unless a novation created whereby A agrees to new contract with D.

Question for exam:

A landlord, B tenant. B sublets to D. Even if duty to pay rent delegable to D, B is still responsible, unless A agrees B is not
responsible = novation between A and D. D is liable to B and to A b/c D liable to B and A is an intended 3rd party
beneficiary.

EXAM

-better to analyze via cases and restatements

-packages: offer (lucy; owen v. tunison; Fairmont glass; Harvey v. facey); is action consideration or condition of accepting a
gratuity (Kirksey), what was intent, was bargained for? (like tiffany emerald case); certainty; foreseeability (Hadley, rest,
delchi, kenford)

remember to write as objective law office memo.

Formula a & b: expectation: Vitex; party promised to do something, has been kicked of job (the other has breached). How to
calculate damages to get back to where would have been w/o the breach.
 Rees Page 46 of 46
- when calculate, may find a losing contract, then determine alternatives for damages (reliance, restitution)

don’t leave a question until you’ve accounted for every fact…

CONTRACTS OUTLINE, Mooney Spring 2002
Allyssa Walton

PAROL EVIDENCE RULE

1. The Issue: When an agreement has been put in writing, one party claims there was also
and earlier oral or written agreement, or a contemporaneous oral agreement, that was not
included in the writing but was intended to be part of the K. In such cases, the
admissibility of the alleged additional agreement turns on the applicability of the parol
evidence rule.
2. Rules:
a. Mooney: Restatement 209 + 215: Where parties have intended a writing as the
final expression of all or part of their agreement, evidence of any other prior or
contemporaneous term is not admissible to contradict the writing.
b. Justice Traynor: When the parties to a written K have agreed to it as an
“integration” – a complete and final embodiment of the terms of an agreement –
parol evidence cannot be used to add to or vary its terms…when only part of the
agreement is integrated, the same rule applies to that part, but parol evidence may
be used to prove elements of the agreement not reduced by writing.
i. “Credibility test” – parol evidence should only be excluded if it would
mislead the trier of fact.
3. Reasons for Rule:
a. Juries may tend to favor the underdog. (Mooney doesn’t agree).
b. People might make up agreements that never happened.
c. Certainty in K interpretation.
d. Ability for people to rely on what is written to know what their legal obligations
are.
4. Integration:
a. A complete integration is where the parties intended the written K as a final and
complete statement of the agreement in writing.
b. A partial integration is where the parties intended the writing to be a final
expression of part of the agreement.
i. Formal intent: Traditional view was that a writing would be treated as
an integration if taken as a whole and on its face the writing appears to
be an instrument that complete ly expresses the parties’ agreement
(writing not only the best, but only evidence of intent). Gianni v. Russel
& Co.
ii. Actual intent: Modern view is that a writing is deemed to be an
integration only if the parties actually intended it to be an integration.
Court will consider any relevant evidence to determine intent.
Masterson v. Sine, R 209.
c. UCC comment 3 2-202: Only if the parol term would certainly have been
included in the writing, if agreed upon, then it must be kept from the trier of fact
(this likes the parol evidence rule less than the restatement).
5. Merger Clauses: Provisions in a written K that the written K is the entire K between the
parties, or is the final, complete and exclusive statement of all the terms the parties have
agreed upon.
a. Traditional approach: These clauses are determinative on the question of
whether the writing is an integration. Still the majority rule.
b. Modern courts (minority) will sometimes say it is just one factor in determining
whether it is an integration.
 c. Defense can claim unconsionability.
6. Defenses: Can have a D for the K itself:, even if it is completely integrated. Fraud,
duress, mistake, illegality.
7. Exceptions:
a. Separate consideration: Even if a writing is an integration, parol evidence is
admissible if the written integration and the alleged parol agreement are each
supported by separate consideration.
b. Collateral agreement: Parol evidence is often admissible if the alleged parol
agreement is “collateral” (i.e. related to the sub. matter but not part of the
writing).
c. “Naturally Omitted Terms”: Widely accepted modern rule, R216, is that parol
evidence is admissible if it concerns a term that would naturally be omitted from
the written agreement. A term will be treated as naturally omitted if:
i. The term does not conflict with the written integration; and
ii. The term concerns a subject that similarly situated parties would not
ordinarily be expected to include in the written agreement.
1. Two approaches: (1) Whether an abstract reasonable person
would have omitted the term in question from the writing, (2)
Whether the actual parties might have naturally omitted the
parol agreement from the writing. Masterson v. Sine. This is
the majority view.
8. Gianni v. Russell, 1924: P claims and oral agreement (in addition to a lease) where P
agreed not to sell tobacco in exchange for exclusive rights to sell soda in the building. D
denies the oral agreement took place. D rented another space to a drug company that sold
beverages.
a. Issues:
i. Whether the parties would have naturally included the additional term in
their K? Held: Yes, because it embraces the field of the alleged oral K.
ii. P’s argument: Whether the exclusive rights to sell soda was a separate
and ind. agreement and therefore not barred by parol evidence? Held:
No. This term would have been a part of the main agreement and there
was no consideration for the separate agreement.
9. Masterson v. Sine, 1968: P conveyed their ranch to D by a written deed. The deed
provided an option to repurchase at a designated price. There was a separate oral
agreement that the option was personal to P. P’s trustee wanted to establish their option.
a. Held: Evidence of the oral agreement is not barred by parol evidence.
b. Rule: Parties’ intent needs to be considered. Case rejects classical Gianni rule
that a writing that looks complete is presumed to be complete. Traynor says that
an agreement can’t prove completeness in and of itself.
i. Traynor also uses collateral agreement to say that the parol is parol
evidence in a partial integration case (said this is a completely separate
agreement).
10. Bollinger v. Central Pennsylvania Quarry 1967: Parties entered into oral agreement
where they agreed D would deposit his waste on P’s property, but would cover the waste
when one. Written agreement did not include clause, P did not read before signing.
a. Rule: A court can reform a K for a mutual mistake in integration. Escribinor’s
error.

INTERPRETING CONTRACT LANGUAGE

1. General Rule: Where the interpretation of an expression (words or conduct addressed
by one party to another) is in issue, the expression should be given an objective
interpretation (interpretation of a reasonable person standing the addressee’s shoes). In
99% of cases, the court will look for an objective K interpretation.
a. Vague v. Ambiguous
i. Vague: When its applicability in marginal situations is uncertain.
ii. Ambiguous: Two entirely different connotations, so that it may be
appropriate or inappropriate.
2. Exceptions:
a. When an expression is susceptible of two equally reasonable meanings
i. i.e. John is married to two women. He leaves his house to his wife.
Which does he mean?
ii. i.e. Raffles v. Wichelhaus: Two ships called the Peerless. Both
reasonable interpretations. In this case, no K is formed.
b. Both parties have the same subjective interpretation (this will govern even if their
interpretation is not the reasonable meaning of the term). Theoretical, if this
happened, a dispute would most likely not arise.
c. One party knows of the other’s different interpretations: If A knows B’s
interpretation, then B’s interpretation is determinative.
3. Frigaliment Importing Co. v. BNS International Sales Corp., 1960: Young v. Old
Chickens case.
a. Issue: Whether the word “chicken” includes stewing chickens as well as broiler
chickens?
b. Use of the word “chicken” was too vague. Court found that P did not sustain
their burden of persuasion that the K used “chicken” in a narrower sense (i.e.
young chicken as opposed to all kinds of chickens, inc. old).
4. Raffles v. Wichelhaus 1864: Peerless case.
a. Parol evidence may be given for the purpose of showing that D meant one
Peerless and P another. It would be an imposition to hold P to a K he did not
enter into.
5. Oswald v. Allen 1969: Swiss coins case. P thought he was buying both D’s collections
for $50,000, P thought only one.
a. Rule: When any of the terms used to express an agreement is ambivalent, and
the parties understand it in different ways, there is no K unless one of them
should have been aware of the other’s understanding.
b. Interesting, borderline case according to Mooney.
c. Mooney would ask the client to look at the contract and see the description of the
coins – was it capitalized (indicating it was a specialized collection), or not
capitalized (indicating it was just all of the Swiss coins).
d. COASE THEOREM: Tells us the result of the litigation will not effect who
comes out with the coins. It doesn’t affect allocation, but it does effect
distribution of wealth.
i. This will effect rather dramatically how much the buyer has to pay for
the coins. If he wins the case, he gets them for $50,000. If she wins the
case, and they renegotiate, they will cost him a lot more.
6. Hurst v. W.J. Lake Co. 1932: Meat scraps case. Trade usage indicated that 50% protein
meant 49.5% or more. Meat contained 49.53-49.96%.
a. Rule: Trade usage is applicable, even when an instrument is non-ambiguous on
its face (trade usage trumps mathematical usage).
7. Rules in Aiding Interpretation
 a. Plain meaning rule: Many courts apply this rule with much investigation into
what parties reasonably understood term to mean.
b. Public interest: Not widely recognized. Environmental disputes often make this
argument (Peevyhouse – court upheld K to further public interest, not really to
help the Peevyhouses).
c. Expressio unius: To express one is to exclude others.
d. Nascitu a sociss: It is known from its associates.
e. Contra Proferentum: Against its author or proffer. This works for K underdog.
8. Evidence to present:
a. Evidence internal to the K
b. Dictionary evidence
c. Foreign Language Evidence
d. Evidence from Government statutes or regulations
e. Trade usage evidence, Course of dealing, Custom
f. Evidence of the likely, and almost inevitable, subjective intention of both parties.
 Ex. Chicken/Broiler - Subjectively both should have known because they
would have been operating at a loss.
 American courts in general interpret contracts objectively, so even if the
Frigaliment case showed that the plaintiff subjectively thought they were
buying fryers, the case would have come out the same.
 This prevents dissembling (fibbing) and having to find subjective intent.

FILLING GAPS

1. Restatement 205, UCC 1-203): In every K, there is an implied obligation on both

parties to act in good faith and with fair dealing on a K.
2. Rule: Good Faith obligation means that party A will not do anything to reduce the
reasonable expectation of party B and jeopardize the expectation (or fruits of the
K).
3. Reason court will find an implied term in a K: FAIRNESS, to insure the legal system
looks at what is fair.
4. Dalton v. Educational Testing Service: Implied obligation of good faith and fair dealing
imposed on the Education Testing Service (obligation to review material presented by
Dalton that exculpates him from their allegations).
a. The obligation in theory, is that A prevents B from depriving A of the fruits of
the K that is expected,
b. If the party gives discretion in someway, the implied obligation of good faith and
fair dealing prevents the party from giving discretion arbitrarily,
c. However, the implied obligation cannot be inconsistent with express terms.
i. Typical limitation
ii. If ETS form had said ETS will have total discretion in determining
whether or not to report the score, then Dalton would have a hard time
convincing the court to allow him to submit his information.
iii. In this case, the form said that the student would have the opportunity to
provide additional information.
5. Burger King v. Weaver: No implied obligation of good faith to not put a second
franchise next to the first franchise.
a. In this jurisdiction, the court will not use the implied obligation of good faith to
add a term or otherwise vary the express terms (Dalton just said you can’t
contradict a term, didn’t mentioning adding a term)
6. Eastern v. Gulf: Gulf breached K with Easter, claiming Eastern violated their K by not
acting in good faith b/c of fuel freighting practices. In reality, Gulf was trying to weasel
out of their K with Eastern because oil prices had shot up and they wanted more money.
a. Issues:
i. 1st: Consideration (lack of mutuality)
ii. 2nd: Remedies: Whether Eastern could appropriately obtain specific
performance.
iii. Good Faith. Governed by UCC b/c it is the sale of goods.
b. UCC 1-201(19): Defines good faith (subjective definition) – honesty in fact
c. UCC 2-103: Sale of Goods: Merchants have a higher good faith standard, they
have to be not only subjectively operating on good faith, they have to objectively
be operating on good faith as well.
d. Throughout the entire commercial code, there is a narrow definition of good faith
e. UCC 2-208: Course of performance – how did these parties perform the K up
until the time the dispute arose.
i. In this course of performance, this fuel freighting when on for years and
years. Trade Usage.
7. Commercial leases: Often have a certain base rent per month plus a certain percentages
of gross receipts. Problem arises when tenant wants to stop the business altogether and
just pay minimum monthly rent, or it wants to cut back and the receipts go down. The
leaser argues that there is a good faith obligation on the part of the defendant. Implied
term: Best Efforts. This is similar to what is found in Wood v. Lucy Lady-Duff
Gordon.
8. Zilg v. Prentice Hall: Nature of an implied obligation on the publisher is to act in good
faith, it is not to exert best efforts on behalf of the book.
a. Trial court held that there was a bad faith decision to “privish” the book
(meaning they fulfilled technical requirements to publish, but did not do more
than that. Mooney agrees with this opinion, although the decision was reversed.
b. Court of appeals: The obligation to act with good faith in promoting the initial
promotional activities was fulfilled, and the K language dictates that a business
decision by the publisher to limit the size of a printing or advertising budget is
not subject to second guessing by the trier of fact whether it is sound or valid.
c. There are two ways Zilg could have shown breach of K:
i. Demonstrate that the initial printing and promotional efforts were so
inadequate as not to give the book a reasonable chance to catch onto the
reading public.
ii. Show that even greater printing and promotional efforts were not
undertaken for reasons other than a good faith business judgment.
9. WOOD’S RULE: If an employee was terminable at-will, then an employer could fire
her anytime for any reason.
a. Heydey of progressive contract law: Late 60’s, early 70’s - protection of
employees increased. Three grounds employee might assert:
i. Something in a conversation or in an employment manual that at least by
implication if not explicitly, gave her the right to be fired only for cause.
ii. Public Policy exception: You cannot fire someone for exercising a right
that involves some important public policy. You cannot fire a Whistle-
blower, for example.
iii. There is, in every employment K, an implied obligation of good faith and
fair dealing (employers tend to vehemently oppose this one). There has
to be some reasonable reason for firing a person.
b. 80’s and early 90’s saw all three of the above grounds wither considerably.
 i. Some states passed statutes that say there is no obligation of good faith
and fair dealing in any employment.
ii. Employment lawyers began to put disclaimers in employee manuals.
iii. Even the public policy ground has been narrowed considerably.
c. Sheets v. Teddy’s Frosted Foods 1980: Violation of public policy exception to
firing at-will.
i. Employee should not be put in a position whether to risk criminal
sanction or to jeopardize his continued employment.
10. Balla v. Gambro 1991: Lawyer case.
a. General rule: In-house counsel does not have a claim under tort of retaliatory
discharge.
b. Appellee was required to abide by the rules of professional conduct, so public
policy was adequately safeguarded without extending the tort of RD.
c. Extending the tort of retaliatory discharge to in-house counsel would have an
undesirable effect on the attorney-client relationship (would destroy trust).
d. Inappropriate for the employer/client to bear the economic burden their counsel’s
adhering to their ethical obligations.
i. Two influential courts – CA and Massachusetts went the other way:
Because an attorney is obliged to inform someone when clients are
engaging in illegal conduct, they should have protection.

CONDITIONS

1. In General: A K may expressly provide that a party does not have a duty to perform
unless some condition is fulfilled. In such a case, the party’s failure to perform will
normally be justified if the condition was not fulfilled.
2. Definitions: Condition means either:
a. An event or state of the world must occur or fail to occur before a party has a
duty to perform under a K, or
b. An event or state of the world - the occurrence or non-occurrence of which
releases a party from its duty to perform under a K.
3. R2d 244: A condition is an event, not certain to occur, which must occur, unless its
nonoccurrence is excused, before performance under a K becomes due.
4. R2d 217: Conditions – a reasonable well-accepted exception to the parol evidence rule.
One is permitted to use parol evidence to show the party’s agree to a condition precedent
to the effectiveness of a K.
a. The alleged parol condition cannot contradict a writing in order for the exception
to apply
5. Three kinds of questions around conditions:
a. Have the parties made a particular event or non-event a condition of one party’s
performance or both parties’ performance?
b. Has the condition, if it is one, been satisfied?
c. If it hasn’t been satisfied, what’s the legal effect of the non-occurrence of a
condition?
6. EXAMPLE: Sarah promises to carry Carl’s goods in her ship from London to Gibraltar.
Carl promises to pay her for that service $5000. In addition, the parties agree that in
some fashion Sarah will get the good there in 25 days. Two ways to word the 25 day
term:
a. Sarah could promise to get the goods there in 25 days. If she’s late, then she has
breached her promise and will be liable for damages.
 b. Parties will word the term as a condition. “It shall be a condition of Carl’s
obligation to pay that Sarah get the good there within 25 days.” If she’s late, she
hasn’t breached, she just doesn’t get paid. This excuses Carl’s performance.
c. It is almost always more equitable to construe language as a promise than as a
condition.
7. Luttinger v. Rosen, 1972: P contracted with D to purchase property and paid deposit of
$8500. K was conditioned upon P obtaining 1st mortgage in amount of $45,000 for not
less than 20 years at 8.5% financing. P contacted one institution and was unable to get
8.5%. Offered to pay the extra, but D refused and kept the money. Court ordered that D
give back the money because P had tried to meet the condition and had been unable.
a. Hornbook rule in K law: One has to satisfy a condition absolutely. No
doctrine of substantial performance. Mooney thinks this might be collapsing.
8. Peacock Construction Co. v. Modern Air Conditioning 1977: D is a contractor who had
two subs. K contained a provision that said D would pay the subs within 30 days after
full payment by owner.
a. Court held this language was not a condition – simply a timing provision.
Meaning of language is not that subs will be paid if/when contractors are paid.
Sets a normal time for payment. If payment is not forthcoming at that time, there
is still a legal obligation to pay.
b. Arguments (for sub):
i. General Contractor is in a much better position to say know the credit
standing of the owner.
ii. Sub-contracts are almost always drafted by the gen. Language is
supposed to be construed against the party drafting.
iii. Trade usage – this is how courts intend to interpret these, and this is how
the parties in the construction business tends to construe these contracts.
9. Gibson v. Cranage 1878: P solicited D’s business, offered to paint portrait of dead
daughter. Said he wouldn’t have to pay for it if not satisfied. D was not satisfied with
the product. P re-did the picture, and D wouldn’t look at it. Court held for D.
a. Repeat of Mattei and Hopper: Condition to act in good faith.
b. Two categories of satisfaction condition:
i. Subjective (if taste or fancy is involved), so long as party exercises their
judgment in good faith, that is the only obligation.
ii. Objective: If the requirement of the party’s satisfaction has something
to do with mere economic utility, mechanical fitness, or marketability, a
condition of satisfaction is interpreted to be fulfilled by a performance
that would satisfy a reasonable person.
iii. As a lawyer, advise your client to look at the portrait and reassert lack of
satisfaction.
10. Mitigating Doctrines
a. Prevention:
i. General Rule: A party to a K cannot rely on the failure of another to
perform a condition precedent where he has frustrated or prevented the
occurrence of the condition.
b. Waiver, Estoppel, and Election
i. Waiver - R2d 84
1. Traditional definition: The intentional relinquishment of a
known right.
2. Usually waiver is not explicit. Typical scenario: If your rent
payments are due to me on the 3rd, but I accept late payments
 consistently, I can expect payments on the 3rd. You can retract
the waiver, however.
ii. Estoppel, R2d 84(2), UCC 2-209(5)
1. A party that, without consideration, has waived a condition that
is within the other party’s control before the time for occurrence
of that condition can retract the waiver and reinstate the req. that
the condition occur unless the other party has relied to such an
extend that the retraction would be unjust.
iii. Election: A party that chooses to disregard the nonoccurrence of a
condition is bound by an election to treat this duty as unconditional.
1. Common for insurers.
c. Impossibility: Impossibility or impracticability excuses the fulfillment of a
condition if fulfillment of the condition is not a material part of the agreed
exchange and forfeiture would otherwise result.
d. Fulfillment of the condition would cause a disproportionate forfeiture: Then
fulfillment of the condition may be excused unless the fulfillment of the
condition was a material part of the exchange.

CONSTRUCTIVE CONDITIONS

1. Constructive Conditions of Performance: Most important and common type of

constructive condition to the duty of each party to a K to render performance is that the
other party has rendered its performance or made tender of its performance.
a. Essentially, the promise is acting as a condition.
b. Example: Steve and Jim make a K under which Jim will paint Steve’s house by
May 30, and Steve will pay Jim $3,000 on June 1. It is then an implied condition
to Steve’s duty to pay $3000 that Jim shall have painted the house.
i. Dual legal effect: If Jim fails to paint Steve’s house by June 1, (1) the
failure is a breach of K for which Jim will be liable, and (2) The failure is
a nonfulfillment of an implied condition to Steve’s duty to pay on June 1,
so Steve does not come under that duty.
2. Kingston v. Preston, 1773: D hired P as an apprentice. Said that if P was to give him
sufficient security, then D would convey him the business. P failed to give good security,
therefore there was no obligation to perform.
a. Today we would say “the seller’s argument is that the buyer’s obligation to post a
surety is a constructive condition of my obligation to convey my business.”
3. Stewart v. Newbury 1917: Construction case.
a. Rule: If parties don’t provide otherwise, builder has to finish the work before the
owner has to pay.

MITIGATING DOCTRINES FOR CONSTRUCTIVE CONDITIONS

Fundamental inquiry: What sort of conduct by one party gives rise to a cause of action for
breach by another party, or gives to another party the right to withhold its own performance?

1. The doctrine of constructive conditions provides that if the plaintiff breached the
duty, provides that if the performance is a constructive condition of the other’s
duty, then the plaintiff is itself in the wrong.
a. In other words, if the P breached a duty of the performance that should
have proceeded the other performance or promise.
 2. In a sizable number of instances, when a breaching P despite its own breach may
nonetheless sue on the contract. Three ways around the doctrine of constructive
conditions:
a. Doctrine of substantial performance or substantial completion (Redding Pipe
Case – even though the contractor breached its portion of the K, the owner may
not withhold its performance because the owner substantially performed) –
Jacobs & Young v. Kent.
b. Doctrine of divisibility (severability): Gill v. Johnstown Lumber (agreement
to deliver logs. Lost some in a flood, sued for those delivered): If the parties in
the K provide that part performance will result in partial payment (i.e. I’m
supposed to build you two houses each for $100,000, I build one and walk away),
the P can sue on the contract to get paid for the performance they did complete.
c. Doctrine of restitution: Where a K is unenforceable for some reason (usually
mistake, impracticability of performance or frustration of purpose), but during
the course of performance a substantial benefit was conferred upon one of the
parties. Algernon Blair: The aggrieved party may (in a losing K situation) may
want something other than expectation, may want restitution.
i. Restitution for a defaulting P: This has met the most resistance from
courts. It seems wrong to allow someone who has committed a
significant breach of K to come before the court and claim anything.
Britton v. Turner (worked for 10 months of a 1 year K, then walked off
the job. Ct. held employee may recover benefit to employer less damages
employer suffers by reason of early termination).
ii. In restitution you are not suing for the K rate, but the value of the benefit
conferred.
iii. Quantum meriut – synonymous with restitution.

BREACH IN THE COURSE OF PERFORMANCE

1. Non-material breach is a 4th way around the doctrine of constructive conditions:

Yes, I breached, but I can still sue you for your later, more serious breach because
my breach was not material and did not justify your breach.
2. An actual breach of K, at the time performance is due, always gives rise to an immediate
COA for damages. However, not every breach also excuses the other party’s duty of
performance. Whether a breach by one party excuses the other party’s duty to
performance depends if the breach is “material.”
a. Example: Contractor contracts to build a $1 million building, and puts on some
of the wrong doorknobs, the Contractor will be liable for damages, but the Owner
won’t be excused from performing (paying).
b. Each case is decided on its fact of whether it is a material breach.
3. Relevant factors:
a. The extent to which the breaching party has already performed (more likely to be
a material breach at the outset).
b. Whether the breach was willful, negligent, or the result of purely innocent
behavior.
c. The extent of uncertainty that the breaching party will perform the remainder of
the K.
d. The extent to which, despite the breach, the nonbreaching party will obtain (or
has obtained) the substantial benefit he has bargained for.
e. The extent to which the nonbreaching party can be adequately compensated.
f. Hardship on breaching party if the breach is considered material.
 4. Repudiation: An otherwise minor breach, accompanied by a refusal to render any
further performance, will be considered a major breach.
a. UCC 2-609: A victim of a minor breach should request assurances of adequate
performance in the future. If the other side doesn’t respond appropriately, you
can safely say they have repudiated.
5. Walter & Co. v. Harrison 1957: P sells signs. Sold one to D, with agreement P would
clean it. The sign rusted and had tomato splatters. D stopped paying.
a. Issue: Who made the material breach? Held: D.
b. P’s breach was minor. D should have written P a letter that said they were
holding payments in escrow until P cleaned up the sign.
6. K & G Construction Co. v. Harris, 1960: D breached its covenant to perform in a
workmanlike manner, and P thereafter declined to make good its return covenant to pay.
D refused to perform further, causing damage to P
a. This case involves periodic payments, which involves a series of alternative
constructive conditions. Thus, P’s refusal to pay D was justified and not a
breach, since the payment was conditioned on D’s performance which was not
forthcoming.
7. Responses to the Defense “I’m not liable to you for my non-performance because you did
not complete some performance that is a constructive condition of my performance.”
a. Yes, but I substantially performed.
b. Yes, but this K is divisible and you have to pay me at the K rate for the portion I
DID complete
c. Yes, but I’m entitled to restitution of the K for the amount of the benefit I’ve
conferred on you in order to avoid unjust enrichment
d. Yes, but my breach of the constructive condition was not material, and therefore
it does not excuse your failure to act.
8. Separate K doctrine:
a. NW Lumber Sales, Inc. v. Continental Forest Products, Inc.: You cannot
breach one K because of the other party’s breach in a different K. Neither the
UCC or general K law gives a party the right to breach a K performance because
the other party has breached another K between them.
b. Seller should invoke 2-609, and said you neglected to pay for the lumber we
already sent to you, we demand an adequate performance for K #3 to make sure
you’re not going to stiff us again.

ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation (AR): If either party to a K, in advance of the time set for
performance, repudiates the K, the repudiation excuses the other party from performing.
In addition, the innocent party may generally treat the AR as a present material breach,
and bring an immediate action for the entire value of the promised performance.
2. Acts are sufficient (Stewart v. Newbury – walking off the job was repudiation).
3. Insistence on terms not contained in the K constitutes an AR.
4. Requirement of Unequivocal Repudiation: Only an express or implied unconditional
refusal to perform will constitute AR. A party’s language must be sufficiently positive to
be reasonably interpreted to mean that the party will not or can not perform.
5. Hochster v. De La Tour, 1853: P contracted with D to act as a courier during his
European vacation. D changed his mind prior to leaving, and refused to compensate P. P
sued prior to time for performance.
a. Held: The man who wrongfully renounces a K into which he has deliberately
entered cannot justly complain if he is immediately sued for a compensation in
 damages by the man whom he is injured. The renunciation may be treated as
a breach of K.
b. Important point: Every jurisdiction in the US says this is still good law. You
may go out and get a new job, and sue early.
c. Damages would be his wages from June 1 (day he was to start working) -July 4
(July 4th is when he begins the job he got to mitigate the damages).
d. This rule is in UCC 2-610.
e. Principle justification: Make sure victim has freedom to reorganize their affairs
and take another job prior to the time performance was due.
f. Exception to rule: Installment contracts.
i. i.e. Seller has finishing delivering tulip bulb, and all that’s remaining is a
series of installment payments by the buyer over a period of time. Most
courts hold that the seller may not sue early for all remaining
installments, but must wait until each installment becomes due.
ii. Remember when drafting an agreement such as this one to add and
“acceleration clause”: These causes state a default on any one payment
on this K shall cause all remaining payments under this K due.
iii. 2nd way to get around this situation is a declaratory judgment:
Declaration by the court that buyer breached and payments will become
due at the times stated in the K (allows you to go back to court simply on
motion without having to file new complaint every time).

MUTUAL MISTAKE

1. Definition: A mistake by both parties to a K concerning a basic assumption of fact

on which the K is based.
2. Defenses:
a. The mistake was not “basic enough” (R2nd 152). This should come down to a
question of value.
b. Argument that the parties actually considered the possibility of a major gain or
loss, and took it into account for the sell. This is an extremely common response.
Assumed risk by virtue of trade usage.
c. It’s not a mutual mistake because I had an inkling that this was an authentic
Picasso painting. I didn’t know it, but I had an inkling.
i. Spectrum: No knowledge------------ Perfect knowledge
• If you have perfect knowledge, you have a duty to tell the
person. The K will be undone.
• If you have no knowledge, the K will be undone on a basis of
mutual mistake.
• The middle might be protected ground – no duty to tell with just
a hunch, but also is not exactly a mutual mistake.
3. Restatements Second
a. 151: Defines mistake as “a belief that is not in accord with the facts.”
b. 152: For a mistake of both parties at the time the K was made, as to a basic
assumption, has a material effect on the aggrieved exchange, the K is voidable
unless parties seeking to void it bore the risk of that mistake.
c. 154: Party bears the risk where the party is aware at the time of K that she has
only limited knowledge with respect to the facts, but treats her limited knowledge
as sufficient. A type of conscious ignorance.
i. i.e.(a) I don’t think these paintings are very valuable, although I know
they might be, so I’ll just go ahead and sell them for not very much. (b) I
 know I should have them authenticated, but that’s time consuming at
costs a lot of money, so I won’t do it. (c) The court allocates the risk to
one party on the ground its reasonable to do so.
d. 158: Provides that either party may have a claim for restitution following a
rescission on the ground of mistake. A slightly more progressive, or forward
looking, Subsection 2 of 158 says the court may grant relief on such terms as
justice requires to protect a party’s reliance interest.
i. ex. Brenner v. Kehl.
e. 153: Unilateral mistake.
i. ex. Elsinore – K made an innocent clerical error, owner should be put in
status quo, would be unconscionable to hold contractor to mistaken bid.
4. Estate of Nelson v. Rice 2000: Rice bought two paintings for $60 at an estate sale.
Turned out they were worth $1 million.
a. Held: By selling the paintings, the seller assumed the risk they were much more
valuable. (R2nd 154)
5. Stees v. Leonard 1874: P and D enter into K to build a building. Every time
construction rose to the 3rd floor, the whole thing would collapse. D claimed this was b/c
the building was on quicksand.
a. Held: D contacted to “erect and complete the building,” meaning he was bound
to do so no matter what the circumstances.
i. Performance Specification: Requires a contractor to product a specific
result with specifying the means for achieving the result.
ii. Design specification: Specifies the design, materials, and methods, and
impliedly warrants their adequacy.
b. This case embodies older, harsher view, that parties must always perform
agreements they enter into.
c. Defenses:
i. Fundamental defense: Both parties made a mutual mistake as to a matter
that is fundamental to the performance of the contract. Court holds that
anything the person agrees to do, promises to do, the person must do it
no matter what.
ii. 2nd defense: D followed the specifications and they were faulty. Party
agreed fundamentally to just follow the expectations, so it’s not their
fault. While this didn’t work in this case, this can be a successful
defense. Especially true in government contracts
iii. 3rd argument: D said there was a prior agreement that the owner would
excavate the land. Court refused to admit this evidence because of the
parol evidence rule (just like Gianni and Russell). This is a very bad
ruling.
d. Legal doctrines on behalf of the owner to assist your argument that
rescission is inappropriate:
i. Assumption of risk is a typical response to a claim of mutual mistake.
ii. The argument would be this is the kind of risk that builders assume.
Sometimes construction turns out to be less expensive than anticipated,
and sometimes more. But, agreeing to build a building for $100,000 the
builder assumed that risk.
iii. A common instance of this type of case occurs where the parties knew
that the relevant assumption was doubtful.
6. Brenner (Renner?) v. Kehl 1986: P contracted with D to buy land. P made it clear they
wanted to grow jojoba, D thought their was plenty of water. There wasn’t. Seller’s
appeal award of consequential damages on grounds of mutual mistake:
 a. Rule: Absent fraud or misrepresentation, a party who rescinds a K based on
mutual mistake may not recover consequential damages. However, when a party
rescinds on a K on the ground of mutual mistake he is entitled to restitution for
any benefit he has conferred by way of part performance or reliance.
i. Reliance is a slightly more progressive remedy. Sub. 2, Rnd 158.
7. Older test: Mutual mistake was a D if the mistake concerned the “substance” or
“identity” of the K’s subject matter (K was then voidable). If it was only an accident or a
collateral attribute, K was no voidable.
a. Example: K to sell cow both parties believed to be barren. Prior to delivery,
seller realized cow was pregnant, and thus more valuable. Under the older test,
the K would be rescinded b/c the parties made a mutual mistake as to the
substance of the K’s subject matter (cow was a breeding cow rather than a barren
cow).
8. Modern Rule: If the K is entered into under a mutual mistake concerning a basic
assumption of the fact, the K is voidable by the adversely affected party if the mistake
has a material effect on the agreed exchange and the adversely affected party did not bear
the risk that the assumption was mistaken.
a. Example: On May 5, seller contracts to sell her famous race horse. The horse
died on May 4, unbeknownst to either party. The K is voidable by the buyer b/c
both parties were mistaken as to a basic assumption that the horse was alive. The
mistake is material.

IMPRACTICABILITY OF PERFORMANCE

1. General Rule: Performance of a K will normally be excused if the performance has

been made impracticable. The impracticability must involve the occurrence of an even
whose nonoccurrence was a basic assumption on which the K was made, and the
adversely affected party must not have assumed the risk of that K occurring. R2d261
2. SELLER’S DEFENSE
3. Taylor v. Caldwell, 1863: D contracted with P to rent a music hall for four days for
entertainment. The music hall burned down at not fault of either party prior to the rental
days. P sued for breach.
a. Held: The music hall, having ceased to exist, without fault of either party,
excuses both parties from K.
b. Remedy P was seeking: (1) Reliance - out of pocket expenses, put us back to go,
(2) Expectation – profits expected to make on series of four concerts. Did not
sue for expectation b/c there is no way to prove what the receipts would have
been.
c. If D made a promise to absolutely perform at the music hall, there would be
a K; but if the court finds an implied condition (such as, the music hall must
be there), and the condition is impossible to fulfill, then the parties are
excused.
4. Transatlantic Financing Corporation v. US 1966: P, chartered by D, contracted to a
ship a full cargo of wheat from TX to Iran. Shipment was contemplated to go through the
Suez Canal, but a war broke out, closing the canal. P had to go 3000 extra miles.
a. Held: K was not impossible (or impracticable).
b. Definition: A thing is legally impossible (or impracticable) when it is not
practicable and can only be done at an excessive and unreasonable cost.
c. Impracticability Test:
i. A contingency – something unexpected – must have occurred.
 ii. The risk of the unexpected occurrence must not have been allocated
either by agreement or by custom.
iii. Occurrence of the contingency must have rendered performance
commercially impracticable.
d. Analysis of Transatlantic under the test:
i. An unexpected contingency did occur in this case.
ii. At the time they entered into the K, we knew Egypt had nationalized the
canal, and it was very foreseeable that the canal would be closed.
Circumstances indicate that P was willing to assume abnormal risks.
iii. Sometimes a very great increase in cost will cause a court to say that a
contract is impracticable. This doesn’t apply here, because this was only
a fraction of the K price – no nearly enough to declare something is
commercially impractical.
5. Note on Forseeability: Though anticipating a possible turn of events, “the parties may
not have thought it sufficiently important a risk to have made it a subject of their
bargaining.” Should be factor in whether or not the party now claiming the D should
have assumed the risk.
6. Force Majeure Clauses: When, during the negotiation of a K, a party anticipates on a
more evens that it cannot readily prevent and that might impede its performance, it may
introduce this generic term intended to excuse it from performing if the impediment
arises. These clauses must be drafted very carefully.
7. UCC 2-615: Doctrine of Commercial Impracticability.
a. Eastern v. Gulf (our old friends!): Gulf used impracticability D.
b. Held: Ct. thought the events of the oil crisis were reasonably foreseeable, and
the fact it occurred was not an unexpected contingency. Even beyond that, if it
WERE unforeseeable, increased cost alone is not enough. The court can’t even
tell from the evidence if Gulf has experienced any real economic problems.
c. Rules:
i. The unforeseen cost increase that would excuse performance “must be
more than merely onerous or expensive. It must be positively unjust to
hold the parties bound.”
d. Unprofitable does not mean impossible. A mere showing of unprofitability,
without more, will not excuse performance of a K.
8. Typical impracticability subject matter:
a. Supervening prohibition by law (what you contracted to do is now illegal).
b. Death of one party in a personal services K (excuses performance of both
parties).
c. Destruction of the subject matter of availability of something in the K (Taylor v.
Caldwell).
9. Example: Farmer makes a K with grain elevator to sell his wheat crop. Grain elevator
makes 2nd K with Wheaties to resell the wheat. Draught occurs, no wheat. Is farmer
liable for breach b/c grain elevator had to purchase at a higher price?
a. Farmer’s D: Impossibility of performance or commercial impracticability.
b. Issue for court: Was K for a particular quantity of wheat, or specifically for the
farmer’s wheat.
c. If its for the farmer’s wheat, then performance is impossible and D works. If it is
for a specific quantity, performance is not impossible and then farmer is liable for
breach.

FRUSTRATION OF PURPOSE
 1. General Rule: Performance may be excused under the doctrine of frustration where the
purpose or value of the contract has been destroyed (or substantially frustrated) by a
supervening event that was not reasonably foreseeable at the time the K was entered into.
R2d 265
2. Slippery slope – courts reluctant to invoke this D.
3. BUYER’S DEFENSE: This is b/c it is always possible for the buyer to fulfill his
promise to pay, even if he will essentially gain nothing for his money.
4. Krell v. Henry 1903: D paid deposit to P for the use of his apartment so he may watch a
coronation. The King became ill, delaying the coronation. D refused to pay balance, P
sued. D counterclaimed for his money. D wins on frustration of purpose grounds.
a. Rule: Where the object of one of the parties is the basis upon which both parties
contract, the duties of performance are constructively conditioned upon the
attainment of that object.
5. Remedies: In general, any benefit one party has conferred on another will be returned (D
will get his deposit back).

UNIFORM COMMERCIAL CODE

ARTICLE I

1. UCC 1-102: The Code is to be liberally construed and applied to promote its underlying
purposes and policies:
a. To simplify, clarify, and modernize the law,
b. To permit the continued expansion of commercial practices by validating trade
custom and usage as well as parties’ express agreements,
c. To make the law uniform among the various jurisdictions.
2. Three fundamental principles underline much of Art. II:
a. Good Faith
b. Commercial Reasonableness (pervasive, a part of every merchant’s good faith
duty).
c. Facilitation of actual commercial practices through the incorporation of course of
performance, course of dealing, and usage of trade.
i. Course of performance (2-208) – how you and I actually perform under
this K.
ii. Course of dealing (1-205)– how you and I performed under prior K’s.
iii. Usage of trade (1-205)– how others in the industry understand K
practices
3. Good Faith
a. 1-201 (19) Honesty in fact:
i. Subjective Test
ii. No matter how absurd a person’s contention is, if they really believe
their contention is true, they made the assertion in good faith.
b. 1-203: Imposes the obligation of good faith on every party to a transaction
governed by any portion of the UCC.
c. 2-103: Supplements the general UCC Good Faith definition, by stating under
Art. II, Good faith for merchants includes not only honesty in fact, but also the
observance of reasonable commercial standards of fair dealing in the trade.
i. Merchant defined in 2-104.
ii. Can parties get rid of a good faith obligation?
iii. While generally code provisions are variable by agreement, you cannot
disclaim good faith or commercial reasonableness. You can set
 standards by which you just good faith, provided that the standards set
forth in the K are not manifestly unreasonable.
4. Nelson v. Union Equity 1977: Court held defendant farmer meets the requirements of
“merchant” definition under 2-104 because he is knowledgeable about the business of
crops, and meets the statutory elements. Because D was a merchant, the oral agreement
confirmed in writing satisfies the Statute of Fraud requirements under 2-201 and
therefore must pay damages for breach.
a. 2-104 A person is a merchant if:
i. They deal in goods of the kind, OR
ii. By his occupation he holds himself out as having knowledge or skill
peculiar to the practices involved in the transaction
1. SUPERMERCHANT: You have to be a merchant by the goods
prong of merchant (i.e. Blockhead (wiglet case): D was a
merchant, not because he had ever made wiglet cases, but
because the “goods” he dealt with were blow-molded items).
Look for the broadest definition of the goods you are talking
about (i.e.
iii. Cmt.2: For purposes of dealing with the statute of frauds (2-201), firm
offers, confirmations, and modifications, a merchant is deemed to be
almost every person in business (even a university). Mooney thinks the
merchant standard should be held to someone who answers his mail.
iv. For purposes of 2-314 (implied warranty of merchantability) or cases of
merchant good-faith (2-103), they are talking about supermerchants.
b. Merchants (lower level): When the code says merchants or between merchants,
this is what they mean.
c. Merchant who deals in goods of this kind is a supermerchant (higher level).
d. Courts are widely split on whether farmers are merchants under the UCC.

THE SCOPE OF ARTICLE II

1. UCC 2-102 states the general rule that Article Two applies to “transactions of goods.”
a. This applies to all transactions and goods, not just those by merchants.
b. Only Super-merchants make merchantability warranties, only they can transfer
an entrusters title in an ordinary course of business, but a code GENERALLY
applies to everyone (Joe Schmo sells Jack Black his golf club)
2. 2-105(1): Defines “goods” as all things…movable at the time of identification to the K
other than money, investment securities, and things in actions.
3. Anthony Pools v. Sheehan 1983: P built a pool for D, which D claims had a defective
diving board. The K between the parties had been a hybrid transaction, meaning part
goods and part services.
a. Predominant purpose test: Whether the predominant factor is a transaction of a
sale of goods with labor incidentally involved or vice versa.
b. Gravamen test: Whether the reason for the breach is directly related to the fault
of the service or the fault of the good.
c. Policy considerations: If the test results in classifying the transaction as a K for
services there would be no UCC based, implied warranties on the diving board
and this would be contrary to the legislative policy. §2-316 (1) declares a seller
of consumer goods may not contractually disclaim implied warranties.
i. Holding: K in goods, implied warranty applies. 2-316: Two
functions: 1) This is a K in goods, and the implied warranty applies, 2)
knocks down disclaimers on implied warranties.
CONTRACT FORMATION UNDER THE CODE

1. K formation is generally simpler than under common law.

2. UCC 2-204(1): A K for the sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a K.
3. The Code constitutes a single, broad inquiry (as opposed to the offer/acceptance):
Whether the parties have, in a reasonable manner, demonstrated agreement.
o An offer may be accepted “in any many and by any medium reasonable in the
circumstances unless the offer unambiguously states otherwise. UCC 2-
206(1)(a).
o A “unilateral” K may be accepted by a mere promise to perform the requested
act.
o Under certain circumstances an option K is enforceable without separate
consideration. UCC 2-205.
o 2-204 still requires an agreement of a meeting of the minds between the
negotiating parties.
4. Mirror Image Rule: Unjust results:
o Sometimes permits a party to renege entirely on an agreement, on the ground that
the K documents did not match exactly
o “Last shot doctrine” gave the party sending the last communication sole control
over the K terms (receiving it would infer acceptance). This permitted sellers to
disclaim all warranties with accompanying invoices.
5. UCC 2-207: Eliminates the mirror-image rule. (KNOW 2-207 – TESTED HEAVILY)
6. Three routes to K formation under UCC 2-207:
a. A definite and seasonable expression of acceptance.
b. Written confirmation sent within a reasonable time.
c. Conduct by both parties which recognizes the existence of a K is sufficient to
establish a K for sale although the writings of the parties do not otherwise
establish a K.
7. Conditional Nature of the assent must be “directly and distinctly stated or expressed
rather than implied or left to inference.”
a. Does UCC 2-207 apply to “different” as well as “additional terms? Courts and
commentators disagree.
8. Diamond Fruit Growers, Inc. v. Krack Corporation 1986: KC manufactured cooling
units that contained steel tubing. Bought its tubing from DFG for 10 years. KC would
send a purchase order, and DFG would send back an acknowledgement that included a
disclaimer for all liability. P sued KC for a leaking cooling unit. KC brought 3rd party
suit against DFG.
a. Held: Because KC’s conduct did not indicate unequivocally that KC intended to
assent to DFG’s terms, their conduct did not amount to the assent contemplated
by 2-207.
b. Reasoning: Public policy of the Oregon’s adoption dictates that the last-shot
rule is to be abolished. The section is to be interpreted so as to give neither party
to a K an advantage simply because it happened to send the first, or in this case,
the last form. UCC 2-207 was designed to abolish that rule, and to allow D2’s
argument to prevail, though it is compelling, would go against public policy.

STATUTE OF FRAUDS
1. UCC 2-201: A K for the sale of goods for the price of $500 or more is not enforceable
by way of action or defense unless there is some writing sufficient to indicate that a K for
sale has been made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker.
2. UCC drafters concluded the benefits requiring a writing would outweigh the detriments.
a. Contributes to the business habit of requiring a writing.
b. Prevents fraud by deliberate overreaching.
c. Prevents innocent mistakes.
3. All the UCC requires for enforcement is that a writing provide “a basis for believing
that the offered oral evidence rests on a real transaction.”
4. UCC 2-201 dispenses entirely with the writing requirement in four types of situations:
a. Between merchants, if a confirmation is received within a reasonable time and is
sufficient against the sender, it is also sufficient against the party receiving it,
unless that party objects within 10 days.
b. When a seller has mad a substantially beginning in the manufacture of “specially
manufactured” goods, or has committed itself to buy goods from a 3rd party, it
may enforce an oral K for them if it cannot resell them in an ordinary course of
business.
c. If a party judicially admits the existence of the alleged K (pleading, pre-trial
discovery, or in live testimony), she may be held to it. UCC 2-201(3)(b).
d. To the extent that the seller has received and accepted payment, or the buyer has
received and accepted the goods, the Statute is no bar. UCC 2-201(3)(c).
i. Generally, however, partial payment of acceptance does not remove the
entire K from the Statute, only the portion paid for or accepted.
5. STATUTE OF FRAUDS REQUIREMENTS:
a. Must evidence an existing K.
b. Must be signed (1-201(39)) – any name, mark, or symbol adopted with the
intention to authentic a document.
c. Writing must specify a quantity (though not necessarily a price) – this is because
a court can always find a price out of the market price.
6. Comment 1 – indicates which was the court is to tilt.
7. Sub. (2)- Farmer case….a writing good against the person who sends it is good against
the person receiving it if they don’t object.
8. Distribu-Dor, Inc. v. Karadanis, 1970: Sale of certain mirrors and tub and shower
enclosures for Tahoe Inn. Tub enclosures not specially manufactured, but mirrors and
shower enclosures are spec. manufactured..
a. Held: An express K existed for the sale of the mirrors, recovery for breach of
which, under UCC 2-201 3(a), is not barred by the statute of frauds.
b. Reasoning: This was a K for specially manufactured goods, not suitable for
resale in the ordinary courts of the seller’s business, and the seller had already
started in the manufacture of the attempt to procure the goods.
c. Tub enclosures: Court found these enclosures did not fall under the specially
manufactured exception – but once a part of a K is taken out of the statute by
3(a), then the whole K will be taken out.
i. 3(c) contemplates that only the goods which have been accepted, or for
which payment has been made.
ii. But, 2-201 3(a) has different language – if the goods have BEGUN to be
manufactured, the statute of frauds defense is lost. Therefore, 3(a) is an
all or nothing deal.
9. In all of these cases, there are two distinct defenses:
a. I never entered into a K – never considered myself bound, etc.
 b. Even if we did enter into the K, there was no objective meeting of the
minds…the K is unenforceable because there is no signed writing.

THE PAROL EVIDENCE RULE

1. UCC 2-202: A writing intended by the parties as a final expression of all or part of their
agreement may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement; however, such a writing may be “explained or
supplemented”
a. by the course of dealing, usage of trade, or performance,
b. where it is only a partial integration (i.e. not intended as a “complete and
exclusive” statement of the parties agreement), by evidence of consistent
additional terms.
2. By and large, the UCC analysis is virtually identical to the common law analysis:
a. Is the writing integrated?
b. Is it integrated in whole or in part?
c. If its not, the rule doesn’t apply.
d. If it integrated completely (enforceable understandable merger clause, for
example), then Subsection A says it can still be explained or supplemented (by
course of dealing or usage of trade or course of performance). In addition, under
2-203 (supplementary principles of law and equity), the 2-214 evidence can come
in (evidence of fraud, duress, mistake, etc).
e. If it is a partial integration – parties intended this is as a final, if not complete
statement – then consistent additional terms can be introduced, Subsection B.
3. Snyder v. Herbert Greenbaum & Associates: Contract for carpet and installation. 3
issues:
a. Whether D was entitled to rescind the K b/c P has misrepresented a material fact,
which D relied on in forming the K. (held – no – estimate was not a fact, but an
opinion).
b. Whether court should have allowed into evidence certain documents as proof of a
prior oral agreement that all K’s between the parties could be cancelled
unilaterally prior to performance. (held – no – this clause would have been
written into the K, K was a complete integration). Mooney thinks this is a shaky
interpretation.
c. Whether damages should be 2-708(2) – lost profits – or 2-708(1) – K/market
differential formula. (2-708(2)) is appropriate b/c P may be a lost volume seller,
and part of the K is for services, so he may not otherwise recover for those
services). Mooney likes this assessment.
4. Additional class notes:
a. 2-107: Helps draw the line between goods and real estate.
i. The code only applies to goods. Well, what about minerals in a mind, or
standing timber? Are those goods?
ii. Certain kinds of things are goods if they seller severs something and
turns it over. If they buyer has to sever something, it is reality (i.e. if the
seller chops down the tress, it’s a good, if the seller does it, it’s realty).
b. 2-205: In some contexts, it reverses the rule of Dickensen v. Dodds: An offer by
a merchant in a signed writing that says it will remain open for a period of time,
does remain open even without separate consideration. (Firm offers)
c. 2-207: Additional terms in offer and acceptance.
 d. 2-209(1): A modification does not need consideration to be binding. These
modifications need to be made in good faith to be enforceable. 1-103: Duress
argument against it.
i. Oral modifications are ok, unless it falls under the statute of frauds, or is
not made in good faith.
ii. A modification, if it fails for either of these two things, a modification
can operate as a waiver (i.e. agreeing to a modification can be considered
a waiver of a written no oral modification clause).
e. 2-210: (1) is most important part – a party may DELEGATE its duty unless the
other party has a substantial interest in performance by that party itself.
(Virtually identically to the Restatement section on delegation). (2) A party may
assign a right unless doing so would materially change the duty of the other
party, or increase materially the burden or risk imposed on him by his contract, or
impair materially his chance of maintaining a return performance.

GENERAL OBLIGATIONS AND THE CONCEPT OF TITLE

1. “Gap Filler” Provisions: Express agreements often include common omissions such as
K duration, payment, delivery date, and price.
a. UCC 2-204(3): “Even though one or more items are left open a K for sale does
not fail for indefiniteness if the parties have intended to make a K and there is a
reasonably certain basis for giving an appropriate remedy.
b. 2-305: When parties fail to agree of price, 2-305 provides one.
i. How do we know there is a K when the price term is missing?
ii. Intent of the parties. (1) Parties if they so intent can conclude a K for sale
even though the price is not settled.
iii. (3): When a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one party the other may at his
option treat the K as cancelled or himself fix a reasonable price.
c. UCC 2-306(1): No quantity unreasonably disproportionate to any stated estimate
or in the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements may be tendered or demanded.
i. An outputs seller may not tender an unreasonably disproportionate
quantity (outputs contracts), and a requirements buyer may not
demand an unreasonably disproportionate quantity (requirements
contracts).
ii. Reasoning: No great hardship on the seller to give her whole output to
the buyer. This protects the buyer in an output K from having huge
amounts dumped on him.
d. UCC 2-306(2): Best efforts requirements for exclusivity requirements.
e. 2-311 states that, unless otherwise agreed, the buyer has the right to specify the
assortment of goods.
f. 3-308 (a): Unless otherwise agreed the place for delivery of the goods is the
seller’s place of business or if he has none, his residence.
g. 2-309: Termination of a K by one party requires that reasonable notification be
received by the other party. Hamilton v. Delta
h. 2-307-2-310: Requires parties to comply with ordinary, reasonable commercial
practices.
i. 310(a): Buyer pays where buyer receives shipment.
1. Need to understand difference between delivery and receipt. A
party receives goods when the party actually touches them (they
 arrive). A delivery depends on the term of the K, usually when
the seller gives the goods to a carrier.
i. When a party asserts a “gap filler” claim, other party may raise defense of trade
usage, course of dealing, or course of performance.
j. 2-311: K does not fail for definiteness when a party can specify certain
particulars for performance (argument used in Fairmount Glass).
2. Hamilton Tailoring Co. v. Delta Airlines, Inc. 1974: P contracted with D to make all of
their uniforms (requirements K – i.e. Eastern v. Gulf). D changed their uniforms, and
gave P a year notice that they would not longer buy from them.
a. Court held that the notification was not reasonable under 2-309(3). There was
little, if any chance, that P could obtain a substitute agreement in that time, plus
D kept ordering shorter uniforms and canceling orders.
b. Trade usage can be introduced under 2-309, cmt. 1 to show agreement for time.
P used trade usage here to show that in the uniform industry, it is customary for
the customer to make a settlement wit the manufacturer on a reasonable basis for
the leftover inventory at hand.
3. Feld v. Henry 1975: P contracted with D to sell bread crumbs. Provision of right to
cancel with 6 month notice. It became unprofitable for D, so he said he’d continue if P
would give 1 cent more a pound. P refused, D dismantled machine.
a. Issue: Whether the outputs K carried an implication that the seller has to
continue its business throughout the term of the K, or may it cease production.
b. Holding: Under 2-306, an outputs seller has a good faith obligation to continue
to have output, but that’s all.
c. Who is going to win on remand? Probably the P buyer, because (1) the K did
contain a 6 month termination provision, therefore the seller is not locked in
forever, (2) the seller’s failed effort to extract a price increase.
4. Output or requirements contract: Feld v. Henry S. Levy & Sons
a. Seller has good faith obligation
b. Buyer did not give up right to buy elsewhere.
c. 2-306(1)
d. The party the statutory language is seeking to protect is the buyer. The seller has
the good faith obligation to continue (producing bread crumbs) in this case.
Buyer already has obligation under K to buy those bread crumbs.
5. Exclusive dealing K: Wood v. Lucy Lady Duff Gordon
a. Seller gives up right to sell elsewhere.
b. Buyer must use best efforts (in this case, to market Lucy’s fashions.
c. 2-306(2).
d. Comparable to requirements K - statute attempts to protect seller. Places on
buyer an obligation to operate in good faith.
6. Requirements K: Eastern v. Gulf, Hamilton v. Delta
a. Seller did not give up right to sell elsewhere
b. Buyer must purchase in good faith

CODE WARRANTY

1. Code Warranty (UCC 2-312-2-318) litigation arises typically in two contexts:

a. Commercial - where the loss often is purely economic,
b. Consumer – where the loss also commonly includes personal injury from a
defective or otherwise substandard product.
2. To prevail in an action for breach of warranty, a buyer must:
a. Establish that the seller warranted the goods under 2-313, 2-314, or 2-315
 b. Prove that the goods delivered did not conform to the warranty, and that, as a
result, it suffered damage.
3. A seller will respond by invoking some combo of:
a. 2-316 (Authorizing certain warranty disclaimers),
b. 2-719 (permitting certain remedy limitations),
c. 2-318 (requiring a measure of “horizontal” privity,
d. 2-607(3) (requiring that the buyer give reasonable notice of the breach, and 2-
735 (the Art. 2 statute of limitations).
4. Express v. Implied warranties:
a. Express (UCC 2-313), created by:
i. Affirmation or promise,
ii. Description,
iii. Providing a sample or model.
b. Implied:
i. Merchantability (UCC 2-314)
1. (1) applied into every sale of goods by a “merchant with respect
to goods of that kind.”
ii. Fitness for a particular purpose (UCC 2-315)
1. Arises when a seller had reason to know of a buyer’s particular
purpose for the goods AND hat the buyer is relying on the
seller’s skill or judgment to select the goods.
2. One important rationale for imposing implied warranties on
certain sellers is the likelihood that parties themselves, had they
considered such terms, would have included them in their
agreement.
5. Keith v. Buchanan 1985: P purchased boat from D, after seeing brochures claming it
was seaworthy. P had own friends look at it, who pronounced it seaworthy as well.
Turned out it wasn’t seaworthy. Held:
a. The representations regarding seaworthiness in the brochure were affirmations of
fact relating to the quality or condition of the vessel. This created an express
warranty.
b. The representations regarding seaworthiness were part of the basis of this bargain
(old rule was that buyer had to rely on seller’s warranties).
c. There was no implied warranty of fitness for a particular purpose because P did
not rely on the skill and judgment of D in selecting a suitable boat, but relied on
his friends.
6. Rules:
a. Fact/Opinion: Statements made by a seller during the course of negotiation over
a K are presumptively affirmations of fact unless it can be demonstrated that the
buyer could only have reasonably considered the statement as a statement of the
seller’s opinion.
i. Factors that indicate opinion are: (1) lack of specificity in the statement
made, (2) statement made in unequivocal manner, (3) statement which
reveals the goods are experimental in nature.
b. Reliance: The buyer’s demonstration of reliance on an express warranty is not a
prerequisite for breach of warranty, as long as the express warranty involved
became part of the bargain.
i. Reliance is not altogether dead – some states interpret the UCC to follow
the Uniform Sales Act which required the buyer to rely upon the seller’s
interpretation.
7. Express warranties 2-313, five issues:
 a. Whether seller has actually made a warranty, “puffing” is a defense.
b. Reliance (see above)
c. Privity (2-318)
d. 2-316(1): Express warranties cannot be disclaimed.
i. Cmt. 1: The disclaimer drops out when the disclaimer is inconsistent
with the express warranty.
ii. Autzen v. John Taylor Lumber Sales (note case): Buyer is not
completely barred from recovering if express warranty happens after the
K, it is just extremely difficult.
e. Watch for merger clause – seller may make an oral express warranty, but exclude
it through written merger clause in K.
8. Warranty v. “Puffing”
a. Whether the representations compared goods to other goods
b. The specificity of the representations
c. Whether they related to the goods’ quality
d. Whether they were “hedged”
e. Whether the goods were experimental
f. The buyer’s actual or imputed knowledge of the goods’ condition
g. The nature of the claimed defect
h. Whether the statement was written or oral.
9. Barton v. Tra-Mo, Inc., 1984: P purchased tanks from D after seeing models. 2-
313(1)(c) states that an express warranty is created when a sample or model is made as
part of the basis of the bargain, leading the purchaser to believe that the entire order will
conform. D tried to argue that the items were not really models, but the court thought
they were retarded. P wins for breach of express warranty by model.
10. Sample v. Model
a. Sample: Actually drawn from the bulk of the goods which is the subject matter
for the sale.
b. Model: Offered for inspection when the subject matter is not at hand and which
has not been drawn from the bulk of goods.
11. Blockhead, Inc. v. Plastic Forming Company, Inc. 1975: P buyer was experienced in
plastics and the wig case industry. P rejected improvements and approved models and
designs.
a. Warranty of Fitness: No 2-315 warranty in this case. An implied warranty of
fitness for a particular purpose did not occur because the warranty depends upon
the relative skill, knowledge, and experience of the two parties. Only happens
when buyer goes to seller asking them to select everything.
b. Warranty of Merchantability: No breach of warranty of merchantability
because it was effectively disclaimed. 2-316(3)(b) if a buyer examines the goods
or has an opportunity to and fails, there is no implied warranty in case of any
defects coming up after inspection.
c. Subsidiary issue: Whether or not the D qualifies as a supermerchant for
purposes of 2-314?. D argues that he was not because he had never made wiglet
cases before, but the court holds that he is an expert in plastics.
12. Valley Iron & Steel Co v. Thorin: D asked P to make iron collars. P said they could,
and indicated they would have to be made out of a strong material in case they hit rock.
D bought a whole bunch, and 80% of them broke. D declined to pay. P sued for
restitution (value of benefit of goods provided), D’s defenses were breach of implied
warranties of merchantability and fitness.
a. Warranty of Merchantability: P breached, because he was a merchant
(merchant of products of similar metals, even if they have never made the
 collars) – for determining who is a supermerchant, need a broad definition of the
goods.
b. Warranty of Fitness: P breached. When you have specially manufactured
goods, the ordinary purpose of such goods may be equivalent to their particular
purpose for purposes of warranty. Crucial judgment turned on seller saying,
“well, these might hit rock, so they need to be made of strong material.” Buyer
made intended purpose known, material was left to the discretion of the seller.
c. Interesting 3rd issue: Trial court found the buyer was at fault somehow.
Appellate court gently points out that fault is irrelevant in most warranty
litigation.
13. Delano Grower’s Cooperative Winery v. Supreme Court Wine Co., Inc. Rotten sweet
wine case.
a. Was a breach of merchantability warranty here (8000 cases of sweet wine were
unmarketable).
b. 2-208 – interesting statutory argument: Even if there had been a trade usage that
buyers of this wine should add sulfur, these parties course of dealing would
trump this trade usage.
c. 2-607(3) – Introduction into notion that a typically seller’s D is that buyer did not
give notice of alleged breach of warranty in required reasonable time.
d. 2-308 – Buyer’s supreme effectively revoked its acceptance of the 8000 cases, so
it was no longer responsible for the K price.
14. ISSUES TO FOLLOW ON TEST:
a. Is the seller a supermerchant? Does he deal in goods of this kind? 2-104.
b. Are the goods merchantable under 2-134(2)? This is never an easy
determination (“fair average quality, pass without objection into trade”).
c. Did seller breach warranty of merchantability?
d. Is the item being used for its ordinary purposes, or for a particular purpose? Is
item specially manufactured (there, its ordinary purpose is its particular
purpose)? Warranty of fitness 2-315.
e. Did seller breach warranty of fitness?
f. What defenses are available?
i. Warranty disclaimer 2-316? Was it conspicuous? Remember, can’t
disclaim an express warranty under sub. 1.
ii. Remedy limitation 2-719? Will warranty fail of its essential purpose if
this is enforced.
iii. Trade usage (2-208)? Can buyer come back with course of dealing
response (such as in Delano)?
iv. 2-607(3): Did buyer give effective notice of the alleged breach in
required reasonable time?
g. Damages: Formula A: Loss in value (K price) – Cost Avoided

SELLER DEFENSES TO WARRANTY LIABILITY

1. Warranty Disclaimer: UCC 2-316 (major defense)

a. (1) A seller may not disclaim an express warranty
b. (2) A disclaimer of the merchantability warranty must mention merchantability
and be conspicuous (if in writing), a disclaim of the fitness warranty must be
conspicuous and in writing.
2. Remedy Limitation: UCC 2-719 (major defense)
a. (2) Invalidates any remedy limitation that causes a warranty to fail of its essential
purpose.
 b. (3) Provides that a limitation of PJ damages in a sale of consumer goods is
“prima facie” unconscionable.
3. Notice Requirement: UCC 2-607(3)
a. Requires a buyer to “notify” a seller within a “reasonable time” of any claimed
warranty breach, or be “barred from remedy.” Buyer bears the burden of proof
(4).
4. Cate v. Dover 1990: P purchased from Beech Tire Mart 3 lifts manufactured and
designed by Dover. They never worked property.
a. D’s defense: Warranty disclaimer.
b. Ct’s response: Disclaimer was not conspicuous to a reasonable person under 2-
316(2).
c. Rule: The Code appears to recognize that actual knowledge of the disclaimer
would override a question of conspicuousness.
5. Moscatiello v. Pittsburgh Contractors Equipment Co. v. Curbmaster: Paving machine
case. K has disclaimer of implied warranties which was one the front of the K and
referring to terms and conditions on reverse side. Also has a clause the limited remedies
to incidental and consequential damages.
a. Held: Disclaimer of implied warranties was inconspicuous, as well as
misleading. 1-201(10) – defines conspicuous.
i. Rule: A term is conspicuous when it is “so written that a reasonable
person against whom it is to operate ought to have noticed
it…language in the body of a form is conspicuous if it is in large or
other contrasting type or color.”
b. Held: Remedy limitation is not enforceable b/c it is unconscionable (2-719(3),
2-302).
i. A clause in a K is considered unconscionable and unenforceable if there
is “an absence of meaning choice on the part of one of the parties
together with K terms which are unreasonably favorable to the other
party. (Skelley Wright – from William’s and Walker Thomas…..most oft
repeated description of unconscionability).
6. These cases are a-typical. Generally, warranty disclaimers challenged as inconspicuous
will be upheld, and less that 10% conclude on facts before them that K provisions are not
enforceable.
7. Review 2-316(3)(a)-(c): Prob,6, pg. 164 – review for test.
8. Cox v. Lewiston Grain Growers, Inc., 1997: The seeds that failed to germinate.
a. Held: Warranty disclaimer is unenforceable.
i. The rule states that disclaimers are disfavored in the law and ineffectual
unless specifically negotiated between the buyer and seller. (The “Berg)
rule. The Berg rule should apply due to the specific requirements of the
sale. No negotiations occurred regarding the disclaimer or exclusionary
clause contained in the delivery ticket.
b. Held: The exclusionary clause was unconscionable.
i. In determining conscionability the court must consider:
1. The manner in which the K was entered (formation)
2. Whether the parties had a reasonable opportunity to
understand the terms of the K, and
3. Whether important terms were hidden in fine print.
c. Held: Insurance payments could not reduce the damages award against D.
i. Rule for Collateral Source: Payments received by the injured party
from a source independent of the tortfeasor will not reduce recoverable
damages by the tortfeasor.
 9. 9. A progressive minority of courts not that UCC 2-316(2) applies to either exclusion or
modification of the merchantability warranty, and so require both warranty disclaimers
and remedy limitations to be in writing and conspicuous.
a. A majority of court will enforce an inconspicuous remedy limitation.
10. What attack can a buyer make on a remedy limitation under 719(3)
a. Unconscionability
b. This court concluded that the remedy limitation on these facts, even though it is a
commercial case, is unconscionable. (Cox)
11. Issue of limited remedies must often arises in cases of repair or replace.
a. If you’ve taken your car back time and time again to have the steering wheel
fixed and it doesn’t work, you have a pretty good argument that the remedy has
failed of its essential purpose. Therefore, the remedy should be to replace the
car or give you compensation for having to drive a car with a broken steering
wheel.
b. In this case, the court decided that the remedy limitation in the delivery ticket
fails of its essential purpose because it deprives buyer of a substantial value of its
bargain.

NOTICE

1. UCC 2-607(3) requires that a buyer notify the seller of any alleged warranty “within
a reasonable time.”
a. Comment 4 allows a retail consumer somewhat more time to notify, but for a
merchant a reasonable time may by very short indeed (some courts say 10 days
for perishable products).
b. Notice given immediately upon discovery of breach ordinarily satisfies the
requirement.
c. Manner and content can be important – oral notice is ordinarily sufficient, may
have to specify “breach.”
d. Occasionally, direct notice from buyer to seller is not required at all: When seller
has actual knowledge of the defect of the particular product, or is deemed to have
been reasonably notified by the filing of the buyer’s complaint.
2. Warranty and Restatement of Torts: A careful attorney in product liability cases will
join a warranty claim with claims for negligence and SL, perhaps to avoid either a statute
of limitations defense or the “economic loss” doctrine (many courts bar tort recovery for
mere economic loss, as opposed to PJ or property damage).
3. Magnuson-Moss Warranty Act of 1975 requires that every consumer goods seller
making a written warranty disclose that warranty fully and conspicuously in simply and
readily understood language. It does not, however, compel a seller to make a written
warranty. If a seller DOES make one, whether full or limited, it may not disclaim any
implied warranty (if it only makes a limited warranty, it may restrict the duration of the
implied warranties).
4. 2 kinds of cases when filing the lawsuit satisfies notice:
a. When seller has actual knowledge of the problem.
b. If it is a consumer sale that has resulted in PI.
5. When considering if buyer gave adequate notice for breach, think about:
a. Prejudice test: Would the seller been able to fix the problem if they had found out
earlier, has the car been driven too much to recognize the problem, etc.
b. Effective policy argument: Even if we had given notice two weeks earlier, it
wouldn’t have mattered.
 c. If consumer is actually a merchant (i.e. using a car for business purposes, getting
tax breaks), that person should be held to a higher standard.

TITLE

1. When does title pass?

a. Only parties interested in this are insurance companies and taxing authorities.
b. 2-401(2): Unless otherwise explicitly agreed, title passes at the time of delivery
to the seller.
c. 2-308: GAP FILLER – unless otherwise agreed, delivery is at the seller’s place
of business.
2. When does good title pass to a buyer?
a. 2-403: Voidable title (sub. 1), Entrusting (sub. 2)
3. Problems – Pg. 180 Problems 8-11 (KNOW THESE EXAMPLES)
4. Voidable title is created by bad checks – can be transferred to good faith purchaser for
value.
5. Difference between a good faith purchaser for value (voidable title analysis) and an
ordinary course of business (entrusting analysis):
a. A good faith purchaser for value can buy from anybody. Two requirements:
You be in good faith (1-201(9)), and you have to give value (1-201(44))
b. If you are in an entrusting analysis, you have to buy from a merchant who deals
in goods of this kind. A buyer in the ordinary course of business is only buying
from a supermerchant.
c. GOOD TITLE CANNOT EVER BE TAKEN FROM A THEFT.
d. UCC allows good faith purchasers to obtain title more than the common law did.
This is because 1) The seller or entruster is in a better position to judge the merit
of the intermediary than the purchaser, and 2) Stream of commerce. We don’t
want buyers from supermerchants worrying all the time about whether they are
going to get good title.
6. Heinrich v. Titus-Will Sales Inc. 1994: P contracted with Wilson, an unlicensed broker
(held himself out as being a licensed broker) to sell a truck. Wilson negotiated with D for
the purchase of the truck. Wilson paid D with a bad check. They accepted it and gave
him a truck. Check bounced, demanded truck back. Wilson told P it needed repairs, took
the truck back to D. P asked D to give it back and D refused.
a. D’s arguments/Ct response:
1. Wilson is not a merchant b/c no inventory, nor a license. [not necessary
under UCC to have either).
2. P was not a buyer. [P was a buyer b/c he acted in good faith. Wilson’s
illegality does not taint status].
3. Truck was entrusted to Wilson after P had already paid Wilson (timing
issue). [Req. entruster to retain the burden of the risk, even when the
entrustment occurs after a 3rd party purchase for value, supports
underlying policies]
b. Policies:
1. Protects the buyer who relies on the merchant’s apparent legal ability
to sell goods in the merchant’s possession.
2. D was in a better position than P to protect itself against another
dealer/broker who may fail to pay for the goods.
3. Flow of commerce – a timing requirement would cause some delay.
c. Voidable Title - For P to prevail under this section, P must establish that
1. D delivered the truck to Wilson under “a transaction of purpose.”
 2. Wilson paid D for the truck with a bad check.
3. Heinrich was a good faith purchaser for value. [req: good faith 1-
201(9), give value (any form of consideration) 1-201(44)]
d. Entrusting theory: Court says you need three elements:
1. Entrusting 2-403(3)
2. Intermediary needs to be a merchant who deals in goods of this kind.
3. Buyer needs to be a buyer in the ordinary course of business.
e. This will be on the exam – always do both voidable doctrine and entrusting
theory analysis.

RISK OF LOSS

1. At CL, and under the Uniform Sales Act, risk of loss or destruction typically rested o the
party holding “title” to the goods when casualty occurred.
2. Under the UCC, risk of loss rules are both more flexible and more functional.
a. In general, the UCC places risk of loss on the party most likely to take
precautions against loss (usually the one with possession or control of the goods
or the one most likely to insure.
b. 2-509 (Risk of loss absent a breach), 2-510 (Effect of breach on risk of loss)
3. Insurable Interest Under the Code
a. Under UCC 2-501, buyer obtains insurable interest in goods upon their
“indentification” to the contract. At that point, they buyer may insure the goods
(even if its long before delivery)
4. Types of Delivery Terms (2-309, 2-320)
a. Shipment contract – free on board (FOB), place of shipment
i. Under a shipment K, the buyer pays the shipment cost and the risk
passess to the buyer when the goods are duly delivered to the carrier
b. Destination contract – FOB place of destination
i. The seller pays the shipment cost, and the risk does not pass to the buyer
until the goods are “duly so tendered at the destination as to enable the
buyer to take delivery.”
c. C.I.F. and C. & F Terms:
i. CIF: price includes in a lump sum the cost of goods and the insurance
and freight to the named destination. C&F: Price inc. cost and freight to
the named desination.
d. Examples.
i. FOB seller’s plant: Risk passes when goods go into carrier’s hands.
(Shipment K).
ii. FOB buyer’s plant: Risk passes when goods are duly so tendered at the
destination as to enable buyer to make a delivery. (Destination K).
iii. FAS USS Iowa, Portland, OR: Shipment K. [319(2)] – goods delivered
alongside the vessel.
iv. FAS RR car at seller’s plant: Inside the RR car.???
v. CIF Buyer’s plant: Shipment K, don’t be misled by the term “buyer.”
[2-320, cmt 1)
vi. Ship to buyer’s plant: Shipment K [2-503, cmt. 5 – ambiguous terms].
vii. No delivery term: Not explicitly a destination K, code preference for
shipment K when there are ambiguous terms.
5. Windows Inc., v. Jordan Panel Systems Corp. 1999: Contract for specially made
window, to be “shipped to NYC.”
 a. Appellate court held the buyer had assumed the risk of the loss because of the
ambiguous terms in the K.
i. The K must expressly specify a particular form of shipment. There is a
strong preference for shipment K’s, so if you want it to be another type
of contract, you have to have specific terms (such as FOB seller’s place),
or some other terms that say the seller will assume the risk until the
goods are in the seller’s hands.
ii. Just specifying the address of where to be shipped does not do this.
6. Cook Specialty Company v. Schrlock 1991: Press brake fell out of truck during
shipping. Insurance purchased by seller was not adequate to cover cost.
a. Goods are being transmitted to the buyer by common carrier, so it is a 2-
509(1)(a).
i. This is FOB place of shipment, so this is a shipment K.
ii. Where does it seems as though the risk of loss is going to be?
o Buyer (once item is in carrier’s hands).
b. Buyer’s 2nd argument about why it shouldn’t bear the risk:
i. 2-504: In a shipment K where the risk of transit will be on the buyer, the
seller has certain obligations towards the goods…particularly obligations
having to do with the K it makes with the carrier.
ii. Because the seller breached its 504 obligation, risk remains on the seller
(2-510).
c. Issue boils down to whether or not the seller made a proper K under 2-504?
i. Court found that the seller made an adequate K.
ii. Risk, therefore, was on the buyer when the item was damaged.
d. 2-504, cmt. 3 states that it is improper for the seller in a shipment K to agree to
an inadequate insurance. Why did the court find the insurance to be proper?
i. It is NOT improper for the seller to fail to investigate the extent of the
insurance.
ii. Here, the seller did not agree to a $5000 policy, it simply failed to
investigate the insurance.
7. Bill of lading – receipt (“document of title” -warehouse receipt is also a document of
title) indicating what the goods are, the consignor of the goods, where they are supposed
to be delivered, etc.
8. Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc 1985: Fire in warehouse that burned
all of D’s ribs. P transferred the ribs on 1/13, bailee clerk mailed receipt to D on 1/17 or
1/18. D received receipt on 1/24. Ribs burned on 1/17. Court held risk of loss had not
passed b/c acknowledge of the bailee of the buyer’s right of possession occurs when the
acknowledgement has been given to the buyer (509(2)(b)).
a. Court reasons by saying this was the intent of the drafters of the UCC, because
otherwise the code does not explicitly say that the acknowledge has to be to the
buyer.
9. Schock v. Ronderos: Mobile homes case. Risk had passed to buyer b/c they had
prepped the home for removal.
a. 2-509(3) case: Appellate court affirmed that the risk was on the buyer, because
the seller was not a merchant. Risk passed to buyer on TENDER of delivery.
b. Tender of delivery occurred on payment for and acceptance of the mobile home.
Sellers had disconnected the electricity and prepared the mobile home to be
moved. Their failure to remove the sofa and piano did not result in an
uncompleted tender of delivery.
c. Side note: Seller cannot be a bailee.
10. 2-510: Effect of breach on risk of loss
 a. 2-510 shifts risk of loss to breaching party, who but-for the breach would not
have had the risk of loss.
b. 2-510 (1): If tender or delivery of goods so fails to conform to the K as to give a
right of rejection, the risk of their loss remains on the seller until cure or
acceptance.
c. SIDE NOTE: Wild card of negligence here and in a lot of cases. Even if a party
bears the risk of loss through 2-309 or 2-510, if that party can show that the other
party’s negligence caused the damage, then negligence will trump the risk of
loss.
11. Wilke v. Cummins Diesel Engines, 1969: Government generator case. Delivered it
way before due, did not run specified field tests. Did not constitute and effective
delivery, risk of loss remained on seller.
a. The delivery of the generator to the job sit, while identifying the goods to the K,
did not amount to a delivery of the goods or the performance of obligations
conforming to the K.
b. UCC 2-206(2) provides that “goods or conduct including any part of a
performance are “conforming” or conform to a K when they are in accordance
with the obligation under the K.” Non-conformity cannot be viewed as a
question of the quantity and quality of goods along, but of the performance of the
totality of the seller’s contractual undertaking.
c. Mooney thinks this should be a 2-509 (3) case: Seller was a merchant and
hadn’t officially delivered the goods yet (“this is my baby”) T here is also
possible negligence overlay for both parties (trumps UCC Risk of loss). Also,
there is not actual breach b/c under 2-607 the buyer has not given adequate notice
of breach.
12. Muliplastics, Inc. v. Arch Industries, Inc 1974: P and D contracted for P to make
pellets for D. D refused to release purchase orders. P continued to house the goods from
8/20-9/22. There was a fire, and the goods were destroyed.
a. Under 2-510(3): Risk passes to the breaching buyer for a reasonable time.
b. There was a breach, and 8/20-9/22 was a reasonable time.
c. 2-709(1): Seller is entitled to recover K price.
d. Subrogation also an issue here.
i. HYPO: B owes S the price of the destroyed goods under 2-709
(Multiplastics). 2-709 says one instance in which the buyer has to pay
the price is when the goods have been lost or destroyed after risk of loss
has passed (reasonable time).
1. What if seller is insured, and the insurance company pays the
buyer’s obligation to the seller. Can the insurance company use
subrogation to step into seller’s shoes and have a COA against
B?
2. No, in cannot. 2-510, cmt. 3 says that the rules of (2), (3), that
shift risk of loss only to the extent of insurance deficiency (of the
other party), are not intended to be disturbed by subrogation
principles

PERFORMANCE AND BREACH UPON DELIVERY

2-507(1): Delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise
agreed, to his duty to pay for them.
2-511(1): Tender of payment is, unless otherwise agreed, a condition to the seller’s duty to
tender and complete any delivery.
• Comment 2 says explicitly these are concurrent conditions
• Practical effect: Neither party may sue for breach without properly tendering his own
performance.
• Check bounces = no payment 2-511(3)

1. Buyer’s Right to Prior Acceptance: Inspection and Rejection

a. A buyer may inspect goods to make sure they conform to the K 2-513(1).
i. In general, a buyer of goods has a right to inspect the goods prior to
paying for them.
ii. A buyer may, however, agree explicitly or by including in their K a
method of payment inconsistent with prior inspection, contract away
their right. 2-513(3).
b. If inspection reveals a non-conformity to the K, buyer may reject the goods. 2-
601 He may also refuse to pay the K price and invoke a variety of Art. 2
remedies (2-711)
c. By accepting the goods, the buyer loses his rejection right, obligates itself to pay
the K price and assumes the burden of proving a breach (2-607).
d. In some cases, acceptance can be revoked – but the standard is stricter than for
initial rejection. 2-608.
e. Payment required BEFORE inspection does not constitute an acceptance of
goods or impair the buyer’s right to inspect or any of his remedies. 2-512(2).
i. Even if buyer relinquishes pre-payment inspection right, the buyer
can still reject the goods after payment (2-601) (question is just who
will be plaintiff in the lawsuit).
ii. OUTLINE PRE-PAYMENT EXPECTION PROBLEMS – PP. 228.
2. Buyer’s Right to Reject
a. 2-601: If the goods or the tender of delivery fail in any respect to conform to the
K, the buyer may reject.
i. This differs from CL, there is no substantial performance doctrine
(Jacob & Kent v. Young). This is a nearly perfect performance.
ii. 2-103: There is a good faith obligation to perform
iii. 2-508: Seller’s right to cure.
iv. 2-612: A buyer may not reject a shipment under an installment K unless
the non-conformity “substantially impairs” its value.
v. 2-504: Obligation of seller in the shipment K to make an adequate K to
the carrier. Buyer may reject the goods ONLY if material loss or delay
ensues – the fact that the seller did not insure does not allow seller to
reject the goods without material loss.
b. Limitations:
i. Good-faith obligation: UCC 1-201(19), 1-203 (cmt. 19), 2-103.
ii. Subject to the provisions of 2-612, which provides that a buyer may not
reject a shipment under an installment K unless the non-conformity
“substantially impairs” its value.
iii. A buyer may not reject goods if (1) it already accepted them, or (2) the
seller has a right to cure non-conformity. 2-607, 2-508.
3. International Commodities Export Corp. v. North Pacific Lumber Co. 1991: Moldy
beans case. Buyer attempted to reject goods 9 months after receipt.
a. Buyer could not reject the goods because they had accepted them. They accepted
them in three ways:
 i. After an opportunity to accept signified acceptance of the goods. Said
they would retain them despite non-conformity and would try to sell
them.
ii. Failed to make an effective rejection of the goods (2-606(2)).
iii. Buyer exercised dominion over them. It tried and ultimately did resell
these beans
b. What is the most important legal effect of the buyer’s accepting the goods?
i. Once the buyer accepts the goods, under 2-607, it bears the burden of
establishing that the tender was defective at the time risk passed.
ii. If the seller DID breach, the aggrieved buyer has to keep the goods, but
can sue for breach – Value of good beans minus the value of moldy
beans
4. Bowen v. Foust 1996: Heating and cooling unit case. P pled that after paying D the
agreed sum, they discovered that the equipment D installed was not the equipment
specified in the bid and did not work.
a. Buyer revoked its acceptance under 2-608.
b. Court accepted that P acted quickly upon discovery of non-conformity.
c. Buyer has right to throw goods back on seller by revocation of acceptance and
recover money (2-711).
d. Seller claims they wanted to cure under 2-508, but ct. held that seller never
offered to cure.
e. Side note: Argument in response from the seller saying “it’s too late” to revoke:
Doesn’t matter…it would not have changed anything if we had started this suit
from day 1: No prejudice on the seller (goods would not have decomposed or
been overused).
5. Zabriskie Chervrolet, Inc. v. Smith 1968: Lemon car case.
a. Right to cure is not limitless. 2-508 Court held that attempted cure in this case
was ineffective. Seller will not be allowed to force the deal onto the buyer by
forcing the new transmission. Buyer’s confidence is shattered and a reasonable
buyer would not want to proceed with the transaction.
6. Right to cure 2-508 analysis: Two issues:
a. Does seller have a right to cure?
b. If so, what constitutes an effective cure?

ACCEPTANCE AND RECOVATION OF ACCEPTANCE

1. Buyer’s Acceptance of the Goods, UCC 2-606(1) provides that acceptance occurs
when:
a. After a reasonable time to inspect, the buyer signifies acceptance to the seller,
b. The buyer fails to make an effective rejection, or
c. The buyer does any act inconsistent with the seller’s ownership.
i. Buyer can still sue for damages under 2-714, even if they are stuck with
the goods.
ii. Auction – moving from auction yard to own house constitutes
acceptance. Miron v. Yonkers Raceway.
2. Buyer’s Revocation of Acceptance
a. Upon acceptance, a buyer loses its right to reject. UCC 2-607
b. However, it may still revoke its acceptance, and following an effective
revocation it has approximately the same rights and duties as if it had rejected. 2-
608
c. 2-608 Requires that:
 i. The non-conformity “substantially impairs” the value of the goods and
that
ii. The buyer accepted the goods either (a) without discovering the defect
because discovery was difficult or (b) assuming reasonably, but
incorrectly, that the seller would cure the defect.
d. Revocation must occur within a reasonable time, as described in sub. 2.
3. 2-605: Under some circumstances, a rejecting buyer has an obligation to specify what it
thinks is wrong with the goods
4. Kesner v. Lancaster: K to sell a tractor. Seller assured buyer that the equipment was in
good shape. Seller gave cursory inspection, seemed fine. Turned out the tractor was
defective. The tractor needed a lot of repairs. P had successful revoked because the
defect substantially impaired the value of the goods under 608.
a. No perfect tender rule with revocation, you have to find substantial impairment.
b. Buyer has to show substantial impairment, has to accept goods without discovery
of the defect, and revocation has to be within a reasonable time (608 allows more
time than 601).
5. 2-610: Anticipatory repudiation.
a. If your client has reasonable insecurity about the performance, it can demand a
reasonable assurance of adequate performance by the other side. If the other side
does not do it, then without much risk you can declare anticipatory repudiation.
b. Hornell Brewing Co. v. Spry: Canadian beverage distribution case:
1. A K did exist (even without a distributorship agreement). 2-206: K can be
made in any manner to show agreement, 2-207: K can be shown with
conduct.
2. Three issues under 2-609:
a. Did Hornell have reasonable ground for insecurity?
b. Did Hornell make a 2-609 demand for adequate assurance or did it
just call up and say what are you going to do (this is often the most
litigated point).
c. Were the assurances given, adequate under the circumstances?
3. HELD: Adequate assurances were not forthcoming, so D had created an
anticipatory repudiation under 610, so P was free to leave the K.

REMEDIES

Code Remedies – 2 goals:

1. Aggrieved party may be put in as good a position as if the other party had fully
performed (no consequential or special or penal damages except as specifically
provided). 1-106(1)
2. Encourage a non-breaching party to minimize its damages by obtaining substitute
performance. Thus, the Code places few restrictions on an aggrieved sell attempting to
resell (706) and encourages an aggrieved buyer to mitigate losses through “cover” (712).
a. Code permits seller to recover the difference between the resale price and the K
price together with any incidental damages…but less expenses saved in
consequence of the buyer’s breach. 706(1)
b. Seller need not establish a specific market price for the goods.
c. Cmt 2: Failure to act property under this section deprives the seller of the
measure of damages here provided and relegates it to that provided in Sec. 2-708.
d. If seller cannot recover the entire K price under 2-709 or the price minus a resale
under 2-706, the appropriate damage measure will likely be the “difference
between the market price at the time and place for tender and the unpaid K price
 together with any incidental damages….but less expenses saved in consequence
of the buyer’s breach.” 2-708(1).

2-703: Catalogue of seller’s remedies

2-711: Catalogue of buyer’s remedies
Issues:
1. When and where to measure the market price
2. What items to inc. in the damage measure?
3. When do we have a lost-volume seller?

SELLER REMEDIES

Three remedies for seller:

1. 2-709 Full K price
a. Most often involves seller efforts to demonstrate that the goods are not
marketable at any price.
b. 2-709 provides that a seller may recover full K price in three instances:
i. When the buyer has accepted (2-606) and retained the goods
ii. When conforming goods have been lost or damaged after risk of loss has
passed to buyer (2-509)
iii. When the seller has tried and failed to resell the goods, or “circumstances
reasonably indicate that such efforts will be unavailing.” (i.e. potato case
where the market was bad and the seller couldn’t be expected to resale).
c. Question whether buyer has accepted the goods for purposes of 2-709:
i. Buyer who makes a “procedurally effective” rejection does not accept.
ii. Buyer making a procedurally ineffective rejection, regardless of
substantive merit, does accept the goods under 2-606.
iii. Buyer revoking acceptance (2-608) likely must be correct both
procedurally AND substantively.
d. Advise your client (seller) to resale (706) because it is easier to prove difference
between K price and resale price + incidental fees then it is to show you
reasonably attempted to resale.
2. 2-706 Resale – difference between K price and resale price
a. Most sellers will invoke 2-706
b. If non-breaching seller resales the goods in good faith and in a commercially
reasonable manner, and in accordance with fairly minimal statutory obligations,
then than aggrieved seller may recover the difference between the K price and
the lower resale price + incidental damages, minus damages saved.
i. Incidental expenses (allowable under 2-710)
ii. Don’t forget shipping costs
c. (2) If seller makes profit on the resale, he does not have to share with the
breaching party.
d. Advise client to act as if its their own money (this will make it a commercially
reasonable care).
e. Goods resold has to be the exact same goods you were going to sale to breaching
party.
f. If seller is going to resale privately, the only notice it has to give is the intent to
resale privately. You don’t have to give notice of particular sale or date. If seller
is going to resale publicly (i.e. auction), notice of time and place has to be givern
g. If seller resales unreasonably (for way below market price), can’t get remedies
under 2-706, but can get them under 2-708.
 3. 2-708 K market penalty (seller is entitled to recover difference between K price and
market price at time and place of tender).
a. (2): Lost volume seller
i. 2-708(2): If the damages measure of 2-708(1) is inadequate to put the
seller in as good a position as performance would have done, the seller
may proceed under sub. 2 and recover “profit (including reasonable
overhead),” that it would have made from seller’s full performance, plus
incidental damages, and minus payments or proceeds of resale.
ii. Lost P seller: On whose sales volume declined because of the breach.
b. (1): Third major remedy (although Mooney thinks this should be used rarely –
seller should resale under 2-706, or if it cannot, recover the K price under 2-709).
c. Place of tender: Shipment K: Buyer’s city, Destination K: Seller’s City.
d. The statutory formula will not always yield an amount equal to the seller’s actual
loss.
4. Conflict: 2-706(6) says that seller doesn’t have to share windfall from these statutory
formulas. This conflicts with 1-106, where it says if the seller is not damaged at all,
damages should be minimized.
1. 2-706(6) arises more in case of resale. It says seller doesn’t have
to give money to the buyer, but doesn’t say anything about
taking money from the buyer.
5. 2-704: Permits a reasonable completion of ½ finished goods. Risk: Can lose even more
money if you are unable to resale goods after you have finished. You want to notify the
buyer of your plans to resale.
6. Nederlandse v. Grande 1979: Concrete manufacturing case with steel strand. D
wouldn’t pay for the strand they ordered. Issue: Was P a lost volume seller? YES.
Could recover under 2-708(2).

BUYER’S REMEDIES

Buyer’s Right to Specific Performance or Replevin 2-716 (2-709 parallel this remedy for the
seller)
1. 2-716: Specific performance shall be granted where the goods are unique or in other
proper circumstances.
2. Cmt. 1: Without intending to impair the court’s sound discretion in the matter, this article
seeks to further a more liberal attitude than some courts have shown in connection with
specific performance of K’s of sale.
3. Cmt. 2: Output and requirements K’s involving special markets or sources are now the
“typical commercial specific performance situations.”
a. One strong indication of other proper circumstances for awarding specific
performance is the buyer’s inability to recover.
b. Eastern v. Gulf (Eastern couldn’t cover because fuel prices had shot up).
c. Copylease v. Memorex (claimed it could not reasonably cover by obtaining an
alternative source of toner because other brands of toner are distinctly inferior to
the Memorex product – goods were unique or “noncoverable”).
4. Sub. (3): Authorizes a buyer to replevy the K goods in two situations:
a. When they have been identified to the K and the cover is unavailable and
b. When they have been shipped under reservation and the buyer has tendered full
payment.

Buyer’s Right to Cover Price – K Price Damages UCC 2-712 (2-706 parallels this remedy
for the seller)
 1. 2-712: Authorizes a buyer whose seller has breached to “cover” by “making in good
faith and without unreasonable delay any reasonable purchase of goods in substitution for
those due from the seller.”
2. Sub (2): If buyer does so, he may recover from the seller the “difference between the
cost of cover and the K price together with any incidental or consequential damages…but
less expenses saved in consequence of the seller’s breach.”
a. Good Faith:
b. 1-201(19): Honesty in fact
c. 2-103 (merchants): Req. they observe reasonable commercial standards of fair
dealing in the trade.
3. Cmt. 2: The test of proper cover is whether at the time and place the buyer acted in good
faith and in a reasonable manner, and it is immaterial that hindsight may later prove that
the method of cover used was not the cheapest or most effective.
a. Buyer must also make a reasonable purchase. Considerations inc. time
constraints, market fluctuations, and available supply (was buyer purchasing as if
it was with their own money?)
b. Farmers Elevator Company of Elk Point v. Lyle (Doctrine of equitable estoppel
to prevent a party to an oral agreement from invoking the statute of frauds).
c. Most courts agree that uncertainty under 2-712 should be resolved against
breaching sellers.
d. Hardest case is when the buyer covers by purchasing somewhat better, somewhat
more expensive goods. If no other substitute goods were available, the buyer
should still be permitted to use the cover price-K price formula.
e. A non-covering buyer can get damages from other remedies (i.e. a market price-
K price damage computation), but they may not recover consequential damages
that cover would have prevented.

Buyer’s Market Price-Contract Price Damages 2-713 (2-708(11) – parallels this remedy for
the seller).
1. 2-713: Permits buyers who do not cover or seek specific performance to recover “the
difference between the market price at the time when the buyer learned of the breach and
the K price together with any incidental and consequential damages provided by this
article.
a. Computing damages: (1) Determine the property date and place for fixing
damages.
b. Date issue: If the seller’s performance is due by a specific date, use that date. If
the buyer does not learn until later, use the second date. Most difficult case is if
the seller repudiates earlier. The sounder position is to use the date of the breach
(the later date).
i. Cargill, Inc. v. Stafford 1977: Wheat case, seller repudiates. Holding:
A buyer may urge continued performance for a reasonable time. At the
end of a reasonable period he should cover if substitute goods are readily
available. If sub. goods are readily available and buyer does not cover
within a reasonable time, damages should be based on the price at the
end of the reasonable time rather than on the price when performance is
due. If a valid reason exists for failure or refusal to cover, damages may
be calculated from the time when performance is due.
1. Statute of Frauds exception to confirmation
2. 2-201 Merchant exception (Trial court said this doesn’t apply for
2 reasons: 1) Wasn’t received within a reasonable time, 2) seller
objected to its terms within 10 days – weak argument)
 3. Trial court decided there was no enforceable K under 1st K.
4. Court decided 2nd K would be enforced.
5. DAMAGES: MOONEY SAID THIS CASE COMES OUT
WRONG.
c. Location issue: Sub 2: Market price is to be determined as of the place for
tender or, in the case of rejection after arrival or revocation of acceptance, as of
the place of arrival.
i. Cmt 1: Market price should be determined at the market in which the
buyer would have obtained cover had it sought relief.
d. Time for measuring relevant market price is when the buyer learns of the breach.
708 is time and place of tender.
e. Of buyer rejects the goods following delivery, then the time and place is the
place of delivery.

Recovery for Breach Relating to Accepted Goods 2-714

1. 2-714: A buyer who accepts defective goods, and does not revoke acceptance, may
nonetheless sue for breach.
2. Sub. (1): B may recover damages “as determined in any manner which is reasonable.
3. Sub (2): The most common such case, a breach of warranty regarding the goods, the
measure of damages will normally be the “difference at the time and place of acceptance
between the value of the goods accepted and the value they would have had if they had
been as warranted.”
a. “Value of goods as accepted”:
i. Actual value to the particular buyer (which is usually $0, so the judgment
rescinds the K), or
ii. Their market value sold “as is.”
 11/19/06 3:06 PM

THEMES
Reasonable contract
Preventive Lawyering
Bargaining power
Freedom to and Freedom from contract
Conduct, content and status
Substance v. form
Verbal v. oral
Voidable, void, enforceable
Equitable v. legal remedy
Market self regulation v. government regulation
Policy concerns –incentives for future behavior, social justice
Deal in affirmative, explicit terms
Duty to mitigate damages (might as well)
Courts will not measure utility
Expectation Interest –encourages contracts
Efficient Breach
Autonomy v. Paternalism (excusing people from their contractual obligations
v. making them live with the consequences)
Benefit of the Bargain
Void: a contract is void when a party excercises its right not to perform
Voidable: a contract that one party can avoid –misrepresentation
Unenforceable: preferred term for contracts that are “void” due to duress,
etc
Invalid: same as a contract being declared unenforceable
Interpretation: what was the intent of the parties at the time of formation
Definiteness –is it definite enough to be enforced?

I. FORMATION –is the contract indefinite/ambiguous terms?

A.) Offer –the offeror is “master of the offer” §2-206
1.) So long as there has been no acceptance, offeror can revoke his
offer: offers are freely revocable
A) General Test: “Would a reasonable person in the offeree’s
position would have understood the offeror’s action as
manifesting contractual intent?” –includes prior history of parties
1) Watch for:
  What is inducing the offer? What does the offeror
want? (could be a gift)
 What’s the content of the communication? –oral,
written, what terms?
• Specify the terms, costs, quantity?
2) It’s if not an offer if: (unclear phrases)
a) fair, appropriate, reasonable
• signal that there is no contract, no
manifestation of commitment
b) customary, standard
• depends on whether those terms actually
apply to the situation
3) It is an offer if:
a) requirements, all, only, solely
• signal manifestation of commitment
• examples of requirement contracts
Note: context in which the contract was made also
matters; ie: in an office v. at a bar
B) Revocation of the offer results when
1) One of the parties dies
 Offers die when people die
2) Lapse of time
 A delay will kill an offer –they don’t last forever
 Offers expire after a reasonable time –note the
dates bwt the offer and the acceptance
3) Change/rescion in the offer
 It is a two party game
 Both parties must be informed of the revocation
• The person to whom the offer was made
must be made aware of it.
C) Irrevocable Offers
1) The Option Contract, if:
a) there is an additional promise not to cancel the
promise
b) there is some payment (consideration)
for that promise
 note: the payment must induce the option contract
c) if the contract is for an action, options contract
begins once performance begins (see 3)
2) If the offer has been relied on in a way that is
reasonable and foreseeable
a) Subcontractor puts forth a cost assessment to the
main contractor, he cannot revoke that offer
3) Where you have an offer to enter into a unilateral
contract and performance has begun, the offer cannot be
revoked
a) Unilateral contracts result from offers that require
performance as the only means of acceptance
• Offer for an act
• The offer expressly requires performance
b) If after the offer, performance has begun, the
offer cannot be revoked
• The other party has begun relying on the
contract
B.) Acceptance –Is the response acceptance?
1) Who accepted the offer?
o Only the person to whom the offer was made can accept the
offer.
2) How can an offer be accepted? –Mirror Image Rule
a) The terms of the offer can control the method of acceptance.
1) Requesting an action or beginning performance
(showing up for work), requesting it in writing.
2) Default rule: any reasonable method of acceptance will
constitute acceptance
3) Was there a specific method/means of acceptance
communicated?
4) What was the time table for acceptance?
5) Does the acceptance Mirror the Offer?
b) Rules governing acceptance
1) If it was an offer to enter into a bilateral contract,
beginning performance counts as an implied promise to
perform, and therefore, acceptance
 2) If the offer was an offer to enter into a unilateral
contract than the start of performance is not enough, it is
not acceptance, there is no contract
3) Distinguishing btw unilateral and bilateral contract
formation
 Where the law is heading: no contract is unilateral
 It is unilateral only if the offer says the offer
requires performance for acceptance
c) Silence as acceptance
 Silence does not constitute acceptance, except:
1) By explicit prior agreement of the parties, or
2) Implicitly where the nature of the relationship
dictates the outcome
d) Rejection and ineffective responses
 Indirect Rejection
1) Counter Offers –“Mirror Image Rule”
• Acceptance must mirror the terms of the
offer
o If acceptance doesn’t mirror the offer,
it is a rejection of the offer
o Ie: If the response includes a different
price
• Kills the initial offer
2) Conditional Acceptance
• I accept so long as…
• Key words: if, provided, but, so long as
3) Additional Terms
• I accept and…
• When the response adds a term, it is an
indirect rejection
• Ie: Writing in permission to keep a pet in a
lease for an apartment
e) Mailbox Rule:
1) With all communications, except an acceptance, it is
effective only when it is received.
 2) An acceptance is unusual in that it is effective when it is
sent.
 How it gets tested, how to spot it
1) where the two parties are not in the same place,
not meeting face to face, when the agreement is
being made
2) as a result, there is a delay in communication
(mail)
3) there will be inconsistent communication
C.) Consideration –without it, the contract is unenforceable
1) A bargained for exchange, a requested act or promise, or
forbearance (the act of no acting)
o Hamer v. Sidway; forbearance as consideration
2) General Test: Consideration must be objective, warm fuzzy feelings
don’t count –beware a mere pretense of consideration
o Tip: If no objective consideration, could be a case for
Promissory Estoppel?
3) What makes promises binding
1) Did the defendant ask for anything in exchange for her
promise?
2) Did the plaintiff promise to voluntarily incur a detriment in
exchange for the other party’s promise?
3) Did the other party forebear? Did they restrain themselves
from doing something they had a right to do?
4) Three Main Consideration Issues
a) Amount of consideration
 The courts do not get involved in measuring utility
b) Past consideration situation
 Past acts cannot form the basis for a contract in the
present
 Past acts were not induced by the other party’s
present day promise
c) Contract Modification
 Preexisting Duty Rule
1. Modifications must be supported by new and
additional consideration
 Note: good faith agreements to change in price
where the contract is for a sale of goods, do
not require additional consideration
2. Beware of mere pretenses of additional
consideration –band that offers another half hour of
play time for extra $1000, or not at all
• See Alaska Fisherman
3. Bottom line: courts will not condone such
coercion. That’s why these cases come under Duress
today, Preexisting Duty is no more.
5) Unilateral v. Bilateral Contracts
a) Unilateral: promise for an act –acceptance is effective only
upon complete performance of the act
1. Therefore, no consideration until complete performance,
and thus no contract
 Example: sign for reward for lost puppy
2. Promisor remains master of the offer and can revoke
the offer at any time
3. Potential for implied options contract, once performance
begins
4. Implied option contract means that the offeree can quit
at any time and sue for restitution –there never was a
contract, so it wouldn’t be a breach
b) Bilateral: promise for a promise, instant commitment and
consideration

D.) Intent to be Bound

1) Would a reasonable person make such an offer or enter into such a
contract?
2) Advertisements are not offers, but “invitations for an offer”
3) Familial contracts often not enforceable
o See Balfour v. Balfour
o Also, public policy concerns over letting couples litigate such
“contracts”
4) Social Contracts –presumed condition, which is understood, of the
other party’s capacity and desire at the moment to attend/socialize
 5) Freedom to Contract also grants Freedom from Contract
o Autonomy and voluntary action are paramount throughout
the process, without it, how can we know if there is any
benefit to the bargain?
6) Does one promise induce the other?

E.) Form and Formalism

1) The necessary pattern of conduct or ceremony which people must
follows to trigger a particular legal relationship
o Re-enforces the party’s commitment to the promise
2) Such formalities protect those of an overly benevolent nature from
letting their generous impulses ruin their lives
o Examples of Form:
 Contract
 Trust
 Will
 (completed) Gift
 Seal (old school –hot wax stamped with your initials)
3) Formalism -
a) Pejorative, a legal system that pays too much attention to
formal aspects
b) Goal of modern contract law: to get at the intention of the
parties at the time the contract was formed
 Substance over Form!
 See Wood v. Lady Duff
 Cardoso: Without an implied promise, the
transaction cannot have such business “efficacy,
as both parties must have intended that at all
events it should have”
• They wouldn’t of gone into the contract, if
such a promise hadn’t been understood

II. SHEAR PROMISES

A) Its Not a Contract
• Illusory Promise
 1) Looks like a promise, sounds like a promise, but does not
actually commit the promisor
 The other party would be liable for breach, but not the
promisor
 See Wood v. Lady Duff
 Illusory promise nonetheless establishes
consideration for the contract, via interpretation

B) Enforceable Promises –challenges the sacred converse of Freedom to

Contract: Freedom from Contract, as well as Pareto Superior basis for all
voluntary exchanges, since they are not voluntary
• Promissory Estoppel (equitable remedy)
1) Elements:
a) A promise which, the promisor could reasonably foresee
reliance by the other party, and
b) Enforcing the promise is the only way to prevent
injustice
 See Ricketts v. Scothorn
2) Remedy: Damages proven by demonstration of reliance and
consequential damages, HOWEVER, the remedy will only be
awarded in so far as justice requires (could be zero $)
Note: The remedy will never be for more than the amount
promised
3) Promise is enforceable despite lack of consideration, due to
the reliance induced by the promise
4) §90.1
Note: unlike contract remedies, this is a discretionary remedy that will
be applied in so far as justice requires

C) Conditional Gift –seems like consideration, but its really not

1) The Question: are the strings attached to the gift, in fact,
consideration?
o Note the circumstances
o Remember: Consideration must be objective
2) If the condition imposed by the promise is substantial, can qualify
for promissory estoppel
 3) Examples:
o Williston’s tramp case, pg.227
 Walking around the corner is a condition on the gift, not
a contract
 There was no consideration because the tramp’s action
did not induce Williston to give away the coat
 If he had had it in his arms, he would have given
it to her
o Kirksey v. Kirksey
 Family invited out, under a conditional gift offered to
the family, he was free to revoke the promise at
anytime
 Because the uncle never asked for anything in return
for her moving out, so there was no consideration

III. UNENFORCEABLE CONTRACTS –Social Controls on Freedom to

Contract (Public Policy Concerns)
• Not Pareto-Superior (one party is left worse off by the exchange)
• Traditional rule: caveat emptor (let the buyer beware)
• Instances where the market’s self-regulation fails, and the
government must step in
• Commonly Unenforced Contracts
a) Contracts in restraint of trade
b) Contracts that impair family relations
c) Promises to commit a tort
d) Promises to violate a fiduciary duty
e) Promises to interfere with another’s performance of a
contract
f) Terms that exempt a party from liability any intentional,
reckless or negligent tort or legal consequences of
misrepresentation, duress
g) Restitution is usually also unavailable unless “denial of
restitution would case disproportionate forfeiture”
• Tha Process:
o Is there a contract
 o If yes, is it enforceable? –for each: conduct, content, status
(the Why?; the list below is the What?)
 Does it violate the statute of frauds?
 Capacity issues?
 Minor, intoxication, retarded?
 Duress?
 Unconscionable?
 Void for public policy?
 Contracts for Illegal acts
 Special Contract? (list)
A) Mistake, Misrepresentation, and Nondisclosure
1) Misrepresentation communication of a falsehood
a) A misrepresentation is made by the other side,
b) the misrepresentation was of a material fact
c) the other party reasonably relied on the misstatement
1. Consequences: the contract is avoidable
2. Ie: teenage with a fake ID buys a car and wrecks it;
dealer can recover under fraud, even though kid has a
capacity defense
 See Vokes v. Arthur Murray Inc –reliance on an
expert’s opinion
3. Contract law generally does not focus on the knowledge
of the falsity or the intent to mislead
2) Mistake is where a person on her own somehow got a mistaken
idea as to the facts of the deal Without action by the other party
a) Mutual Mistake –typically renders the contract unenforceable
1. Mistake must be material, and such that reasonable
care could not have caught it, and there was no reliance
on the part of the offeree
 If the offeree has relied, the offeror is bound
2. Reliance by the other party can negate invalidation by
mistake
3. In short: the offeree should have reasonably recognized
that the offeror did not intend the offer they had made
 The contract was nonconsensual to begin with
  See STS Transport Service v. Volvo White Truck –the
mistake was reasonable, and the other party could not
have reasonably thought the offer was as made by
Volvo White was what they intended
 The offer failed the objectivity test
Note: Inconsistent with the principles of contract law in that this
releases a party from an otherwise, binding contract.
 It is the offeror’s responsibility to know their offer, yet
this excuses them for that responsibility
 Very Paternalistic
3) Was the Mistake Material? –how ‘big’ is the mistake?
a) If the mistake is about what something is, then the fact is
material, and provides grounds for non-enforcement
b) If the mistake is about what something is worth, then the fact
is not material, and not grounds for non-enforcement
Note: Material facts are not the same as predictions or
opinions. Also, opinions carry different weight depending
on who delivers them –reliance on experts tends to be
reasonable reliance.
 Furthermore: opinions by third parties not
involved in the contract are not grounds for
misstatement.
 Promises are traditionally not considered grounds
for voidability/invalidation.
4) Omission as Misrepresentation
a) The duty to disclose.
 Very uncommon in contracts. More of a torts thing.
b) The offending party must have known of the defect prior to
the contract.
 So, knowledge is an element. You can’t omit
information you don’t know.
c) Possible Exception: if the defect is readily observable upon
inspection
 See Obde v. Schlemeyer –not readily observable, but
conscious non-disclosure
5) In Sum
 a) Kronman: we want to protect the investment people make in
researching information. People who invest in producing the
information should reap the booty of the investment.
 Burden to know the value of a piece of property is on
the seller.
 If the knowledge reduces the value of the property,
and the seller knows, there is a duty to disclose.
6) Nondisclosure as Misrepresentation
a) Active concealment, prevents the other party from finding
out.
b) When a previous disclosure has become false.
c) Half-truths. You must disclose the full truth.
d) If the parties are in a confidential relationship
 Undue Influence; your guard is down, so you expect
more candor
 See Vokes v. Arthur Murray Inc
e) Generally: if there was any significant deceit, the contract
could be voidable.
f) Tip: Deal in Expressed statements affirming various aspects of
the deal –Preventive Lawyering
g) Policy Perspective: The seller is in a better position to find out
the truth

B) Problems with the substance of the deal

1) Is the subject matter of the contract illegal?
o Might not be criminal, civil violation
2) Public Policy
o Paternal contracts
o Covenants not to compete

C) Problems with how the deal was made

1.) Factors to consider:
a) Status of the parties
b) Substance of transaction (is it a bad deal),
c) Conduct during the deal
2.) Duress:
 o Economic duress: environment was such that the party that
signed the contract they would not have signed otherwise
o preface your answer with: the concept of econ duress is a
new and evolving concept and there is very little case law
supporting economic duress
 Two key factors:
1) one of the two people, must have made an
improper threat, and
2) there is no reasonable alternative
• “absence of meaningful choice”
 See RL Mitchell v. CC Sanitation
Note: the party making the improper threat must have
also had a hand in eliminating the other party’s lack of
reasonable alternatives –if you are responsible for your
lack of reasonable alternatives, the court will not find
duress
 See Selmer
• Posner: the settlement holds because the
other side was not responsible for the
contractors financial
2.) Undue Influence (a step down from duress)
o Two factors
1) Unfair persuasion
2) Domination
o See Vokes v. Arthur Murray Inc –commercial exchange, but
nature of relationship suggests potential for undue influence
2.5.) Duress and Undue Influence
o Both have a “bad guy” and a “weak and vulnerable guy”
o The approach: discuss both parties,
 If individuals: undue influence
 If commercial entity: duress
3.) Misrepresentation
o In contract law misrepresentation need not be intentional, the
question rather, is whether the misrepresentation was
material.
o If it is enforceable, the contract is not enforceable
 o See Vokes v. Arthur Murray Inc –expert opinion
4.) Nondisclosure
o One party withholds information
o Classic view: not a problem
o §161, example: house had cockroaches
 nondisclosure of information that would be difficult for
the other party to obtain can be grounds for
unenforceability
5) Unconscionability
o Contracts formed with an absence of meaningful choice on
the part of one the parties together with contract terms which
are unreasonably favorable to the other party
 Determined on case by case basis
 Very high bar
 Typically for low income individuals
 See Williams v. Thompson Furniture
a) Substantive Unconscionability: unreasonably favorable terms
of the contract
b) Procedural Unconscionability: meaningful choice
Note: If the substantive factors are “egregiously oppressive”,
they can override a lack of unconscionable procedurally
 Does it “shock the conscience”?
 See Gateway Computers
 See Vokes v. Arthur Murray Inc
b) Factors for Analysis
 Content: terms
 Conduct: absence of meaningful choice; sneaking the
contract into the box
 Status: as the business, they dictate the terms
c) Even though there is §2-302, it applies in all contracts,
including common law contracts
d) Unconscionability is tested as of the time of the contract
 Where the terms oppressive?
e) a court can find either the entire contract unconscionable or it
may find only part of the contract is unconscionable and enforce
it accordingly
E) Problems with whom the deal was made
1.) Factors to consider:
a) Status of the parties
 Is one party impaired? Difference in bargaining power?
b) Substance of transaction (is it a bad deal)
 Terms of the contract
c) Conduct during the deal
 Manner and circumstances in which offer and
acceptance are exchanged
2.) Mental Capacity, §15
o The ability to understand and appreciate the nature of one’s
actions
 If one party could not understand the contract, it is
voidable; that is, it is not automatically void.
 The incapacitated party is given the option of
whether or not to go ahead under the contract.
 Policy Incentive: parties will not contract with mentally
incapable parties
o Another factor: Volition
 The ability to control one’s actions.
 The other party must have been able to reasonably
infer §15.1.b
 The book’s example: an addict who sells something with
grossly inadequate consideration, will not be held to the
deal.
3.) Intoxication, §16
o Voidable if you didn’t have the ability to understand or control
your actions, if the other person had reason to know that the
other party was intoxicated
 The critical factor is the conduct of the capable party, in
that they took advantage of the incapacitated party
 However, there is also a degree of blame attributed to
volitional intoxication
4.) Infancy, §
 o Voidable, unless the minor wants to perform, but he can back
out at any time.
 Status as child all that matters (bright line rule)
 Conduct: maliciously dealing with children
 Reason to know whether party is a minor not
important; burden is on the other party to find out for
sure if the
 No possibility for compensatory damages, only
restitution of the chattel in its current state, and the
other guy must pay back any payments made on the
chattel
5.) Necessaries: an exception to the rule; if a minor must contract for
a need –food, shelter, medical care, clothing –that contract is not
voidable
o Consideration and Infants: pg.237
F) Statute of Frauds –when you need to put it in writing
• Based on a statute, varies by state
• Written to prevent false claims of contract
o Requires certain contracts to be in writing
o Incentive for “preventative lawyering” –put everything in
writing
• Steadily chipped away at –reliance will satisfy the Statute of Frauds
• Vocabulary:
o “within the statute”: the contract/situation is covered by the
statute of frauds
 means your problems are just beginning
1.) Six types of contracts covered by the statute of frauds
a) If it is a sale of goods for $500 or more
 The only UCC provision with a $500 figure
b) If it is a transfer of an interest in real estate that has a
duration of more than a year
1) agreement to sell Black Acre for $300 –within the
statute
2) an easement for two years –within the statute
3) one year lease –not within the statute
  For real estate, the statute applies where it is
more than one year
c) Services contracts not capable of being performed within a
year of the date of the contract
1) Anytime a contract has a fixed duration greater than
one year, the contract is within the statute
 Lifetime deals are not within the statute
 Note the difference between date of agreement
and date when performance of the contract is set
to occur
• The question is whether it can be
completed, not will you have to work on it
for over a year.
2) Anytime the contract is based on completion of a task,
it is not within the statute
 Capable=theoretically possible given unlimited
resources
d) Promises to answer for the debt of another
 Guarantees to answer for the debt of another
Note: Suretyship –if a third party answers for the debt of
another out of incentive for personal gain, there needn’t be
form to be enforced
 The incentive suffices to assuage fears of fraud
e) Promises in consideration of marriage
 Pre-nups or post-nups
f) Promises by an estate representation
 To pay the debts of an estate
2.) “Satisfying the Statute”
A) Tips for the test
1) The fact pattern will probably have an oral agreement
2) Could state that there was a written agreement
 Statute of frauds not an issue
3) Tells us about the written agreement
 Raises a question as to whether the written
agreement was sufficient
B) So: Was the written agreement sufficient?
 1) Was the written agreement signed and by whom?
 To be effective, it must have been signed by the
defendant.
 Essential terms written on letterhead, business
card, etc. can suffice.
2) What are the contents of the agreement?
a) all material terms test
b) must be able to answer: Who is making the
agreement and What each party is agreeing to do.
• A statement “I accept” is not enough.
C) Oral agreements and performance
1) Transfers of interest in real estate
 Oral agreement will suffice if there has been
partial performance for 2 of the 3
a) partial payment
b) possession of the land by buyer
c) improvement to the land by the buyer
o See Powell and Rodman
2) If it is a services contract
 Part performance is never enough to satisfy the
statute of frauds
• Unless one party relied
o See Mcintosh v. Murphy
Note: reliance must negatively impact
the party
D) Modern Considerations
1) Emails suffice if you type your name at the bottom
2) Electronic signatures
3.) Benefits and Costs of the Statute of Frauds
a) Benefits:
1) Prevents fraudulent allegations of contracts
2) Evidentiary: proof of the promise (contract)
3) Cautionary Effect: parties are more thoughtful about
their promises, “makes you think twice”
4) Channeling: declares whether behavior is either Binding
or Non Binding
 5) Ensures the expectancy interest of the aggrieved party
b) Costs
1) A true oral contract could be rejected,
*basically, the risk of fraudulent denials of contracts
that really do exist, thereby denying the expectancy
interest of the aggrieved party
2) The reason why courts chip away at the statute of
frauds –equity/justice demands it

IV. SPECIFIC TYPES OF CONTRACTS DISCUSSED

A) Franchises –Bargaining Power
1) The dynamics between the parties are the same as family contracts
in that they are continuing relationships
a) Relational contracts versus discrete contracts
b) Relational contracts are much more complex
c) Remember Memorex, the court is hesitant to get involved
2) Problems:
a) Before statute was created, franchisor could cancel, at will
and without cause
b) Franchisee had no Bargaining Power
3) Wisconsin’s Solution: WFDL
a) Consequences of WFDL: contracts now include a lengthy
description of what counts as grounds for just cause in
termination, as a prophylactic measure against future litigation.
 Possible Defense that arises from such long contracts:
No one reads them, nor can anyone be reasonably
expected to read them, and even if they did, they are
impossible to understand.
b) CB: the law has always been there intervening, its
intervention just changed. There is never a case where law does
not intervene.
4) Alternative concerns:
o The Franshisor has considerable interest in its image, cannot
be ignored

B) Employment Contracts
1) Default rule: employment at will
2) Rebuttable presumption
a) Not at will if employee gives special consideration to employer
1. Requires a special kind of proof
2. Must be of economic benefit to the employer
 See Mcintosh v. Murphy
• Also chips away at Statute of Frauds
Note: presumptions are based on the absence of evidence
3) Benefits and Detriments of At Will Employment
Benefits:
a) The threat of firing is a strong incentive to get workers
to work hard (good for employers)
b) If an employer fires folks irrationally, he will loose
bargaining power with future and other employees
 Bottom line: both parties want to treat each other
well out of their own self-interest
c) Allows adjustment of businesses in order to adapt to the
new market
d) By preventing barriers to exit, it prevents barriers to
entry –it is much easier to get a job in a market system
e) Fairness and Reliance cuts both ways
 Firm and employee rely on one another more over
time
• “Firm Specific Human Capital”
 Cannot expect business to operate at a loss
Costs:
a) Bargaining Power is tied in large part to a party’s
alternative options
b) Most employees are at a disadvantage, in that they are
easily replaceable
4) Covenants Not to Compete –balancing test, weigh considerations of
time and space
a) Employment contracts
b) Sale of a business
c) Balancing Freedom to Contract with Restraint to Trade
d) Reasonableness factors: scope, duration and geography
 1) Does the covenant reasonably protect a legitimate
business interest?
2) Is it unduly harsh and oppressive to the employee?
3) Is it injurious to the public’s interest?
 In short: balancing test. Weigh the considerations
of time and space.
e) Additional effects
1) Employee feels trapped
2) Employer abuses their position
3) Blue penciling is not always a good option
 See Fullerton v. Torborg
 Paternalism/Substance over Form
f) Strictly construed against the employer
1) Blue penciling only condones abusive behavior by
employers
 Not enforcing them at all would set the proper
incentive
2) The courts will not enforce contracts that are malicious,
excessive and abusive

C.) Standard Form Contracts (Contracts of Adhesion)

1) Drafted by one side, adhered to by the other
a) Counter to the traditional notion of negotiation and
subsequent creation of a contract
b) Consequently, any ambiguity in the contract language will
construed against the drafter
 Contra proferntum (will be construed against the person
who wrote the contract)
c) Examples: legislation
2) Efficient, mass production of contracts
3) Extensive contingency terms
a) Example of Preventive Lawyering
4) Enforceability of Standard Form Contracts
a) Bottom Line: They are enforceable
b) Reasonably inferred terms will be enforced
 See C and J Fertilizer v. Allied Mut. INS. Co.
 5) Cross-Collateral Clause –“add-on clause”
a) Permits repossession of material goods in repayment of a
debt
 Litigation is a default rule. By stipulating repossession in
the event of breach (default), the parties are trying to
avoid litigation
b) Restricts the creditor to recovering the principal, interest, and
costs –anything extra goes back to debtor
6) Pro-Rata Clause
a) Nothing is paid off until everything is paid off
b) Great source of muscle for creditors
 See Williams v. Walker-Thomas Furniture Co.

D.) Third Party Beneficiaries

1) A contract between two people, for the intended benefit of a third
party, such that the third party can enforce the contract
2) Types of Beneficiaries
a) Creditor
b) Donee beneficiary
3) History
a) Originally, there had to of been privity of contract for a non-
party to enforce the contract
3) Examples:
a) Life Insurance
 Dad buys insurance with the intention of benefiting
daughter (third party) when he dies
b) Trust Fund
 Benefactor creates a trust to be managed for the intent
of a third party until a certain date

E.) Assignment and Delegation -§317,8,9

1) Brings in a third party beneficiary when the original contract did not
contain one
2) Third party assuming rights/duties of original party, toward obligee
3) Assignment: Transfers the original party’s rights to a third party
a) Assignor assigns their rights to Assignee
 b) Example: the doctor becomes the owner of the right to collect
from the insurance company
 Patient=Assignor; Doctor=Assignee
4) Delegation: Transfers the original party’s duties to a third party
a) Delegator transfers their duties to Delegatee
b) Example: Pizza Cleaners transfers their obligation to clean
Pizza ovens to Macke Cleaners
 Pizza Cleaners=Delegator; Macke=Delegatee
5) Combination of assignment and delegation: “Assigning the
Contract”
6) Generally, any service not specified in the contract (nuances, etc)
will not be enforced/delegated
a) CB: This is crap. Consider the importance of the unspoken
services within a relational contract. Form v. Substance.
 See Macke v. Pizza of Gaithersburg
 Macke refused to leave a key to the tools with the
pizza shop.
7) Limitations:
a) Personal services may not be assigned
b) Where the third party has a substantial interest in having that
person perform or control the acts required
c) You can only challenge the assignment if it would materially
affect your rights and obligations

V. REMEDIES FOR BREACH –§2-703

• Can’t change the world through contract law.
• Trivial things (small breaches) ought not trigger large consequences
Types of Breach:
• Non-performance: one party doesn’t do what they said they would
do
• Repudiation: stating that one will not perform
Note: damages must be provable cannot include specific or
unforeseeable consequences
• Types of Breach:
a) non-performance
b) repudiation: stated refusal to perform
A.) Specific Performance
• The court orders the breaching party to perform
o Permits renegotiation of the contract
• Courts are generally reluctant to do this, however, it is becoming
more popular
o So long as judicial administration of the performance would
not be too burdensome
 Continuing relations are out; See Memorex
• Three Situations Where it is Common:
1) Rule for real estate deals:
a.) In contracts for the sale of real estate where the seller
breaches, the buyer can get specific performance
 Each piece of real estate is special, money
damages are never adequate
2) Services contracts
b.) A contract to perform services is never specifically
enforceable
c.) Alternative: injunctive relief. Do not permit the
defendant to provide the same services for anyone else
3) Sale of goods
a.) Specific Performance is available only when the goods
are unique
 Works of art, antiques, or custom made
B.) Money Damages –Legal Remedies
1) Punitive damages: generally not recoverable for breach of contract
o Punishes the breaching party
o Discourages efficient breaches and contract formation in
general
2) Liquidated damages: a contract provision that sets the amount of
compensatory damages should a party breach
a.) The question will then be whether the liquidated damages is
valid.
b.) Liquidated damages will not be permitted when they amount
to punitive damages
 Is the amount a reasonable estimate of what
compensation is deserved?
  Would it leave the aggrieved part better off than if
the contract had been performed?
 If the amount is any single set sum, it is probably
punitive. –one size cannot fit all.
 If it is flexible, it is more likely to be a valid
liquidated damages provision
 See Carborundum
3) Incidental Damages: damages independent of the contract, but
incurred as a result of the breach
a) Costs of seeking a commercially reasonable substitute
exchange -§2-715
4) Expectation Interest
a) Principle goal of modern contract damages
b) Puts the aggrieved party in the same economic position as if
the contract had been performed (recover costs & profits)
c) Locked in the time of signing –regardless of what happens to
the market price
d) Legal fiction of paramount importance: encourages reliance
on contracts
e) Exception:
 Lost Volume Seller: a seller with essentially
inexhaustible supplies such that she can meet all
market demand
 Bjerre: More stuff to sell than you have customers
 See Retail Marine v. Neri
5) Reliance Interest
a) We are putting the plaintiff in the same position as if there
had never been a contract
 See Security Stove v. American Railways
b) Expenses incurred in performance of the contract
6) Restitution Interest
a) Avoiding unjust enrichment of a party by requiring payment
at the reasonable market price for wealth conferred on one party
by the other in reliance on the contract
Note: in Stove, the stove company’s damages do not
unjustly enrich anyone
 b) Full performance limitation: if the plaintiff has performed all
duties, and the only performance not rendered is fixed monetary
sum owed by defendant, the only remedy available is liquidated
sum (fixed quantity of money) per breach of contract –looses
right to sue off the contract
 Liquidated sum is the expectancy interest in the
contract; liquidated damages are compensatory
damages stated in the contract as a remedy
c) The breacher is due restitution damages insofar as the
aggrieved party is due expectancy and reliance damages
 Subtract one from the other
 The aggrieved party has to mitigate, (substitution
contract) might well eat-up the breacher’s restitution
damages
Note: restitution is the only remedy available to a breaching
party
7) Limitation on money damages
a) Damages must be proved with reasonable certainty
 Incidental damages (added costs from finding substitute
contact)
b) Avoidable damages: a plaintiff cannot recover for damages
she could have avoided –§2-706; §2-712
 Not so much a duty as a “you might as well”
 Methods of Mitigation:
1) Substitute transaction (protects against lost
profits)
• Substitute must be “substantially similar”
• Any resale must be made in good faith and
be commercially reasonable; §2-706.1
o See Shirley McLane
• Resulting award is the contract/market
differential, or the difference between the
market price and the resale price
2) Stopping Performance
• See Luten Bridge Co
c) Consequential Damages: ripple effects from a breach; §2-
715.2a
1) In order to recover for Consequential damages, the
damages must have been foreseeable with reasonable
certainty by both parties at time of the contract
 See Hadley v. Baxendale, the miller was denied
his lost profits
2) Or, If the consequences naturally arise from the breach
 Tip: Consequential damages are special damages
 They are special and unique to that particular
plaintiff
 You will only recover if you tell the other party so
that the damages are guaranteed foreseeable,
then they are recoverable
 Most contracts prohibit consequential damages
Note: generally only awarded to buyers, what sellers do
with their money is unforeseeable
d) Measure of Damages: -§2-708.2
 The Profit+Reasonable Overhead
 Reasonable Overhead: (Direct Costs only)
 Direct: the materials and labor specifically related
to performing the job
 Indirect: regular costs of keeping the office open;
ie: lease payments, office personnel (not
specifically working on the job)
• costs that don’t stop when the job stops
• Indirect Costs are unreasonable to include
as damages
 Contracts - Sec C. Bjerre

I. Bases for Enforcing Contracts

A. Traditional Contract Theory
1. Policy
a) people agree to a voluntary exchange; each gives something
to the other
2. All contracts allocate risk
3. Elements:
a) Bargained for
(1) inducement
(a) “please” test - will you give me the address
please and I’ll do this… vs. give me the
address and I’ll do this….
(b) (Kirksey v. Kirksey - bro-in-law: if you
come and see me I’ll let you have a place to
live) - no consideration, no inducement to get
her to move
(c) past consideration - no “bargain” for
(Feinberg v.s Pfeffer Co. - promise of
pension not inducement for past work)
b) Consideration
(1) Detriment to promisee
(a) forbearance - (Hamer v. Sidway - nephew
forbore on his legal right to drink) or
(2) benefit to promisor
(3) what can be consideration?
(a) performance - unilateral
(i) 1 promisee, 1 promisor
(b) promise - bilateral
(i) both are promisees and promisors
(ii) both want assurances about the
future
(c) Contracts implied in fact
(i) There, but not stated
(ii) Ct. interprets intentions of parties
(iii) Wood v. Lucy - designer hires sales
agent to use “reasonable efforts” - no
explicit promise by sales agent but
ct. found implied contract
(iv) damages = what was intended
(d) Moral Obligations - EXCEPTION!!! Only
avail in certain jurisdictions
(i) Webb v. McGowin - vic promises to
pay $15 every 2 wks to man who

1
 Contracts - Sec C. Bjerre

threw himself off a roof w/ a 75lb

block to save his life - enforceable
against estate b/c vic received a
material benefit.
(4) what is NOT consideration?
(a) peppercorns
(i) Restmt 1 - peppercorn enough
(ii) Restmt 2 - peppercorn not enough
(iii) except - enough for option contracts
(b) Illusory Promises (Strong v. Sheffield - uncle
said he’d promise to forbear as long as he
felt like it - back door) - 2 tests:
(i) subjective - good faith
(a) Mattei v. Hopper - π agrees to
buy land from r subject to
gaining “satisfactory” leases.
Passed good faith test by
trying to get good leases
(b) contracts w/ unrestricted
termination clauses are
usually illusory - alleged in
Eastern Airlines v. Gulf Oil -
but Eastern acted in good
faith even though mv reporter
stopped reporting true mv of
oil - didn’t go crazy buying
up a lot of it.
(ii) objective - reasonable person
(c) Past Performance - no inducement
(d) Gratuitous Promises
(e) Unenforceable w/o Reaffirmation:
(i) Infancy
(ii) Bankruptcy
(iii) Statute of Limitations expired
4. Damages - expectancy (what was bargained for)
B. Promissory Estoppel - Restatement §90
1. Different from Equitable Estoppel
a) Issue is promise, not facts (e.g. bank lies abt avail bal. = EE)
b) Could be basis for a suit instead of just used as a defense
against payment
2. Elements
a) promise
b) induces detrimental reliance

2
 Contracts - Sec C. Bjerre

(1) act
(2) forbearance
c) reliance is reasonably forseeable
(1) Presley - no reasonable reliance b/c mother-in-law
knew she wasn’t getting the money b/f she brought
divorce suit.
d) unjust (not that important)
3. 4 categories of PE:
a) Family promises
b) Promises to convey land
c) Promises coupled w/ gratuitous bailments (e.g. borrowing
friend’s car)
(1) Feinberg v. Pfeiffer - not enforceable under trad
theory but enforceable under PE
d) Charitable subscriptions
4. Damages
a) c/b reliance interest vs. expectancy (full amt. of promise)
b) depends on the court - but bias toward reliance
C. Quasi-Contracts - Contracts implied in law (no consideration needed)
1. Policy
a) designed to prevent unjust enrichment
b) and in cases where people are unable to enter into an
agreement
2. Requirements:
a) Conferred benefit
b) W/b unjust to keep w/o pymnt
(1) Benefactor not officious:
(a) benefactor doesn’t have resp, but accepts it
anyway
(b) in an intrusive way
(2) Benefactor not gratuitous
3. Damages - based on fair market value of services rendered
a) Cotman v. Wisdom - surgeon entitled to normal amount
he’d charge for working on the vic, even though he died -
not dependent on vic’s financial status
4. Can’t be used to get around traditional contract theory
a) Callano v. Oakwood Park Homes - gardener contracted by
buyer who died b/f paying him for shrubs. Sues the builder
for unjust enrichment. He could’ve sued the estate of the
buyer.
II. The Bargaining Process
A. Offers
1. Policy:

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 Contracts - Sec C. Bjerre

a) Freedom to contract vs. Freedom from contracting

(1) Courts usually err for freedom FROM contracting
(a) Lucy v. Zehmer - Lucy reasonably believed
Zehmer was serious about selling his farm.
But if Zehmer was a good friend and knew (a
reas pers in his position) he was joking,
w/nb enforceable
(b) Freedom to Contract: tortious interference -
restitution for pirating business e.g. Penzoil
vs. Texaco
b) Creates power to contract
2. What constitutes an offer:
a) language
(1) m/b specific (e.g. terms)
(2) but open term contracts - are enforceable
b) intent of parties: reasonable person test
(1) express reservation of right to NOT be bound
(2) partial performance
(3) all terms agreed on?
(4) is contract type that is usually written
3. What is not an offer:
a) gentlemen’s agreements
b) price quotes - merely invitations to negotiate
4. Offers can be limited by:
a) conditions
b) offeror can choose acceptee
B. Acceptance
1. Unilateral
a) do something
b) no notice required unless performance not evident
(1) Carbolic Smoke Ball - no notice but ct. said it had
been waived b/c w/b unreasonable given volume
2. Bilateral - most K’s are this type
a) promise something
b) notice required
3. Mistakes
a) offeror not bound if offeree knows of mistake
b) reasonable person test
4. What is NOT an acceptance?
a) if made by person not designated by offeror
b) silence
c) changing the terms
(1) mirror-image rule

4
 Contracts - Sec C. Bjerre

C. Termination
1. Lapse - reasonable time
2. Rejection - by offeree
3. Revocation - by offeror ANY time before acceptance
a) receiving info abt actions taken by offeror inconsistent w/
intent to go forward is sufficient for revocation
(1) Dickenson v. Dodds - told by agent that Dodds was
courting other buyer
b) option contracts for promise to not revoke
(1) must be supported by consideration - at least a
peppercorn
c) offers to lg #’s of people
(1) offeror must take reasonable efforts to notify of
revocation
D. mailbox rule - fallback if not explicit in contract Rstmt §63(a)
a) acceptance effective when sent, not received
b) revocations are effective when received
c) exceptions:
(1) doesn’t apply to a substantially instantaneous 2-
way communication
(2) for option contracts, acceptance only effective when
received (Rstmt §63(b))
(a) b/c gives notice to offeror that contract was
accepted
d) policy
(1) rule is better for offeree b/c increases his certainty
(2) offerors are more able to bear the burden - more
likely to pursue absence of reply to offer
E. Simultaneous, inconsistent contracts (e.g. to two people) are enforceable
F. Precontractual Liability
1. Can offeree be liable for gaining benefits from offer w/o accepting
it?
a) hypo: shopping around for stereos
(1) no quasi-K b/c no unjust enrichment by salesman
b) can go either way - some say K is enforceable some not
2. Can offeror revoke a unilateral K b/f offeree has a chance to
complete acceptance?
a) Brooklyn Bridge Rule
(1) acceptance isn’t given until performance is
completed ∴ offeror can still revoke
b) Restmt §45 - contradicts BB Rule
(1) implied option contract to not revoke offer is
created once performance has begun

5
 Contracts - Sec C. Bjerre

(2) option allows offeree to fulfill K by completing

performance or to choose not to.
c) Preparing to accept an offer
(1) Drennan Case - basis for Restmt §87
(a) Created an implied (quasi) promise to not
revoke by subcontractor which didn’t need
consideration
(i) unlike option contract like §45
(ii) contradicts Hand: “an offer is not a
promise until there’s consideration”
(b) Used promissory estoppel to enforce
implied promise based on detrimental
reliance by general contractor
(2) Hoffman - (the furthest PE has ever gone)
(a) nobb brvfgt t regular PE b/c no promise
(b) not Star Paving case b/c not even a definite
offer
(c) won anyway on PE
(3) Intent to be bound - Channel: letter of intent to
negotiate enough to bind LL b/c he used it to secure
credit, began surveying it, etc. (Bjerre disagrees -
doc who promises ‘perfect’ nose doesn’t intend to
be bound but does it to solicit business)
G. Definiteness
1. Indefinite K’s Unenforceable:
a) Must know what specific performance to order or what
damages s/b paid
b) Language of K can make it definite. (e.g. using the word
“reasonable)
c) Marlon Brando hypo: do something for a future favor - too
indefinite to enforce
d) agreements to agree not enforceable but agreements to
negotiate (e.g. Channel, Texaco v. Getty [formal K
contemplated]) are.
2. Uncertainty OK in “relational K’s” - e.g. employment - pay $X for
“work”.
3. Method to definiteness is OK too - Toys: lease agreement
provided for renewal at “prevailing rate” provided a definite way to
determine a rate. ∴ it’s not too indefinite.
H. Statute of Frauds - exception to rule that oral K’s are generally enforceable
(now obsolete or very narrow)
1. Applies to:
a) surety K’s (someone promises to pay someone else’s debt)

6
 Contracts - Sec C. Bjerre

b) K’s concerning land

c) agreements not performed w/i a year (unless impossible to
fulfill in a year)
2. requirements
a) K m/b in writing
(1) must contain essential terms
(2) can be made after initial promise (e.g. Hamer v.
Sidway)
b) K m/b signed by r ONLY (not the π)
III. Policing the Bargain - tools used by cts. to prevent K’s from being enforced even
though all requirements are satisfied - most K’s aren’t in danger of
unconscionability
A. Damages not specific performance when K is weighted on one side
B. When to evaluate the agreement - at the time it was made
• Tuckwiller - Niece quit job to care for elderly aunt in exchange for
her farm. The aunt died b/f niece could do it. At time K was made,
not unconscionable. Should look forward from time K was made,
not backward and reflect what happened afterward. Otherwise it
would decrease K making.
C. Concerns after K is reached
1. Status of parties
a) Capacity
(1) infancy - under 18 when K made
(a) can be disaffirmed w/I a reasonable time after
becoming an adult
(2) mental infirmity - subjective
(a) cognitive - inability to understand K
(b) volition - not sufficient willpower to
contract
b) Behavior of parties
(1) Duress - Austin v. Loral - 2 K’s w/ subcontractor
for Naval hospital. Sub threatens to stop
performance on 1st unless higher bid on 2nd is
accepted
(a) threat - π stood to lose current and future
govmt K’s.
(b) victim has no reasonable alternative
(i) inability to get goods elsewhere - π’s
attempt to contract “approved”
vendors reasonable
(ii) breach of K wouldn’t be adequate
remedy, b/c would still lose future
K’s.

7
Contracts - Sec C. Bjerre

(2) Preexisting Duty Rule - if r already bound to do

something, new K for same thing not enforceable b/c
no consideration
(a) Shwartzreich v. Bauman-Bash
(i) Old offer of $90 rescinded
simultaneously while new K was put
in place - ∴ rule didn’t apply
(b) not that potent anymore
(3) Misrepresentation -
(a) Baseline Rule - parties don’t have to share
information - inequality of info is ok (e.g.
Fiege v. Boehm) Exceptions:
(i) confidential relation (one depends on
the other) and one being depended
upon uses info vs. the other e.g.
lawyer/client
(ii) Correction (to correct something that
turns out to be false) e.g. seller says
house is termite free must inform
buyer if that changes.
(iii) half-truth: if you reveal _ the truth,
you’re obligated to reveal the
remainder
• Kannaavos v. Annino: Sold
house as investment property
when they knew it went
against code
(b) Limits to misrepresentation
(i) Misrepresentation m/b of material
fact - “somewhat” important good
enough
(a) doesn’t incl high-pressure
sales
(b) or false advertising
(ii) complainant must show justifiable
reliance
(c) Intent
(i) no intent necc - even an innocent
mistake is grounds for rescission
(ii) a tort action (deceit) can be brought if
intentional
(d) Important planning tool for business
lawyers is stmt of representation

8
 Contracts - Sec C. Bjerre

2. substance of K
a) Unconscionability
(1) Standard Form Contracts
(a) efficient, reduces costs ∴ reduces prices
(b) BUT signer prob doesn’t understand what
they’re signing
(2) Policy - unconscionable contracts
(a) Paternalistic? Interferes w/ freedom to
contract - people don’t trust them
(b) Institutional competence - Question of law
for judge - should legislature be the ones to
address this? Some statutes in place
(i) prohibiting dragnet clauses
(ii) usury statutes - prevent outrageous
interest rates
(iii) disclosure statutes - addresses
misrepresentation
(c) expands the core notions of other policing
doctrines and expands them (Williams v.
Walker-Thomas)
(i) capacity re: uneducated
(ii) duress - poor have limited shopping
options
(iii) misrepresentation: no, but std form
K’s are confusing
(3) π must show both:
(a) substantive unconscionability - unfair terms
(b) procedural unconscionability - absence of
meaningful choice
(i) inequality of bargaining power
(ii) manner of entering into K unfair (e.g.
high pressure sales)
b) Illegality/Public Policy - Not just illegal, if K unreasonable
also unenforceable
(1) CAB - broad noncompeting covenants go against
public policy even though K is enforceable under
other theories
(a) employability - employee shouldn’t have to
leave career he’s trained in
(b) competition - we want this
(2) If no clause, ct. has 3 choices:
(a) strike agreement totally - employer gets no
protection

9
 Contracts - Sec C. Bjerre

(b) reshape terms

(i) cts usually don’t do this b/c they
don’t like to “make a K” for the
parties
(ii) but w/ noncompeting covenants they
do
(c) blue-pencil approach - very artificial
(i) ct. won’t put in words but will take
things out (can strike parts of deals)
(3) Baby M - policy = babies s/b w/ their moms
IV. Damages for Breach of K
A. Determining what they are
1. Traditional K Theory - Expectancy
2. PE - sometimes expectancy, sometimes amt. of harm to π
3. Quasi - reasonable benefit to r
B. Expectancy - Benefit of the Bargain (enough to put injured party where it
would have been had promise been performed)
1. compares current state of world w/ some other state
2. pulls π forward to get “benefit of bargain”
a) Benefit = Value of svc - Cost of getting it - π’s avoidable
costs or losses
b) What costs does it include?
• Vitex: Ct. saidOH costs shouldn’t be counted in b/c
you’re not paying OH to induce perf for K, but to
generally operate the business
• BUT UCC says damages should include profits
(incl OH) by excluding OH from costs
3. Policy - we don’t want to punish r for breaching b/c sometimes
that’s good (the law is weak here b/c it detracts from value of
making people perform their K’s)
a) efficient breach - everyone’s better off, no one’s worse off
(antique radio hypo)
4. Losing contracts
a) Algernon Blair: π would’ve lost $ if K had gone through.
Wants to recover for mv of svcs (Quasi K) instead of trad
expectancy damages which says he’d get nothing. Ct. says
OK b/c
(1) wants to punish r for breaching
(2) r who breached shouldn’t be able to benefit from the
breach
b) Usually K price is ceiling that c/b recovered

10
 Contracts - Sec C. Bjerre

5. Diminution of Value vs. Cost of Performance - (breach after partial

performance) when cost of fulfilling K is greater than value of doing
so, which s/b awarded?
a) Groves - regrading (COP) = $60k, diminution of land value
only $12k - ct. awarded COP b/c breach was willful.
(1) Awarding COP should reflect owner’s subjective
value of property. (But here no evidence of
subjective value ∴ Bjerre disagrees)
(2) Awarding COP almost punitive here which goes
against contract theory.
(3) Awarding DV fits better w/ expectancy theory of
making π “whole”
b) Peevyhouse - strip miner failed to restore farm as req by K.
Restoration cost $29k, value of doing so only $300. Ct.
awards DV b/c breach merely incidental to K’s purpose.
(1) Groves ct. would’ve awarded COP b/c breach was
willful
(2) Subjective value of restoration not considered here,
∴ Bjerre disagrees w/ outcome
C. Limiting damages
1. Duty to mitigate
a) “duty” - misnomer - π can choose not to, but damages will
be reduced as if he had (e.g. Luten Bridge)
b) substitute transaction - requires more than just stopping -
must find “reasonable” substitute (e.g. Shirley MacLaine)
(1) What is reasonable = steps likely to generate some
recoupment
(2) hypo: buyer breaches K for sale of car for $5000
(worth $4,000). Seller sells to other for $4,500.
Can recover $500. (plus cost of finding sub)
c) loss volume seller - Diasonics (would’ve sold 2 MRI
machines, so ∴ not a substitute transaction
2. Foreseeability
a) Traditional Theory/Hadley v. Baxendale* (mill needs crank
shaft - comes late, seeks lost profits from common carrier)
(1) Two types of Damages:
(a) direct damages - contemplated by both
parties, arising naturally from broken K
(b) consequential - not foreseeable
(2) Expands liability - consequential damages
recoverable
(3) But m/b w/i limits: m/b direct!

11
 Contracts - Sec C. Bjerre

(4) Case sets forth rule but holding seems inconsistent

(see below - lost profits)
b) Restatement (same thing) - damages recoverable if
foreseeable
(1) r m/h reason (considers all circumstances) to foresee
damages
(a) e.g. Hadley - no knowledge of special
circumstance
(b) e.g. Shirley MacLaine - foreseeable that she
couldn’t get a substitute transactoin
(2) as probable result of breach
(3) at the time K was made
(a) allows r to protect himself - e.g. Fedex
c) Lost profits are generally foreseeable
(1) unless extraordinary
(2) parties provided for in K no liab even for
foreseeable consequential damages
d) Changes in mkt price are foreseeable (e.g Vidalia Onions)
e) Inability to make substitute transactions unforeseeable
3. Certainty

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 Contracts - Sec C. Bjerre

D. Liquidated Damages - K states what damages will be if breached (e.g. lease

agreeemnts)
1. Penalty clauses are NOT enforceable
2. Liquidated Damages ARE enforceable
a) if actual expectancy damages are difficult to establish or
prove
b) AND amt specified in K is a reasonable estimate

13
Contracts Outline
Mooney, Spring 2008

I. FINDING THE LAW OF THE CONTRACT (Chapter 6)

A. What pieces of the contract may the court consider?
Parol evidence rule: Mooney’s Combination of Restatement 209 & 215 where parties
have intended a writing as the final expression of all or part of their agreement, evidence
of other prior or contemporaneous terms is not admissible to contradict the writing.
EXAM PROCESS for PAROL EVIDENCE
1. Determine the subject matter to be interpreted (Parol Evidence)
a. Have the parties agreed to the contract as a final and complete
integration, or embodiment of the terms?
i. Gianni - 4 corners test: look at the agreement on its face. Is the
provision embodied in the written contract somewhere? If so, the
agreement is a complete integration. If not, it wasn’t part of the
agreement. In Gianni, the term in dispute was mentioned in the
case, so the evidence of prior negotiations regarding that term was
inadmissible.
ii. Modern courts look for a merger clause. A merger clause says
something like: “this writing is the final statement of the party’s
agreement - it is completely integrated.” Difficulty is that a merger
clause could be inserted by one party and not really agreed to by
the other, or neither party knows it’s there. Merger clause not
always conclusive. Good idea to get other side to initial it if you
put it in there, to show everyone knew and agreed.
iii. Masterson - evidence of oral collateral agreements should be
excluded only when the fact finder is likely to be misled by them.
Based on credibility.
iv. Naturally test: in an agreement which might naturally be made
as a separate agreement, parol evidence should be allowed. No
complete integration. Restatement test.
v. Certainty test: if terms would certainly have been included in
the document, evidence of their making must be precluded - parol
evidence not allowed. Complete integration. UCC test.

b. What evidence may the court admit?

i. If the agreement is not integrated, any evidence may be admitted.
(Very rare)
ii. If the agreement is completely integrated, only admittable
evidence is that which:
a. explains a written term (trade usage of a word, like in
Hurst or Frigaliment), or
b. shows fraud, duress, mutual mistake, illegality, or
anything that would defeat the entire contract. Sect 214
Rstmnt.

1
 iii. If the agreement is partially integrated, everything under Sect
214 Rstmnt can come in, as well as any consistent additional
terms. Contradictory evidence is excluded.

c. What if the contract contains a no oral modification clause?

i. The Traditional Common Law Rule: No oral modification
clauses are not effective. As Justice Musmanno said “the hand that
pens the writing may not gag the mouths of the assenting parties.”
And, even when these clauses were honored, the party the clause
was being used against could defeat the effect of the clause by
showing reliance on the oral agreement.
ii. Under the UCC: No oral modification clauses are generally
honored, but again, the party against whom the clause was being
used could defeat the effect of the clause by showing a waiver
and/or by arguing that the other party should be estopped from
using it because there was reliance on the oral agreement.
iii. If a court doesn’t want to enforce no oral modification, try
restitution for unjust enrichment. Value of benefit conferred.

2. Interpret the contract language once you know what’s in and what’s out
a. what is the meaning of a particular term?
i. Frigaliment (unsuitable chicken case): what the parties said, not
what they meant, is the essence of the K. To enforce a particular
meaning of a term, one must prove trade usage between
tradesmen, or prove that the other party had actual knowledge of
the common term (if not between tradesmen).
A. Between tradesmen, trade usage of terms should be used
over common usage. Hurst.
b. what if the contract is subject to two equally possible interpretations and
neither party had notice of other party’s interpretation?
i. Raffles: two different ships called “Peerless” never valid K b/c
no meeting of the minds.
ii. Oswald: never any valid K for Swiss coins because no “meeting
of the minds.”
iii. Therefore, such a contract is typically held invalid. When
there is no sensible basis for choosing between conflicting
understandings. When language is ambiguous rather than vague
(two distinct meanings).
c. what tools can aid the court in interpretation in order to avoid holding K
invalid?
i. considering the purpose of parties in entering into K
ii. public interest supported by one interpretation over another?
iii. maxims:
A. the expression of one thing is the exclusion of another
B. of the same kind

2
 c. proferentem: K should always be interpreted against its
author (except for lawyers, etc. who should have known
better)
d. Evidence parties may introduce to aid in interpretation:
Internal to the contract (terms from one section to another)
dictionary evidence
foreign language evidence
evidence from statutes and regulations
trade usage evidence
evidence of one or both party’s likely subjective intent

3. Supply other terms as needed; FILLING THE GAPS

a. Good Faith: R2d 205 - Every contract contains implied covenant of
good faith and fair dealing with respect to performance and enforcement.
i. Dalton (SAT scores case):
A. implied with each pledge of a promisor (every contract)
to exercise good faith is that neither party shall do
anything which will have the effect of destroying or
injuring the right of the other party to receive the fruits
of the contract.
B. neither party will exercise discretion, when discretion is
called for, arbitrarily or irrationally,
C. no duty under implied good faith obligation to act
inconsistently to expressed contract terms.
ii. Good faith has limits.
A. See Zilg (publisher’s case): Good faith doesn’t mean
“best efforts.”
B. See Burger King (franchise limits): Acting in good faith
can never mean adding a duty that’s not in the contract that
would expressly conflict with duties in the contract.

b. Course of Performance: UCC 2-208 - An established course of

performance between parties, also when it is an established usage of trade,
becomes part of the terms of the contract when it was not objected to by
the other party. The practical interpretation of the contract through
performance is the best indication of the intent of the parties.

c. Limitations on Wood’s Rule (At Will Employment): Wood’s Rule

says courts have presumed employment to be at will and employee can be
dismissed at any time for any reason. Modern courts have put some
limitations on that at-will employment for public policy reasons.
i. Sheets: at will employment may not be terminated when
employee acts in interest of certain public policy reasons, such as:
A. refusing to commit perjury
B. filing workers comp claim
C. engaging in union activity

3
 D. calling employer’s attention to possible criminal
violations
ii. Balla: in-house counsel do not have the limitations defense
because they simply are required to do the right thing. No
“Hobson’s Choice” to try to decide what to do (get fired v. do the
right thing)
A. strong public policy to allow ppl to fire their attorneys at
any time
B. does this really make sense? Shouldn’t we especially be
protecting those who are required to “do the right thing”?

II. PERFORMANCE AND BREACH (Chapter 7)

A. Part I: did parties make event or non event an express condition of one party’s duty to
perform
1. Issue 1: did the parties make an event an express condition of one’s duty to
perform?
a. Promise v. condition: If a contract is ambiguous as to whether
condition was promise or condition, court will find promise over condition
to avoid what could be a serious forfeiture.
i. Ship owner/cargo example:
A. If Sarah promises to get cargo to Carl in Cadiz in 25
days and she breaks the promise and the cargo arrives in 30
days, then Carl still has to pay for the cargo, but may sue
Sarah for damages caused by the late delivery.
B. If delivery w/in 25 days is a condition of Carl’s duty to
pay, then if cargo arrives in 30 days, Sarah gets nothing
because Carl’s duty to pay never arose.
ii. Courts may determine the intention of parties as a matter of law
when the nature of the transaction lends itself to judicial
interpretation.
A. Peacock: construction K/subK case. A custom of the
trade that subcontractor will not usually assume risk of
owner not paying. Receiving payment by the owner is not
a condition to the general contractor’s duty to pay
subcontractor. GeneralK has duty to pay subK no matter
what.
iii. Remember, as always, parties can change outcome with
contract terms.

2. Issue 2: has the condition been satisfied?

a. Luttinger: obtaining a mortgage with the maximum interest rate was a
clear condition precedent to performance of the contract. No obligation
to accept a condition substitute.
i. if it is a condition, that condition has been satisfied only if it is
exactly, specifically satisfied.

4
 b. Gibson: picture of deceased daughter case. Where the condition is
satisfaction with aesthetic value of the item in question, the defendant is
bound only to act in good faith in determining whether the contract has
been satisfied.
c. Mattei: if item in question is something of mere utility, commercial
fitness, the condition of satisfaction is considered objectively under the
reasonable person standard.

3. Issue 3: if there is a condition and it has not been satisfied, then what is the
legal effect?
a. Other party’s duty to perform does not arise (see Cargo Ship Hypo)

4. Issue 4: is there some mitigating doctrine that will soften the condition and
help court reach a more just result?
a. prevention: if one party prevents the other from performing his duty,
that party cannot invoke that condition as an excuse for non performance.
b. waiver: if one party waives a condition in a contract, then that party
cannot use that condition as an excuse for not performing.
i. Defined as intentional relinquishment of a known right.
c. estoppel: Where waiver is difficult to establish, consider estoppel. Has
party reasonably relied on some sort of representation by the other side
that it will not insist on literal enforcement of the condition? that reliance
acts as the fundamental reason for invoking estoppel, and as the
consideration for representation.
i. McKenna v. Vernon: Party waived condition by accepting
several payments w/o insisting on the certificate which had been a
condition.
d. forfeiture: the denial of compensation that results if the non-occurrence
of a condition causes the obligee to lose his right to the agreed exchange
after he has relied substantially on the expectations of that exchange.

B. Part II: is each party’s duty to perform a constructive condition (any condition not
express) to the other’s duty to perform?
1. What is a constructive condition? If you and I have a contract that I will
mow your lawn for $25, your duty to pay me does not arise until I have actually
mowed the lawn. My mowing your lawn is a constructive condition to your duty
to pay me.
2. Kingston: Servant to take over business under K term of “sufficient security.”
Under modern law, each party’s performance is deemed constructive condition on
other party’s duty to perform. So w/o plaintiff showing good security as required
by contract, the defendant is not required to transfer his business.
3. Stewart: where a construction contract makes no provision for installment
payments (or otherwise), work must be substantially complete before payment
can be demanded.

C. Part III: if so, is there a way around the constructive condition? mitigating doctrines

5
 1. prevention (see above)
2. waiver (see above)
3. estoppel (see above)
4. substantial performance
a. where if work has substantially been completed, worker can sue on the
contract. A small breach won’t excuse owner’s right to sue if the work
has otherwise been substantially completed. Jacob and Youngs v. Kent
5. divisibility
a. Gill: log driving case. A contract is “severable” if the part to be
performed by one party consists of several and distinct items, and the price
to be paid by the other is apportioned to each item to be performed or is
left to be implied by law. If party has completed some portion of the
work, that party is entitled to be paid for completing that divisible part.
i. A contract is entire if consideration is to be paid in single and
entire dose.
b. Microwave Tees case: a multi-step contract is not automatically
divisible and if the completion of the first steps is meaningless w/o
completion of the last step, the contract is not divisible.
6. restitution: If you can’t sue on the contract because of a constructive condition
(because you haven’t completed your performance), think about the possibility of
suing for quantum meruit or restitution because you have conferred a benefit on
the other side. If a contract is unenforceable but one side has conferred a benefit,
restitution may be available.
a. Damages formula: P gets the reasonable value of the benefits conferred
on D, minus the damages to D arising from the breach. Contract price is
ceiling on recovery.
7. non material breach: if one party’s breach was not material, it still gives rise
to a cause of action for damages (small damages), but does not justify the other
side withholding its performance.

D. Was there a material breach of the K? If so, then it gives rise to cause of action for
damages, and it justifies nonperformance by the other party
1. Each case is decided on its fact of whether it is a material breach.
2. Relevant factors from Rstmt 1sec. 275:
a. The extent to which the breaching party has already performed (more
likely to be a material breach at the outset).
b. Whether the breach was willful, negligent, or the result of purely
innocent behavior.
c. The extent of uncertainty that the breaching party will perform the
remainder of the K.
d. The extent to which, despite the breach, the nonbreaching party will
obtain (or has obtained) the substantial benefit he has bargained for.
e. The extent to which the nonbreaching party can be adequately
compensated.
f. Hardship on breaching party if the breach is considered material.

6
 3. Walker & Co v. Harrison: Rental agreement between parties for Walker to
rent out a neon billboard with a clock which it was to construct and pay for on its
own, and to maintain on its own. There came to be some stuff on the sign, like a
tomato, rust, cobwebs and maybe some writings, and D asked P to clean it off per
agreement. P never answered and did not do it. D stopped paying.
a. who made the material breach? D, by not paying.
b. P’s breach in not cleaning the sign right away was minor.
4. K & G Construction Co. v. Harris: Bulldozer wreck case. D breached its
covenant to perform in a workmanlike manner, and P thereafter declined to make
good its return covenant to pay. D refused to perform further, causing damage to
P
a. failure to perform in a workmanlike manner and failure to accept
responsibility for knocking down the house was a material breach of the
constructive condition to perform work in a workmanlike manner, and so
it excuses genk’s obligation to make installment payments.
5. Separate contract doctrine. When there are multiple individual contracts
between parties, and one party breaches one or more of the individual contracts, it
does not excuse the other party from performing on the other separate contracts
that were not breached. Remember: court could decide it was all one contract, and
determine who committed the first material breach of the contract with several
parts. Then the doctrine of constructive conditions would apply.

III. ANTICIPATORY REPUDIATION - an announcement of intention not to perform

A. Mooney’s 6 Questions to Consider for anticipatory repudiation:
1. what constitutes an anticipatory repudiation?
2. Is recipient of repudiation free to make other arrangements?
3. can recipient go to court immediately, even before the time for performance has
come?
4. can the recipient ignore the repudiation and await performance?
5. what are the consequences if the recipient urges retraction of the repudiation?
6. can a party that has repudiated withdraw the repudiation?
B. Hochster v. De La Tour: P contracted with D to act as a courier during his European
vacation. D changed his mind prior to leaving, and refused to compensate P. P sued
prior to time for performance.
1. Issue in that case was whether a party could sue before the contract had actually
been breached. There was a repudiation but not a breach and repudiations were
not common in those days. This case held that yes, you can sue early so that the
aggrieved party can be free from his obligation to go on and mitigate damages. 2-
610 for sale of goods cases talks about this.
C. Exception: If the aggrieved party has fully performed and the only remaining duty of
performance of the party who has breached is to pay money in an installment, failure to
pay one or more installments does not give rise to damages for TOTAL breach. Can’t
sue for remaining payments.
1. Have to sue each month or however long between installments. Can only sue
for months that are actually in default.

7
 i. To avoid this, a seller should put in an acceleration clause, which are
almost always upheld in court, RSTMT 2d 243(3), or use the procedure
of declaratory judgements so that court declares that paying party owes
the money then performing party doesn’t have to sue for each payment,
can just file a motion.

IV. MUTUAL MISTAKE (chapter 8)

A. Definition: A mistake by both parties to a K concerning a basic assumption of fact on
which the K is based.
B. Issue 1: is it a breach or a mutual mistake?
1. breach could give way to damages. Mutual mistake as to the identity of the
thing sold can give way to rescission so no damages are awarded
C. Issue 2: Did one party have knowledge that precludes “mistake”?
1. A party bears the risk of mistake when he is aware at the time the contract is
made that he has only limited knowledge with respect to the facts to which the
mistake related but treats his limited knowledge as sufficient
i. If you have perfect knowledge, you have a duty to tell the person. The
K will be undone.
ii. If you have no knowledge, the K will be undone on a basis of mutual
mistake.
iii. The middle might be protected ground – no duty to tell with just a
hunch, but also is not exactly a mutual mistake.
2. Safety Zone: Is there a level of knowledge which can defeat mutual mistake,
because you weren’t really mistaken, but you didn’t have enough knowledge to be
guilty of concealment because you just had an “inkling?” Mooney says there
should not be a zone of safety. If the transaction is fundamentally unfair, then
restitution or specific performance should be available.
D. Restatement Sections:
1. Rstmnt 2d 152 - described doctrine of mistake as to basic assumption, material
effect, voidable contract, risk bearing
2. Section 154 - assumption of risk - he who bears risk cannot rescind, limited
knowledge with respect to facts or court imposed
3. Section 158 - relief including restitution - following rescission of mutual
mistake restitution may be available, court may grant other relief as sees fit
4. Section 153 - Unilateral mistake.
E. Cases:
1. Pregnant cow case (Sherwood) and diamond mistake case (Wood)
2. Stees v. Leonard: P and D enter into K to build a building. Every time
construction rose to the 3rd floor, the whole thing would collapse. D claimed this
was b/c the building was on quicksand.
i. When a party binds himself to a contract, he must perform its terms
unless prevented by God, the law, or the other party to the contract. No
hardship will excuse him from doing what he has expressly agreed to do.
Mutual mistake doesn’t matter - builder must do what K’ed to do.
3. Renner v. Kuhl - Jojoba case. P contracted with D to buy land. P made it
clear they wanted to grow jojoba, D thought there was plenty of water. There

8
 wasn’t. Seller’s appeal award of consequential damages on grounds of mutual
mistake.
i. The general idea is that if a court agrees to rescind a contract based on
mutual mistake (which they did here), a party that has conferred a benefit
on the other side can say that other side should reimburse me for extent of
benefit by way of restitution if the benefit is significant.
ii. A party who rescinds a K based on mutual mistake may not recover
consequential damages.
F. Responses to a Mutual Mistake claim:
1. mistaken assumption is not basic enough. Thing sold should be fundamentally
different, although today’s standard is probably lower than this.
2. the effect of the mistaken assumption was not material enough. This is
primarily a value question. Imbalance in the exchange.
3. argue that other side had assumed the risk. That side took into account the
nonexistence of the basic assumption and that party expressly or impliedly
assumed the risk (see section 154). When a party has some idea that it has only
limited knowledge and decides to go ahead on the basis of that. Less inclination
on part of courts to undo transaction where seller has been harmed, where there
is a very large gain, than when there’s been a very large loss.
4. Zone of safety argument - did one party have an inkling that Thing was other
than presented? An argument that a little bit of knowledge does not fit adequately
into mistake, but on the other hand wasn’t enough knowledge to be grounds for
concealment. Not full of merit but worth trying. This is weak in Wood (jewelers)
because he’s a professional.
5. Remember: restitution is more likely to be granted than reliance, but
reliance is possible.

V. IMPRACTICABILITY
A. Definition: a Seller’s Defense based on changed conditions. Performance of a K
will normally be excused if the performance has been made impracticable. The
impracticability must involve the occurrence of an event whose nonoccurrence was a
basic assumption on which the K was made, and the adversely affected party must not
have assumed the risk of that K occurring. R2d261
B. Doctrine of commercial impracticability - where an unforeseen even occurs that
renders performance impracticable, courts often hold party is excused. Three kinds of
cases typically:
1. destruction or unavailability of subject matter of contract (Taylor v. Caldwell)
2. death of a party who contracted to perform or receive personal services
3. supervening provision by law. after entering into contract, a law is passed
prohibiting the acts you contracted to perform.
C. Cases:
1. Taylor v. Caldwell: Renting music hall and gardens case. Music hall burned
down before musicians arrived, so lessor couldn’t perform (impracticable).
Musicians sued.
i. Held: music hall burned down through no fault of either party, so both
parties are excused from performance. Court found implied condition

9
 that parties shall be excused if performance becomes impossible because
the Thing perished without default of contractor
ii. Therefore, no reliance or expectancy damages (too hard to calculate
expectancy damages based on how many people would have come to
concert, etc.).
2. Transatlantic Fiancing Corp v. US: TFC had to go around the Suez Canal
because it was closed and wanted to recover the additional costs of the runaround.
TFC argues that the contract requires an implied term that the voyage was to be
performed in the usual and customary route (court agrees), which was via
Suez. When the Suez closed, however, that performance became impossible.
TFC argues that it conferred a benefit on the US by delivering otherwise, and
claims relief under quantum meruit.
i. Held: K was not made impossible or impracticable. No excessive
increase in costs to shipper and it was foreseeable.
ii. Test for impracticability:
a. a contingency, something unexpected, must have occurred MET
b. the risk of the unexpected condition must not have been
allocated either by agreement or custom MET - not allocated
although questionable in this case
c. occurrence of the contingency must have rendered performance
commercial impracticable NOT MET
iii. See UCC 2-615
3. Eastern v. Gulf (hate this case): Gulf used impracticability defense.
i. Held: events of the oil crisis were reasonably foreseeable, and the fact
it occurred was not an unexpected contingency.
ii. If it were unforeseeable, increased cost alone is not enough. It must
be positively unjust to hold the parties bound.”
iii. Unprofitable does not mean impossible. A mere showing of
unprofitability, without more, will not excuse performance of a K.
D. Forseeability: Even if they anticipated a possible turn of events, “the parties may not
have thought it sufficiently important a risk to have made it a subject of their bargaining.”
Should be factor in whether or not the party now claiming the D should have assumed the
risk.
E. Force Majeure: Clause introduced to contract when a part anticipates events that it
cannot readily prevent, and that might impede its performance.
1. Watch for ejusdem generis - or a general clause at the end of a force majeure
that says something along the lines of “and anything else like that which might
come up.” draft them carefully to include a little generic clause like this.
2. These are mostly used for sellers to protect themselves. Some kind of clause
that would excuse you from performing given certain circumstances that might
come up
F. Increased cost alone is not enough! You need a hugely multimillion dollar liability
for increased cost to really matter.
G. This defense is really hard to establish!

10
VI. FRUSTRATION OF PURPOSE
A. General: always a buyer’s defense. Buyer says yes I can pay, but purpose for
entering contract has disappeared, so it would be unfair to make me pay for it. Courts
reluctant to allow this.
B. Rstmt 265: draws a hard line re: frustration. Principal purpose must be substantially
frustrated. Not just a decrease in advantage. There is an assumption of risk element to be
considered. Only for when party’s performance becomes virtually worthless
C. Rstmt 272: talks about restitution for frustration or impossibility. Parties can attempt
to recover restitution in cases where justice requires it. Maybe even reliance.
D. Cases:
1. Krell v. Henry: P and D contracted for D to rent a flat for two days, which
were the days the coronation was to take place. Nothing in contract expressly
about coronation or purpose for renting flat. King got sick and no coronation
happened, so D declined to pay rent over the deposit he paid.
i. Held: rental was for purpose of watching coronation parade. This was
foundation of K and parties ought to be discharged.
ii. Rule: ascertain the substance of the contract, and then ask whether that
contract needed for its foundation the assumption of the existence of a
particular state of thing. If so, this limits the operation of general words,
and if contract becomes impossible by reason of non-existence of thing
assumed by both parties as the foundation, there will be no breach.
2. Cab case: This seems analogous to Krell. Mooney says only difference is that
there was an availability of other cabs so passenger wasn’t too put out when cab
didn’t come for him.
3. Chase Precast Corp v. John J. Paonessa Co.: Paonessa (genK) contracted
under 2 contracts w/ Chase (subK) to replace strips of grass with cement median
barriers as per its contract w/ xportation department. Citizens brought suit to stop
installation, and upon notification Chase stopped installment, having produced ½
the barriers, for which it was fully paid by Paonessa. Chase suffered no out of
pocket expense. Brought suit to cover anticipated profits from breach (CRAP
formula: Cost of reliance + anticipated profit), and Paonessa indemnified
Commonwealth if it should be found liable.
i. Held: Trial court ruled for Defendant under doctrine of impossibility of
performance. Appellate court affirmed, saying frustration of purpose was
more proper doctrine.
ii. Issues to decide in a frustration of purpose case (like impossibility):
a. foreseeability of supervening event,
b. allocation of risk of occurrence of event, and
c. degree of hardship to promisor

END FARNSWORTH MATERIALS

---------------------------------------------------------------------------------------------------------------------

11
 BEGIN UCC MATERIALS

I. ARTICLE I - general intro to code

A. The code governs all transactions in “goods.” (102)
B. 1-102: Code is to be “liberally construed and applied to promote its underlying
purposes and policies as
1. to simplify, clarify, and modernize commercial law;
2. to permit the continued expansion of commercial practices by validating trade
custom and usage as well as the parties’ express agreements; and
3. to make the law uniform… among the various jurisdictions”
C. Three Fundamental Principles of Article II
1. good faith
2. commercial reasonableness
3. the facilitation of commercial practice by interpreting into the law course of
performance, course of dealing and trade usage
D. Good Faith:
1. 1-201 (19): honesty in fact – a subjective test
i. no element of objectivity or reasonableness
ii. hard to prove that subjectively someone is not acting in good faith
2. 1-203 imposes obligation of good faith on any party in any transaction
governed by the UCC
3. 2-103 supplements the general UCC definition by stating that under Art II good
faith for merchants means honesty in fact and the observance of commercial
reasonableness
i. 2-104 defines “merchants”
E. Nelson v. Union Equity: Defendant farmer meets the requirements of “merchant”
definition under 2-104 because he is knowledgeable about the business of crops, and
meets the statutory elements. Because D was a merchant, the oral agreement confirmed
in writing satisfies the Statute of Fraud requirements under 2-201 and therefore he must
pay damages for breach.
F. Merchants and Supermerchants under 2-104
1. A supermerchant: is the first half of the definition under 2-104(1). A person
who deals in goods of the kind. A higher level than just plain merchant.
2. A merchant: is the second half (after the “or”) of the definition. A person who
holds himself out as having knowledge or skill particular to transaction. This is
going to be most commonly used. As Mooney says, a merchant is someone who
should be opening his mail.

II. ARTICLE II - Form, Formation and Adjustment of Contract

A. PART 1 - SCOPE OF THE CODE
1. 2-105: defines goods as all things movable at time of identification to K for
sale.
2. 2-102: this section of UCC applies to all transactions of goods, and not just
those by merchants. Often the reason parties fight about it involve whether the
code’s warranty implications apply.

12
 i. Only supermerchants make merchantability warranties, only they can
transfer an entrusters title in an ordinary course of business, but the code
generally applies to everyone selling stuff.
ii. Defendant will say it was not a transaction in goods, but rather
services contract so code doesn’t apply, so implied warranty of
merchantability doesn’t apply and you must prove negligence to recover,
or SL tort.
3. Anthony Pools v. Sheehan: AP built pool for Ps, who claim the skid resistant
material didn’t go all the way to the edge of the diving board, breaching an
implied warranty of merchantability and claimed use of defective diving board
was unreasonably dangerous - strict tort liability. D claims that this was contract
for services, and should be exempt under 2-316 for disclaimer of warranties.
i. 2-314 - supermerchant (merchant who deals in goods of this kind)
warrants that goods it sells will be of good quality
ii. 2-316 - a seller of consumer goods may not contractually disclaim
implied warranties
iii K on its face is hybrid, mixed for sale of services and goods. Test for
whether it’s goods or services is:
a. Predominant factor test: Whether the predominant factor is a
transaction of a sale of goods with labor incidentally involved or
vice versa.
1. Most states use this test still - called bone-break test.
b. Gravamen test: Whether the reason for the breach is directly
related to the fault of the service or the fault of the good (if it’s a
part that breaks, it comes under the UCC).
c. How to choose which test to use: policy considerations: If the
predominate factor test results in classifying the transaction as a K
for services, then there would be no UCC-based implied
warranties on the diving board and this would be contrary to the
legislative policy. (2-316)

B. PART II: CONTRACT FORMATION UNDER THE CODE

1. 2-204 K made be made in any manner
2. 2-205 firm offers now do not need to be supported by consideration in order to
bind, only that they are expressed as firm offers in signed writings.
3. 2-206 acceptance may now be rendered in any reasonable manner, rather than
required in a “like” manner.
4. 2-207 eliminates mirror image rule MOONEY’S FAVE. Mirror image rule
had two bad consequences:
i. Parties plainly thought they had a K and often acted as such, but all of a
sudden one wanted to get out and they could just because the acceptance
didn’t mirror offer.
ii. The other kind of problem was the “last-shot” rule. Buyer sends offer,
seller sends non-mirror image acceptance, parties think they have a K, one
party wants to get out. Court doesn’t want to find no K, so they say the
non-mirror image acts as a counter offer, and the original offeror assented

13
 to counter offer by its conduct. He who “fires the last shot” controls the
terms of the deal.
5. Four routes to K formation under 2-207:
i. Two questions: 1. is there a K?, 2: if so, what are its terms?
ii. Route A: 2-207(1) before comma. An acceptance operates as an
acceptance forming a K even if it’s not a mirror image. Buyer sends offer,
seller sends acceptance w/ new terms. Still a K. Terms are offeror’s
terms, buyer’s terms because seller has accepted the offer.
a. What about the new terms? (2) governs. New terms are
proposals for addition to K. If a K between merchants, sometimes
these new terms can become automatically part of K and be added
in, provided they pass through filter of (2).
b. This route could be called 1st shot rule because it allows party
sending offer to control the terms.
iii. Route B: SubS(1) after comma. Buyer sends offer, seller sends paper
back w/ express condition of B’s assent to all terms in S’s new form.
This is a counter offer by S. This preserves the old last-shot rule. Gets
to be a K when B expressly assents to conditions in S’s counter offer. S
controls terms. When B assents, the K exists.
iv. Route C: Conduct sufficient to establish K even though writings don’t
support. SubS (3). Both parties act like there’s a K. No one party
controls terms - “neutral terms.” All terms agreed upon are in, and terms
they didn’t agree on might be put in automatically by (3).
a. Code will supply implied warranty under 2-314 in this case.
v. Route D: Buyer and seller meet at place and conclude an oral deal.
Each goes back to her plant and one party sends a confirmation (or both
do). There is now a K (oral). Terms are terms parties agreed on orally,
and that’s all unless there’s something in confirmation other side agrees to
or that can come in automatically if it doesn’t materially alter.
i. What if one confirmation has a new term in it that wasn’t
discussed? We treat a new term in a confirmation the same way we
treat a new term in an acceptance under Route A. A proposal for
addition to K that must go through filter of (2).
6. Diamond Fruit v. Krack: Krack had an ongoing contract with Metal-Matic to
supply its tubing. Course of dealings had Krack sending a yearly PO for what
they wanted, followed by release POs (offer) to MM as they needed tubing,
followed by an acknowledgement (acceptance) from MM and shipment of tubing.
MM’s response disclaimed all liability for damages and limited MM’s liability for
defects in tubing to refunds or replacement or repair of tubing. This disclaimer
was printed on the back of MM’s acknowledgement form, with words on the front
instructing reader to review the back for terms and conditions. It said acceptance
of offer was expressly conditional on offeror’s acceptance of these additional
terms.
i. what constitutes assent to additional terms?
a. Court considers policy of neutrality. Says 2-207 does away
with CL’s last-shot rule, which states that the

14
 counterofferor/offeree gets all its additional terms in just because it
“fired the last shot” (see above). Says 2-207 doesn’t allow either
party to unilaterally impose terms on the other. (I think this is
wrong! it DOES allow parties to unilaterally impose - see
routes to K formation above). Court says both parties could have
negotiated all terms but failed to do so, so neither party gets its
terms.
b. 2-207(3) should be applied because it’s more equitable to be
neutral than just giving one side all its terms. ROUTE C. Conduct
of parties did not indicate assent to additional terms.
7. Hills v. Gateway: The Hills ordered a computer and it came in a box with a K
from Gateway containing an arbitration clause, which said it governed if not
returned w/in 30 days. Hills complained after 30 days and filed not in accordance
w/ arb. clause.
i. a K need not be read to be valid, and that arbitration clauses must be
enforced save upon such grounds as exist at law or in equity for
revocation. People who accept take the risk of unread terms.
Therefore, by keeping the computer longer than 30 days, the Hills
accepted the arbitration clause

C. STATUTE OF FRAUDS
1. 2-201 governs. Must have writing to embody a sale for more than $500.
Section is meant to be less susceptible to abuse than SoF statute previously.
2. Requirements:
i. Writing must evidence an existing K
ii. Writing must be signed
iii. Writing must specify a quantity, though not necessarily a price because
a court can always find a price out of the market price
3. There are five softenings of SoFs to minimize scoundrels being able to hide
behind statute:
i. c1: all you need to satisfy statute is a piece of paper that constitutes a
basis for believing parties entered into K (don’t need full and complete
text of whole agreement)
a. writing must contain some reasonable evidence of oral K
b. must be signed
c. must specify quantity (don’t need price)
ii. 1-201 (39): merchant’s exception to signing
iii. sub 3a - specially manufactured goods don’t need signed writing
because of real opportunity for injustice
iv. sub 3b - judicial admission exception
v. sub 3c - if seller has accepted payment or buyer accepts goods, that
party loses SoF defense
a. partial payment of acceptance does not necessarily remove the
entire K from the SoF, only the portion paid for or accepted
4. Distrubu-dor v. Karadanis: Ps and Ds contracted for Ps to supply mirrors and
tubs for Tahoe Inn under construction by Ds. During some price negotiations,

15
 numbers were sent back and forth on a paper, which P then signed and D refused
to sign, saying “my word is my bond.”
i. Held: this was a K for specially manufactured goods, to which SoF
201 (3)(a) doesn’t apply, so there didn’t need to be a writing for K to be
valid.
ii. Even though the tubs weren’t particularly manufactures and mirrors
were, they can be included since they were part of the whole K and there’s
no justification in holding part of the K enforceable and another not.
Once part of the K is taken out under (3)(a), the whole K is taken out.

D. PAROL EVIDENCE UNDER UCC

1. 2-202 governs.
i. C1 says there shall be no presumption of complete integration in sale
of goods case, so there’s no more cases like Gianni that hold if a writing
looks complete on its face then court shall conclude it is. Goes along w/
Traynor in Masterson to say you have to look elsewhere to see if it’s
complete.
ii. C3 gives a test for complete integration which says if you show parties
certainly would have included it in the writing had they agreed to it
then you have a complete integration. Companion to naturally test.
2. Approach to parol evidence problem under the code is the same as that for
a parol evidence problem under CL.
i. is it integrated?
ii. is it a complete or partial integration?
iii. if it is not integrated at all, rule doesn’t apply.
iv. if it’s completely integrated, look at 2-202(a) for course of dealings or
trade usage
v. you can always get in interpretive evidence, and you can admit evidence
of fraud, duress, mistake 1-103
vi. if it’s a partial integration, 2-202(b) applies for consistent additional
terms

E. PARTS III and IV of ART II: GENERAL OBLIGATIONS AND CONCEPT OF

TITLE
(most important are implied warranties)
1. Gap-Filler Provisions
i. 2-305: Open Price Term: Parties can conclude a sale even though
price is not settled. Price is a reasonable price at time of delivery if (1)(a):
nothing is said as to the price, etc.
a. wrongful interference by one party may justify cancellation by
other
ii. 2-306: Output, Requirements and Exclusive Dealings: (1)
Ouputs…actual output or requirements as may occur in good faith, except
that no quantity unreasonably disproportionate to any stated estimate or in
the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements may be tendered or demanded. (2) Exclusive

16
 dealings…obligation by the seller to use best efforts to supply the goods
and by the buyer to use best efforts to promote their sale.
a. Output v. Requirements K v. Excl. Dealing K: which party
are we trying to protect?
A. In an exclusive dealing K, we are protecting the person
who gave away the exclusive right to the other party. Other
party’s obligation is to use best efforts. (Wood v. Lucy)
B. In a requirements K, other party’s obligation is to use
good faith, because seller hasn’t given away its right to sell
elsewhere. Seller in RK is not in as desperate a situation as
seller in EDK. (Eastern v. Gulf)
C. Output K where seller says it can only sell to buyer all
of its output, party we’re trying to protect is buyer, who can
buy K goods elsewhere. Seller has to have output in good
faith. (Feld v. Henry)
b. Feld v. Henry S. Levy & Sons: P and D contracted for P to buy
“all” of D’s bread crumbs for a stated period of time, automatically
renewable, w/ cancellation clause. A month before the initial
agreement was to expire, D stopped making crumbs and
dismantled its equipment. It told P it would make crumbs again is
the price went up, but D had sold all its equipment.
A. 2-306 says every contract of this type imposes an
obligation of good faith performance.
B. Output K is not too indefinite and does not lack
mutuality.
C. Impending bankruptcy of seller would justify
termination of bread crumb making, but just a decrease in
profit would not.
iii. 307 - delivery usually in a single lot
iv. 308 - place for delivery
v. 309 - time for K performance and termination
vi. 310(a) - time for payment @ time of receipt by buyer
vii. 311 - K does not fail for indefiniteness simply because one party can
specify particulars of performance

2. Code Warranties
i. 2-312 through 2-318 govern.
ii. To win a breach of warranty case, P must show:
a. seller warranted items
b. goods did not conform to warranty
c. P suffered damage as a result
iii. Express warranties: 2-313 c.1 test is whether the language or samples
or models are fairly to be regarded as part of the contract. Created by
(Keith v. Buchanan factors):
a. any affirmation of fact or promise made by the seller to buyer
(must be more than “mere puffing.”

17
 b. Any description of the goods which is made part of the basis of
the bargain
c. Any sample or model which is made part of the basis of the
bargain
iv. Implied warranties:
a. merchantability 2-314 - most important. Seller must be
supermerchant.
b. fitness for particular purpose 2-315 - very rare!
A. Seller may disclaim under 2-316.
B. Reliance is important (Keith)
C. To prevail, a P must show:
1. that seller knew of particular purpose
2. that seller knew buyer was relying on seller’s
skill to provide for that purpose
3. that buyer did in fact rely on that skill
v. Keith v. Buchanan - EXPRESS WARRANTY, no implied. P Keith
bought a boat from D at a boat show, after relying on advertising
brochures and salesman’s promise it was a seaworthy vessel. He also had
some friends inspect it and tell him it would suit his needs, though he had
a lot of experience on boats and had done some previous research himself.
vi. Braton v. Tra Mo: The parties negotiated to use a substance for fuel
tankns, high-density polyethylene. The material was demonstrated to P by
dropping it from forklift, and D’s plant manager told P it was really strong
and he thought “it would do the job.” D manufactured 5 test tanks and
subjected them to tests. Issue of whether test tanks were “samples” or
“models.” Court finds they were models and therefore subject to 313
comment descriptions.
a. What is a Sample: Actually drawn from the bulk of the goods
which is the subject matter for the sale.
b. What is a Model: Offered for inspection when the subject
matter is not at hand and it has not been drawn from the bulk of
goods.
c. Were models part of basis of bargain? YES.
d. Did D breach by making non-conforming goods? YES
vii. Blockhead v. PFC: Wiglet case. Seller was merchant w/ respect to
blow-molded products, and that’s the definition of goods here, not wiglet
cases in particular, so he was a supermerchant.
a. Buyer loses on 314 because he inspected the goods to his full
satisfaction (2-316(3)(b)), and because he gave his own specs for
how they are to be made.
b. Also, there really was no “particular” purpose. The wiglet cases
were never intended for any purpose other than their ordinary
purpose, which was to carry wigs
c. Also, no proof that product did not really conform to models
presented. Some variation to be expected.

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 viii. Any time you see the buyer looking at the goods or samples or
models of goods before the contract, you need to think about:
a. it may create an express warranty by sample or model, and
b. it may negate the implied warranties as seen in Blockhead.
c. So you might be able to make two different arguments when
samples or models are inspected by buyer.
ix. Valley Iron Steel v. Thorin: Buyer wants some hoedads made to sell
at it’s store, so asks Valley Iron to make some based on a model it brought
in. Buyer asked seller what to make them out of, and Valley Iron said
Iron, buyer said OK, but then it wasn’t strong enough and they were
breaking all over the place. It turned out they needed to use steel instead
of iron. Buyer sold a bunch of these hoedads to others, and refused to pay
Valley Iron for defective ones. Seller brought suit for rest of contract
price.
a. Fitness W: when goods are specially manufactured, their
particular purpose is their ordinary purpose.
1. VI breached b/c they had reason to know Thorin was
relying, Thorin did rely, and goods were not fit.
b. Merchantability W: VI was supermerchant because he dealt in
goods of iron, even though not particularly hoedads.
c. 2-608 right to revoke acceptance: allows a buyer who has
taken goods in stock to revoke its acceptance and push goods back
on seller. Court exercises this remedy, so D doesn’t have to pay
for 80% that were defective, but does have to pay for 20% that
weren’t defective.
x. Delano v. Supreme (MOONEY’s fave case): Fresno mold wine case.
a. 314 merchantability: the wine could not pass in the trade w/o
objection and was not fit for the ordinary purpose (drinking).
b. 2-607(3) sufficiency of notice of breach: Notice is sufficient if
it fulfills purposes of notice and allows seller to infer that buyer is
asserting its legal rights under 608. Even just oral notice is
sufficient in most cases. Good notice here.
c. 2-608 Supreme gave effective revocation of acceptance.
d. DAMAGES:
1. 1-106 - remedies to put party as in good a position as if
other party had fully performed. This may include
(consequential) loss of profits and (incidentals) reasonable
expenses.
i. Consequentials are those that cannot be
reasonably prevented and arise naturally from the
breach or which are reasonably contemplated by the
parties.
2. 2-715 - lost good will. Such damages don’t require
mathematical certainty.

3. Breached Warranty Package:

19
 i. Is the seller a supermerchant? 2-104
ii. Are the goods merchantable under 2-314(2)? “fair average quality, pass
without objection into trade.”
iii. Did seller breach warranty of merchantability? 2-314.
iv. Is the item being used for its ordinary purposes, or for a particular
purpose? When item specially manufactured its ordinary purpose is its
particular purpose. Warranty of fitness 2-315.
v. Did seller breach warranty of fitness?
vi. What defenses are available?
a. Warranty disclaimer 2-316? Was it conspicuous? Can’t
disclaim an express warranty under sub. 1.
b. Remedy limitation 2-719? Will warranty fail of its essential
purpose?
c. Trade usage 2-208? Can buyer come back with course of
dealing response (like Delano tried)?
d. 2-607(3): Did buyer give effective notice of the alleged breach
in required reasonable time?
vii. Damages: Formula A: Loss in value (K price) – Cost Avoided

4. Seller’s Defenses to Warranty Liability

i. 2-316(2), (3) - warranty disclaimers for seller
ii. 2-719(1), (2), (3) - where seller concedes there is a warranty, he says for
breach of warranty there are limited remedies.
a. Buyers use (2) and (3) a lot to try to defeat the limits.
b. (3) buyer has BoP on unconscionability.
iii. 2-607(3) - lack of adequate notice of breach. Buyer who claims
breach must give reasonable notice of the breach to the seller.
a. Question: did alleged delay somehow damage the seller? For
the most part, this is a technical defense that courts don’t take too
seriously in most cases.
iv. Cate v. Dover: Cate bought some lifts from a retail shop that Dover
manufactured, and even though they had been repaired, they never worked
right.
a. Seller may disclaim an implied warranty of merchantability
under 316 so long as it does so conspicuously (defined in1-201(1),
c.10).
b. In this case, disclaimer was in the same type face and rather
hidden, so seller did not effectively disclaim.
c. Mooney agrees with concurrence, who says legislature should
abolish all disclaimers for implied warranties of merchantability
and fitness. 2-316(2) is bad. Large percentage of Ks are form Ks
and most buyer never read an implied warranty disclaimer.
unequal bargaining power. Unless there is real evidence shows
that buyer really did have actual knowledge of disclaimer.
v. Moscatiello v. Pittsburgh Contractors v. Curbmaster: Cememnt
paver purchase. When the K was drawn up, PCEC had disclaimer and

20
 limits on the reverse side. M had never dealt with them before and was
not on notice of these disclaimers and limits. M never got any warranty
from C. The paver never worked right for the 5 months M used it, and
product was not satisfactory to PennDot.
a. Disclaimer was not conspicuous (1-201)
b. not fit for its ordinary purpose (314)
c. Limitation of remedies was unconscionable (715, 302)
vi. Cox v. Lewiston Grain Growers: The seeds that failed to germinate.
a. Warranty disclaimer is unenforceable.
1. Berg Rule: disclaimers are disfavored in the law and
ineffectual unless specifically negotiated between the buyer
and seller. The Berg rule should apply due to the specific
requirements of the sale. No negotiations occurred
regarding the disclaimer or exclusionary clause contained
in the delivery ticket.
b. The exclusionary clause was unconscionable.
1. Determining Conscionability:
A. The manner in which the K was entered
B. Whether the parties had a reasonable opportunity
to understand the terms of the K, and
C. Whether important terms were hidden in fine
print.
c. Insurance payments could not reduce the damages award
1.Rule for Collateral Source: Payments received by the
injured party from a source independent of the tortfeasor
will not reduce recoverable damages by the tortfeasor
d. First K has to pass Berg’s Rule, then it has to pass 719:
1. limitation will not be enforced if the remedy fails its
essential purpose

5. Notice Requirements:
i. Governed by 607(3).
a. buyer must notify seller w/in reasonable time
b. Comment 4: a retail consumer somewhat more time to notify,
but for a merchant a reasonable time may by very short (some
courts say 10 days for perishable products).
ii. Two issues of notification:
a. timing (was it reasonable?)
b. content of notification (oral OK, might have to say word
“breach.”

6. Concept of Title:
i. when does title pass?
a. this is much less important under the code than it was at CL or
under USA

21
 b. the only people really interested in this are third parties like
insurance co.’s, not B and S
c. unless otherwise agreed, title passes at time of delivery by seller
2-401(2), where delivery does not necessarily equal receipt of
goods by buyer.
d. See Di Rocco, pg 198: did seller complete delivery of truck by
delivering it to painter at request of buyer? Yes, so buyer’s
insurance had to pay.
ii. when can the seller pass good title to the buyer? 2-403
a. voidable title - sub 1: seller had voidable title and can pass good
title to buyer (buyer only has to buy in good faith, not OCB)
b. entrusting title - sub 2: orig. owner of goods entrusted them to
seller and buyer in ordinary course of business can purchase them
c. You cannot pass title through a thief!
iii. Heinrich v. Titus Will: H wanted to buy a truck, so he contracted with
W for W to purchase a truck for H. W contracted w/ TW to buy from
them. TW gave W the truck on a bad check, and W gave truck to H.
When TW found check bounced, they wanted truck back, and W took
truck back from H and gave to TW.
a. In order to prevail under 403(2), (3) - entrusting case, P must
show:
1. that TW entrusted the truck to Wilson and thus
empowered Wilson subsequently to transfer all rights to P
(Yes, TW did entrust truck)
2. Wilson was a merchant dealing in automobiles (Yes, W
held himself out to be a dealer and was treated like one by
both parties)
3. P bought the truck from W as a buyer in the ordinary
course of business (Yes, H was buyer in good faith)
b. In order to prevail for voidable title doctrine, P must show:
1. TW delivered to Wilson “under a transaction of
purchase” (dispute in this case, court holds W did
purchase)
2. Wilson paid TW for the truck with a bad check (No
dispute)
3. Heinrich was a good faith purchaser for value (dispute
in this case - court holds that H did purchase for value and
TW conveys title to Wilson under UCC)
iv. Three general policies support 403(2):
a. protects innocent buyer
b. the entruster is in a better position than innocent buyer to protect
against risk that intermediary won’t pay
c. facilitates flow of commerce by allowing purchasers to rely on
merchant’s apparent right to sell, don’t want buyers to be hesitant
to purchase for risk of loss of title

22
7. Risk of Loss:
i. FOB - Free on Board. 2-319.
a. 319(1)(a) - FOB place of shipment = shipment K
i. If a K is FOB place of shipment, 319(1)(a) and 509(1)(a)
- risk of loss absence breach - goods are shipped at buyer’s
expense and risk. There is a strong presumption in
ambiguous Ks that K is a shipment K.
b. 319(1)(b) - FOB place of desintation = destination K
c. 319(1)(c) - FOB a vehicle like RR car. Seller must actually load
goods onto the vehicle at buyer’s risk.
ii. CIF - Cost, Insurance & Freight. 2-320. C of goods, insurance and
freight are all included in K price. The seller must deliver goods to
carrier, must obtain receipt from carrier (bill of lading), seller must pay
freight, must purchase insurance payable to buyer, and must send all of the
relevant paperwork to the buyer. Once seller has done this, risk passes to
buyer from place of shipment. The implication of a CIF K is that buyer
has to pay for the goods without inspecting them, when paperwork arrives
at buyer.
iii. Windows v. Jordan Panel: Press brake fell out of truck during
shipment. Question of whether was a destination or shipment K, court
holds it a shipment K and that R of L was on buyer.
a. Buyer has recourse against shipping co. for goods damaged in
transit. 509(1)(a).
iv. 509 - principle Risk of Loss section, deals w/ 4 different types of Ks.
v. Cook Specialty Co. v. Schrlock: Terms were FOB MSI’s warehouse.
K was FOB shipment, and therefore buyer bears risk of loss. MSI
completed its part by putting goods on reasonable carrier, and at such time
risk passes to buyer.
a. Buyer argued that seller used unreasonable carrier. This is a 504
argument. If seller had used unreasonable methods of shipment,
goods would not have been duly delivered to carrier and then R of
L wouldn’t shift to buyer at that point
b. seller didn’t have to make sure the insurance was adequate,
only would be inadequate if seller agreed to inadequate valuation
of goods. Seller here did not deliberately and knowingly
underinsure goods.
vi. Jason’s Foods v. Peter Eckrich: Risk of loss passed when passage of
title was acknowledged by buyer, not by seller. Risk of loss did not pass
w/o acknowledgement by buyer.
a. 502(b) case because goods were being held for buyer in
warehouse that burned. Title had passed, but not Risk of Loss.
vii. Schock v. Ronderos: Mobile home case. Location or status of title is
not relevant to which party bears loss - risk of loss was on buyers once
tender of delivery made. 509(3). Buyers could have removed home at
any time.
a. Tender of delivery defined in 503.

23
 viii. 2-510: risk generally remains on person in possession, even tho they
may be innocent. But if the innocent party’s insurance is deficient, then
risk will shift to the breaching party.
ix. Wilke v. Cummins: Diesel generator case. Location of title isn’t
that important. Delivery of the goods that were nonconforming - kept
Risk of Loss on seller under 510(1).
a. Mooney says this could have been a 509(3) case, and then the
issue would have been if goods had ever been “received.”
b. Remember that negligence is always a possible override onto
risk of loss rules. If risk had passed to Wilke, if W can show that
even though risk has passed that freezing occurred b/c of neg. on
part of Cummins, then W would win. Try 1-103 for this argument.
x. Multiplastics v. Arch Industries: After M made the, they asked AI for
releases, which AI refused to give citing labor difficulties and vacations.
M kept trying to get in touch, and AI eventually agreed but never did pick
up pellets. Finally one day, M’s plant was destroyed by fire, and the
pellets weren’t covered by insurance, so they sued to recover K price.
Buyer’s breach.
a. M tendered delivery when they notified AI to pick up and AI
had reasonable time to get them under 510(3).
b. D argues for defenses of waiver and estoppel. D stupidly argues
that P was basically agreeing with their refusal to accept delivery
by continuing to make attempts to get them to accept delivery
(waiver). Court doesn’t buy it. Court also doesn’t find any
estoppel.
1. Two elements of estoppel:
A. one party must do or say something which is
intended or calculated to induce another to believe
in the existence of certain facts and to act on that
belief
B. the other party must change his position or do
some act to his injury as a result which he would
not otherwise have done (reliance)

8. Buyer’s and Seller’s Rights After Delivery

i. 2-507 and 511: mirror images of each other, saying seller’s tender of
goods is a condition of buyer’s obligation to pay, and conversely buyer’s
tender of payment is a condition of seller’s obligation to deliver.
Concurrent conditions.
a. Neither party has to perform first absent any contract provisions.
You have to go at the same time. Seller may not sue unless it has
demonstrated a willingness and ability to deliver goods, and buyer
may not sue unless it shows it can and will pay for goods.
ii. 513 - inspection rights for buyer. This section says that usually, the
buyer has the right to inspect goods before paying for them.

24
iii. 601 - buyer’s right to reject. Seller can recover only if it tenders
goods that conform perfectly.
a. There are 5 exceptions to the perfect tender rule:
1. good faith (can’t reject in bad faith), 2-103
2. seller’s right to cure, 2-508
3. installment contracts, where buyer can only reject an
installament if nonconformity substantially impairs the
value of that installment, 2-612(2), 612(3) says you can
only cancel the K if any nonconformity substantially
impairs the value of the entire K
4. failure by seller to conform to its obligations under 2-504
only constitutes rejection grounds if material delay or loss
ensues
5. buyer’s right to reject is bound necessarily with buyer’s
accepting the goods. Once buyer accepts under 2-606, it
can no longer reject them (could revoke acceptance under
608).
iv. International Commodities Export v. North Pacific Lumber:
Moldy beans - buyer rejecting 9 months after receiving them. Buyer’s
rejection was untimely, revocation untimely, buyer acted like they owned
the goods (inconsistent with notion that P still owned) and in fact resold
them, and did not give effective notice of revocation of acceptance.
a In this case, buyer accepted goods under 606(1)(a).
b. Therefore, the burden is now on buyer to show nonconformity
under 607(4).
c. Since buyer didn’t reject, he tries to say he revoked under 608.
But it came too late, and really didn’t give any notice, so it doesn’t
fly.
d. A buyer may also accept by failing to make an effective r
ejection 606(1)(b) - points to 602 saying if buyer rejected too late.
e. 606(1)(c) if buyer does any act inconsistent w/ seller’s
ownership, buyer accepts.
v. Bowen v. Foust: Air conditioner compressor case.
a. Buyer revoked its acceptance under 2-608.
b. Buyer has right to throw goods back on seller by revocation of
acceptance and recover money (2-711).
c. Seller claims they wanted to cure under 2-508, but ct. held that
seller never offered to cure. 508 only allows a fix by replacing w/
conforming goods.
vi. An aggrieved buyer has two big avenues of remedy:
a. throwing the goods back onto seller (rejection), getting money
plus damages back. If you can effectively reject under 601 or
revoke under 608.
b. if buyer waited too long or otherwise can’t revoke or reject, then
buyer is stuck with goods but not without remedy if goods don’t

25
 conform - 714 - which says buyer can sue for whatever damages it
can show.

9. Breach, Repudiation and Excuse (Buyer’s actions)

i Buyer’s duties toward rejected goods: 602, 603, 604.
ii. Buyer accepts under 606
iii. Design Plus v. Citro, Citro v. Decolam: Installment K between buyer
DP and supplier C, who subKed with Del. Buyer probably sued under
714.
a. 612- rejection of installments or entire K
b. 602- rejection requirements
c. 603 c1. gives three options absent instructions from seller p
ost-rejection:
1. store them
2. reship back to seller
3. resell to another
iv. Buyer rejects under 602 if they have not yet accepted (607).
v. If buyer has accepted, they may still revoke under 608.
vi. Kesner v. Lancaster: nonconforming tractor case. Buyer is arguing
that he revoked his acceptance after learning tractor didn’t work.
a. Court says requirements for revocation under 608:
1. substantial impairment of value (unlike rejection’s fail in
any way test)
2. acceptance was based on assumption cure was coming,
or based on a difficult to discover nonconformity before
acceptance
3. reasonable time for revoking
4. notice
vii. 609 - helps decide who committed the first material breach
viii. 610 - anticipatory repudiation, test in c1:
a. has party demonstrated clear intention not to perform? and
b. if so and such nonperformance would substantially impair value
to other side, then there’s anticipatory repudiation.

10. Seller’s Remedies

i. 703 is catalog of Seller’s remedies:
ii. 709 - seller can sometimes recover full K price
a. allows recovery only when:
1. buyer has accepted and retained goods (big one), or
2. conforming goods have been lost or damaged after R of
L passed to buyer (Multiplastics),

3. when seller has tried and failed to resell the goods, or

circumstances reasonably indicate such efforts would fail

26
 iii. 706 - most frequently invoked remedy, seller can resell the goods and
get difference between K price and resale value. Advise seller clients to
resell if possible because this is the easiest calculation.
a. If aggrieved seller resells the goods in good faith, in a
commercially reasonable manner, and in accordance with req’s in
706 (notice), then seller can recover difference between K price
and resale price plus any incidental damages under 710, less
expenses saved.
b. And if seller makes a profit on resale, (6) says seller may keep
that profit.
c. (3) requires reasonable notification of intent to sell for a
private sale, not including time and place. In a public resale, (4)
governs. Seller must give notice of time and place specifically.
More notice required for public resale because there are few
bidders so you have to give them extra notice.
iv. 708(1) - contract market remedy, if seller doesn’t resell or resells
inappropriately and cannot recover full K price, it’s entitled to diff
between K price and presumably lower market price
v. 708(2) - lost volume seller, where if preceding remedies don’t make
seller whole, he is entitled to full profit he would have made.
a. Don’t ADD in overhead, just don’t subtract it either. It just
comes in if you don’t subtract the overhead costs. Just don’t worry
about it. Just remember LV-CA!!! Not loss in profits, just
unpaid contract price.

11. Buyer’s Remedies:

i. 711 - catalog of buyer’s remedies
ii. buyer may cover his loss (buying sub. goods) 712 for difference
between cover price and K price
iii. buyer may recover diff between K price and market price 713
a. What’s the correct date for measuring market price?
1. the date is when the buyer learned of the breach (not
time of tender). The reason for this is meant to protect a
buyer who doesn’t learn of a breach until after time of
tender might have passed.
b. what about when repudiation occurs before the date of tender
due?
1. There’s some judicial authority for this, but the better
view is to use when buyer learned. Drafters most likely
intended to use “breach” rather than “repudiation.” This
was done because of pre-code cases which led to an
opposite result.
c. What’s the correct place for measuring market price?
1. 713(2) says market price is determined as of the place of
tender, or after goods have arrived, as of the place of
arrival.

27
 d. Cargill v. Stafford: Wheat buying case, 2 separate transactions,
1 valid K.
1. Mooney says this case came out the wrong way. Should
have been a Route D case, not a B or C as court treats it.
207 allows additional terms.
2. Damages under 713: Time to calculate market price is
date when buyer learns of the breach, which is the date for
performance.
i. buyer in a rising market might have a good faith
obligation to cover before the last date for
performance
iv. Buyer’s right to specific performance or replevin - 716
v. Copylease v. Memorex - Inability of Copylease to find adequate
replacement (to “cover”) may present an exception to the bar to recovery
and count as a uniqueness circumstance under 716.
vi. Farmers Elevator v. Lyle: Buyer of corn on an oral K resold the corn
to someone else, based on anticipation of receiving corn from seller. To
make good on that resale, buyer bought two other batches of corn from
two other people.
a. court invoked a modern view of estoppel against statute of
frauds 1-103, and the cover remedy itself under 712, which has a
good faith reasonable requirement on buyer, w/o unreasonable
delay
b. Good faith req see Comment 2, 712. Argument to make to
court in justifying a buyer’s cover is that the buyer should spend
money and make the contract as though it were its own money. If
the cover K is one buyer would have made if seller hadn’t
breached, then go ahead.
vii. 714 - buyer’s damages for breach after accepting goods.
a. Remember an aggrieved buyer has two routes to go down (reject
or revoke and throw back on seller or keep goods and sue).
viii. 715 - ability of non-breaching buyer to recover incidental and
consequential damages
ix. 719 - limitation of remedy
x. Always an argument by seller that it couldn’t foresee kinds of
damages that buyer is now claiming.

28
Choice of Law

The UCC applies to Ks for the sale of goods in excess of $500. All other Ks are subject
to the common law of the state in which they were formed/performed.

Formation

Offer and Acceptance

Whether an offer has been made is judged on an objective standard, i.e. from the
perspective of the hypothetical reasonable person. Advertisements and price quotations
are generally not offers. If a communication is ambiguous, Courts generally look at the
language and surrounding circumstances to determine whether an offer has been made.

R2d 50 defines acceptance as a manifestation of assent to the terms of an offer, in a

manner invited or required by the offer. UCC 2-206 states that unless otherwise
indicated, an offer invites acceptance in any manner reasonable under the circumstances.
The following actions are considered acceptance: express notice, partial performance,
shipment of goods, any method established by the offeror. Preparation for performance,
silence, and non-conforming shipment of goods are generally not acceptance. The power
of acceptance may be terminated by lapse, revocation, death or rejection.

Validation

Consideration is a benefit to the promisor or a detriment to the promisee.

Relinquishment of a legal right is consideration, regardless of whether it is “detriment in
fact”. R2d 79 states that the actual value of the consideration is immaterial, but there is a
growing tendency of policing the fairness of bargains. Past actions generally cannot
serve as consideration, unless enforcing the promise is necessary to prevent injustice.
R2d 86. A return promise may constitute consideration, so long as it is not illusory; i.e. it
actually binds the promisor to something definite.

Reliance can substitute for performance under the doctrine of Promissory Estoppel. A
promise made without consideration may be enforced in order to prevent injustice. R2d
90 holds binding those promises which the promisee should reasonably have expected the
promisee to rely on, if the promisor did in fact rely on it to her detriment.

Formation Defects

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Statute of Frauds
To be enforceable, the following kinds of Ks must be in writing and signed: suretyship,
Ks that cannot be performed within one year, sale of land, sale of goods exceeding $500,
authorization of an agent, and wills. The three main issues in a Statute of Frauds case are
1) whether the statute applies; 2) if it does apply, whether it has been satisfied; and 3)
whether there is any doctrine that will preclude the statute’s application.

Ways to Avoid the Statute of Frauds: Part performance will take a contract outside the
statute of frauds if the performance is consistent with the existence of the alleged
contract. Reliance: the statute is circumvented if reliance is reasonable, foreseeable, and
detrimental. Restitution: An action for restitution is never within the reach of the Stat. of
Frauds b/c it is not an action on a contract. Not covered - a court may decide that a
situation is not covered by the statue at all.

Fraud, Duress and Unconscionability

Lying, cheating, coercion, and otherwise behaving like an asshole during k formation are
not allowed, and will invalidate the k.

Mistake
Mistake is “a belief not in accordance with the facts.” An optimistic but wrong
prediction about the future is not a mistake in k law. If mistake is proven, the k is void
and both parties are relieved of all obligation. Mistakes may be bilateral or unilateral, but
succeeding under unilateral k is much more difficult.

Elements of Mistake

1. A belief not in accordance with the facts

2. Relating to a basic assumption of the k
3. Having a material effect on the k
4. Where no party has assumed the risk. Factors:
a. the language of the k
b. circumstances/custom
c. whether a party treated limited knowledge as sufficient
5. For unilateral mistake, additional requirement:
a. enforcement would be unconscionable OR
b. other party knew of/caused the mistake

K Terms

Steps to K Interpretation:

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 1. First, consider the plain meaning and context of the language.
2. Next, factor in any terms of art, including legal terms and usage of trade.
3. In case of ambiguity, apply the maxims of k interpretation.

Maxims

Ejusdem generis = “of the same kind” A list of items followed by an ‘etc.’ will be construed as
including only things closely similar to the items already listed.

Expressio unis est exclusio alterius = “the inclusion of one thing excludes all others”
Especially relevant to force majeure clauses.

Contra proferentem = Ambiguities in the language will be construed against the party who
drafted the k.

En pari materia = read the different parts of the k as a whole, giving effect to each.

Noscitur a sociis = it is known from its associates

Consistency = words used more than once should be interpreted the same way each time.

Term of Art = words with an established legal or industry meaning should be given that
interpretation.

Handwritten Terms Control = If there are handwritten and typewritten terms that conflict, the
handwritten term is controlling because it is assumed to be a later alteration of a typed term.

Implied Terms
• See Warranties below.
• There is an implied covenant of Good Faith and Fair Dealing in every contract.
• Best Efforts: Implied duty to work as hard for the contracting party as you would
work for any other party you didn’t dislike. OR Market a product as if it were
your product. Mostly applicable in percentage lease or exclusive rights cases.
• A satisfaction clause is read to be objective with respect to utilitarian things, but
subjective with regard to things that require personal taste (such as art).
• In employment law, there is an implied term that allows termination at any time
for any (or no) reason. (Wood’s Rule)

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 Wood’s Rule

If an employment k doesn’t specify the length of employment, the presumption is that

the employment is terminable at will by either party – for good cause, no cause, or
even bad cause. This is the default rule and operates unless the k explicitly states
otherwise.

Exceptions:
1. Public Policy
a. Perjury - employer cannot fire you for refusing to lie.
b. Jury Duty – cannot be fired for fulfilling civic duty.
c. Statutes – cannot be fired for asserting rights under a statute (OSHA,
Title VII, whistleblower, etc.)
2. Good Faith and Fair Dealing
a. Opportunism
b. Rules must be applied evenly.
3. Implied Promise – employer makes some kind of statement that implies that
continued employment is guaranteed.

Warranties

Implied Warranties
Every k for sale of goods includes an implied warranty of merchantability UCC 2-314. If
a seller has reason to know of buyer’s particular purpose for an item, and the buyer relies
on the seller’s judgment that the item is fit for that purpose, then there is an implied
warranty of fitness UCC 2-315. Super Merchants (UCC 2-314) have extra implied
responsibilities.

Warranty of Title
A k for sale of goods includes an implied warranty of title, i.e. that the seller has good
title to the item being sold and it is not stolen. UCC 2-312. If the title is voidable, a good
faith purchaser may obtain good title. R2d §403(1).

Express Warranties
An express warranty is an affirmation of fact or a promise. Mere puffing (“best burgers
in town”) does not constitute a warranty. An express warranty must have some bearing
on the quality of the goods. It will be presumed that the buyer relied on the warranty
when making the purchase; it is the seller’s burden to prove that he did not. UCC 2-313.

Disclaiming Warranties
Implied warranties may be disclaimed, but the disclaimer must be conspicuous. It is very
difficult, if not impossible, to disclaim an express warranty. R2d §316(1)

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Battle of the Forms
An acceptance is effective when dispatched; a rejection or revocation is effective when
rec’d; all else can be deduced from those rules, with two exceptions:
1. The overtaking rejection case
2. The non-overtaking acceptance case.

K of adhesion
Contract of Adhesion: standardized contract drafted and imposed by one party on
another. Contracts of adhesion are not per se unenforceable. They are only
unenforceable if:
• One of the stated terms falls outside of the other party’s stated expectations.
• One of the terms is substantively unduly oppressive or unconscionable.

Parol Evidence Rule

Extrinsic evidence, such as evidence of conversations or negotiations, is not admissible to

add to, vary or contradict the terms of a final, integrated writing. The rule usually comes
into play when a party tries to add or change a term to an established k.

Ways Around the Parol Evidence Rule:

• Depreciation value and consideration already paid are usually exempt from the
PER because they generally do not vary the terms of the k.
• Evidence of formation defects are exempt.
• If clear and convincing evidence shows mutual mistake or a scrivener’s error,
the k may be reformed without regard to the PER.
• PER doesn’t apply to subsequent modifications – only to extrinsic evidence prior
to or contemporaneous to the writing.
• PER does not apply to oral ks or un-integrated writings.

Integration

Complete integration = parties agree that writing is a complete, exclusive statement

of the k, in which all terms have been formalized. PER is in full effect – no extrinsic
evidence can be used to add or vary a term.

Partial Integration = some terms have been formalized, some have not. PER applies
to the formalized terms, but more terms may be added.

No Integration = no writing has been adopted as a final expression of any term.

PER does not apply.

Parol Evidence Rule and the UCC

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UCC does not have a PER per se, but does deal with issues in a similar way. Under UCC
§2-202, these things will always be allowed as evidence of a k’s terms, regardless of
integration:
1. Course of performance = how parties behaved under the k; what their actions
indicated about the interpretation of the k.
2. Course of Dealing
3. Usage of Trade

Conditions

A condition is an event which is not certain to occur, which must occur (unless it is
excused) in order to activate an existing contractual duty.

Kinds of conditions:

1. Express – stated outright in k

2. Implied in Fact
3. Constructive – will be read in by the court

Interpreting Conditions
A party seeking a performance might ask the other party to undertake a duty to render
that performance, might make its own performance conditional on the other party
rendering that performance, or might do both. If it is unclear whether a term should be
considered a condition or a promise, the court will generally err on the side of a promise
in order to avoid forfeiture. If a duty, the breaching party still pays damages and makes
the other party whole, if a condition, cancels entire contract (potentially very harsh).
Courts have a strong preference to avoid forfeiture – even if the drafter has taken pains to
make clear that forfeiture is intended, R2d §229 states that a condition may be excused to
avoid “disproportionate forfeiture.”

Constructive Conditions of Exchange

The commitments exchanged by the parties can be “dependant covenants”, that is, one
party’s duty to perform is an implied condition of the other party’s duty to pay. A party’s
failure to perform not only puts that party in breach, it excuses the other party from
performing their duty.

Precedent, Subsequent, and concurrent Conditions

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Concurrent conditions are those that must occur at the same time, such as in dependant
covenants – for example, payment and delivery being required to happen at the same
time. A condition precedent, once satisfied, makes a contractual obligation spring into
existence. A condition subsequent is like a condition precedent, but it activates an
existing contractual obligation. If I am approved for a mortgage, I will buy your house =
precedent. I will buy your house, but I must first be approved for a mortgage =
subsequent. Snierson says not to worry much about the difference between precedent and
subsequent - both shift burden to perform from one party to another.

Mitigating Conditions
The harsh effect of a non-occurrence of a condition can be mitigated in these ways:
1. Prevention: If you prevent a condition from occurring in order to avoid
performing your duty, you cannot escape your duty by arguing that the condition
never occurred.
2. Waiver: the parties may agree that performance will still happen even if the
condition does not occur or is delayed.
a. Estoppel: A party that has waived a condition may retract that waiver
before the time when the condition was to occur, unless the other party has
not substantially relied on the waiver. However, a waiver that occurred
after a condition was due cannot be retracted.
3. Election: when a condition has not occurred, a party may choose to perform
regardless, or may choose to cancel the k altogether. This choice is binding, even
without reliance by the other party.

Time For Performance

Parties may designate the time for performance, but if K is silent, default rules will apply.
the most common default rule:

The doing must take place before the giving.

Concurrent Conditions and Tender

If performance by both parties was supposed to occur at the same time, and one party
does not perform, the other party may sue only if they have performed or were ready to
perform. In a K for sale of goods, delivery and payment are concurrent conditions.
Tender of delivery is a condition to the buyer’s duty to accept and pay for the goods, and
tender of payment is a condition to the seller’s duty to deliver. Under the UCC, a check
is sufficient tender of payment, so long as the party tendering the check seems solvent, or
unless the seller demands cash and gives sufficient time for the buyer to procure it.

Nonoccurrence of a Condition

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Nonoccurrence of a condition generally relieves a party of an obligation to perform.
However, if you cause a condition not to occur in order to escape your obligation, you
will be in breach.

Breach
Generally, when a party does not perform, they breach the k and are liable for damages.
However, there are several mitigating doctrines which may relieve the breaching party of
some or all liability.

Suspending Performance and Termination

Sometimes a breach of performance entitles the injured party to suspend their own
performance and/or terminate the K. To determine whether a party may suspend or
terminate, a four part analysis is used:
1. 1. Is there an uncured breach by the other party?
2. Is the breach of a performance upon which the other party’s performance
depends? (Dependant covenants)
3. Was the breached performance supposed to come before the injured party’s
performance?
4. Was the breach material or partial?

Determining materiality is the most difficult step in the analysis, and a number of factors
will be considered, as stated in R2d §241.

Factors of Materiality – R2d §241

1. To what extent will the injured party be deprived of the benefit which he
reasonably expected?
2. To what extent can the inured party be adequately compensated?
3. How severe will the forfeiture of the breaching party be?
4. What is the likelihood of the breaching party curing the breach?
5. Did the breaching party conform with standards of good faith and fair
dealing?

Suspension and Termination, Cont.

If the breach is determined to be partial, then the injured party may not suspend or
terminate, and must continue to perform under the k. However, the injured party will be
entitled to damages. If the breach is material, the injured party has the choice either to
terminate the k or to treat the breach as partial and continue to perform.

Snierson Says: A prudent party will treat a breach as partial because if the injured
party treats the breach as material and terminates, and the court later determines that the

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breach was partial, the injured party will then be in breach. Treating a breach as material
may be a costly gamble.

Hindrance and Prevention

When one party prevents the other from performing, the non-performing party is excused.
Sometimes, simply hindering the other party from performing will have the same effect.
In many situations, a party has an implied obligation to cooperate with the other party,
and to do whatever is necessary to enable him to perform.

Mitigating nonperformance

Substantial Performance
Substantial performance deals with the case in which the breaching party has finished
performing and the injured party refuses to pay because the performance is defective or
incomplete. If a party’s performance departs from contractual requirements in only
insignificant ways, the party will be considered to have substantially performed, and will
be entitled to payment, less any loss in value caused by the departure from requirements.
This doctrine is most commonly used in construction cases, where a builder has varied in
a minor way from plans or requested materials. Note: if a party willfully and fraudulently
varies from the terms of a k, he cannot benefit from substantial performance. In order to
be considered to be considered substantial, the performance must fulfill several
requirements:

Factors of Substantial Performance

1. Departure from requirements was innocent mistake,

not willful.
2. Harm was minor/trivial.
3. Purpose to be served by the K was fulfilled – owner
got more or less what he bargained for.
4. How much forfeiture would the losing party suffer?
5. Is the breach easily compensated for?

Substantial Performance and the Perfect Tender Rule

In a k for sale of goods, if delivery differs in a more-than-trifling aspect, the buyer can
refuse the goods, claiming breach. However, the UCC softens this by providing that the
breach may be cured if the time for performance has not yet expired. If the buyer has
already accepted the goods, they can only revoke acceptance if the non-conformity
substantially impairs the value of the goods to the buyer.

Installment Ks and Non-Conforming Goods

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If the k is for installments, then non-conformity of one installment does not breach the
entire k unless that non-conformity substantially impairs the value of the entire K.

Divisibility
If a K consists of several distinct items or performances, and the price to be paid is
apportioned to each item, the K will generally held to be severable. Therefore, non-
delivery of a single item will not breach the entire K. However, if the payment is isngle
and entire, then the K must be entire, although it may consist of several distinct and
independent items. Snierson says, “It’s almost like 10,000 mini Ks bundled together, so
with respect to 5800 of those Ks, he performed, and the rest he did not perform”
(referring to Gill v. Johnstown Lumber). Divisibility may be useful when there has been
partial performance, but the performance has been less than substantial.

Restitution
Restitution is another way to mitigate the severe effect of a less than substantial
performance. Rather than holding the breaching party liable for the total value of the k,
the performing party is paid for any work done, but he is liable for any unperformed work
or loss in value. The logic is that the performing party is entitled to restitution for the
benefit he has conferred on the other party. To allow the other party to receive full
damages plus that benefit would be unjust enrichment.

Prospective Nonperformance

Anticipatory Repudiation
Repudiation is a statement of intention not to perform except on conditions which go
beyond the K. In order to constitute repudiation, a party’s language must be sufficiently
positive to be reasonably interpreted to mean that the party will not or cannot perform.

When repudiation is not accompanied by breach because it has happened before the time
for performance has arrived, it is called an “anticipatory repudiation.” When an
anticipatory repudiation occurs, the party receiving the repudiation is not required to
begin to “cover” until the time for performance comes about. The party receiving the
repudiation does not have to wait until the time for performance to sue, but he must allow
the repudiating party a little time to reconsider.

Exception for One-Sided Contracts

If one party has fully performed and the only duty remaining is the payment of
installments, non-payment of one installment cannot be treated as a repudiation of the
entire K.

Responses to Repudiation

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The recipient of repudiation can choose to treat the repudiation as breach or not. If the
recipient disregards the repudiation, the rights of the parties may be determined as if the k
had been ended, or as if the repudiation had never occurred, depending on the case and
the court. The modern view is that the recipient of a repudiation may urge its retraction
without becoming committed to further performance if it is not retracted. See UCC 2-
610(b), R2d § 257.

Retraction of Repudiation
The repudiator has the power to retract prior to any change of position by the other party,
but not afterwards. All that is required to close the door to retraction is definite action
indicating that the anticipatory breach has been accepted as final. This definite action
may be either filing of a suit or a firm declaration that unless within a fixed time the
breach is repudiated, it will be accepted. Under UCC 2-611 and R2d §256, it is enough
that the aggrieved party has indicated that he considers the repudiation final – no step in
reliance is needed. This is in the interest of creating certainty for the injured party.

Assurance of Due Performance

The UCC, under certain circumstances, gives extra rights to the party who fears a breach
may occur. Under the common law, a party had no right to demand reassurance that the
other party would perform. However, the UCC and R2d create an exception – when an
obligee reasonably believes that the obligor will commit a breach, he may be entitled
to demand assurance of performance. (UCC 2-609, R2d §251) This exception is most
often used when a seller has promised to supply goods for later payment, and it appears
that the buyer is in financial distress. Usually, the demand for assurances must be in
writing; however, an oral demand may suffice so long as the demand provides a “clear
understanding” of the insecure party’s intent to suspend performance until adequate
assurances are provided. However, UCC 2-609 does not give the alarmed party the right
to redraft the k.

On rare occasions, a party may be excused from a k obligation if an obstacle arises that
was not taken into account at the time of formation. If the obstacle existed when the k
was made, but was not known to the parties, then mistake may excuse non-performance
(see Formation Defects). If, however, an unforeseeable event occurs after the k is made
and impedes performance, impracticability may apply. Similarly, if a turn of events has
thwarted a party’s object in making the k, frustration of purpose may relieve the party’s
obligations.

Impossibility and Impracticability

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 If an unforeseeable event occurs after the k is made and impedes performance,
impracticability excuse nonperformance.

3 Requirements of Impracticability
1. Something unexpected must have occurred.
2. The risk of the unexpected occurrence must not have been allocated either by agreement or custom.
3. Occurrence of the contingency must have rendered performance commercially impracticable.

Frustration of Purpose

Performance remains possible but the expected value of performance to the party seeking
to be excused has been destroyed by an unforseen event. Frustration of purpose has a
high threshold, like impracticability. If you can get any other use from the k, you
probably will not succeed in escaping the k. Biggest difference between mistake and
frustration of purpose is that mistake happens at the time the k is formed, whereas with
frustration, everything is fine at the time of k formation, but later events cause the
problem.

Elements of Frustration

1. An unexpected contingency
2. Affecting a basic assumption of the K
3. Completely/mostly frustrating a party’s purpose
4. No assumption of risk by the party seeking to escape K

Factors Indicating Assumption of Risk

1. The language of the K
2. Circumstances and Custom
3. Whether a party treated limited knowledge as sufficient.

Remedies for breach fit into two broad categories: equitable and substitutive. Equitable
damages include injunction and specific performance, and are rarely awarded.
Substitutive relief is money damages, and is the default. There are three interests that
remedies serve: expectation, reliance, and restitution.

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Specific Performance
Specific performance = actually getting what you k’d for. Courts are reluctant to grant
specific performance, especially when performance of a service is the relief requested
because it would be difficult to supervise, and because there is a danger of creating
involuntary servitude. Specific performance is available only when money damages
would not sufficiently compensate the injured party; i.e. when there is something so
unique and individual about the k’s object that a replacement could not be purchased.
One area where specific relief is common is in k’s for real estate, as all land is considered
unique. SP may also be considered appropriate where determining an amount of money
damages would be costly and inaccurate.
Expectation Interest
This looks to put the injured party in the position he would have occupied had there been
no breach. This involves considering the estimated costs and benefits created by the K.
The general rule is that sentimental or fanciful values will not be compensated – only
values that can be proven with sufficient definiteness may be recovered.

Ways Breach May Affect the Injured Party

(Damages Variables)

Loss in Value: deprivation of the expected return performance (what should have
been received less what, if anything, was actually received).

Other Loss: loss of anything other than expected return; physical damage to person
or property, expenses incurred in an attempt to salvage the transaction.

Cost Avoided: a beneficial effect where the injured party is saved additional expense
that continued performance would have incurred.

Loss Avoided: a beneficial effect where the injured party is able to avoid some loss
by salvaging and reallocating resources that would have been devoted to
performance.

The Formulas

Formula A

Damages = loss in value + other loss – cost avoided – loss avoided

Formula B

Damages = cost of reliance + profit – loss avoided + other loss

Reliance

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Reliance compensates the amount actually lost by relying on the promise of the K. It is
generally easier to determine than expectation damages, but is usually less than
expectation damages.

Restitution
Looks to correct an unfairness, such as unjust enrichment. See Mitigating
Nonperformance above.

Lost Volume Sellers

If the seller could have made more product and sold it in the time that was spent
dickering with a buyer who breaches, the seller can get lost profits for the goods that they
could have made and sold in that time, regardless of whether or not the seller was able to
sell the goods intended for the buyer to someone else.

Losing Ks
Reliance damages cannot be greater than expectation damages. If a party was going to
lose money on a K, that loss will be taken into account when damages are awarded.

Limitations on Damages

Avoidability – The Duty to Cover

An injured party is not allowed to recover for loss that it could reasonably have avoided.
Where there is a market for goods, a buyer’s damages are based on the assumption that
the buyer could reasonably have avoided greater loss by obtaining substitute goods on the
market. If the injured party has “covered”, they may recover the difference between the
cost of the cover goods and the k price, plus incidental or consequential damages. UCC
2-713. If a party fails to cover, its damages will still be based on the difference between
market price and K price. However, a party is not required to cover by purchasing
different or inferior goods.

An Exception to the Avoidability Rule

Manufacturers may complete manufacture of goods upon the buyer’s repudiation if to do
so would avoid more loss than halting manufacture based on a “reasonable commercial
judgment”. UCC 2-704(2). The rationale is that the goods may be resold to another
buyer. Recovery can be based on the goods as completed, even if the “reasonable
commercial judgment” turned out to be wrong.

Efficient Breach and Cost to Remedy Defect

When performance of a contractual duty would be much more expensive than the value
such performance would produce, a party may choose to breach and pay the difference in
market value. Some courts will allow this, especially if provision breached is incidental
to the main purpose of the k. Others will not, feeling that to do so would be to reward
bad faith and deliberate breach of K.

Foreseeability

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Only foreseeable damages, i.e. those reasonably within the contemplation of the parties at
the time of k, may be recovered. Unforeseeable consequential damages can not be
recovered. The parties don’t have to foresee the exact mechanism of the damage, just the
general kind of damage that might occur. Emotional distress damages arising from a
breach of k are usually not allowed, as emotional distress is usually not foreseeable, and
is difficult to measure in monetary terms.

Certainty
A plaintiff must be able to prove damages with “reasonable certainty”, i.e. they must be
shown by clear and satisfactory evidence. There are several methods that may be used to
prove business losses.

Methods to Prove Lost Profits

1. Yardstick comparison with profits of similar businesses.

2. Profit history of plaintiff’s predecessor or successor.
3. Comparison with similar businesses owned by the plaintiff.
4. Use of economic and financial data and expert testimony.

Liquidated Damages and Penalties

Liquidated damages are an amount stipulated in a k that will be paid in event of a breach.
While liquidated damages may be a convenient method of assessing damages to speed
the litigation process, their real purpose may sometimes be to scare the other party into
performing. Drafters must take care that a liquidated damages amount is based on
estimated actual damages; purely punitive damages are not allowed. Liquidated damages
are somewhat disfavored, but will be upheld if at the time the K was made, it appeared
that damages would be difficult or impossible to estimate, and that the amount bears a
reasonable relation to probable damages.

Second Look Rule

Under UCC 2-718, damages may be a reasonable estimate at the time of k formation, or a
reasonable approximation of actual damages at the time of breach.

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Third Party Beneficiaries
When a K is made with the intent to benefit a person not a party to the K, that person has
the right to sue under the K. A third party beneficiary is created at the time of K
formation.

Third Parties Under Restatement 1st

Donee Beneficiary: Purpose of the K was to make a gift to the third party either of
money or of performance under the K.

Creditor Beneficiary: Purpose of the K is to satisfy a debt owed by a party to the

third party.

Incidental Beneficiary: K did not intend to benefit third party, any benefit would
be accidental. This party has no rights under the K.

Assignment
Assignment is the present unilateral transfer of rights under a K to a third party. Very
specific language is needed to create an assignment. “I hereby assign” works. “I will
transfer” or “please pay x” does not create an assignment. Assignment happens after k
formation, may be written or not, and may be for consideration. Gift assignments are
generally revocable. R2d §317, UCC 2-210

Delegation
The transfer of an obligation to perform a duty or condition under a k to a third party.
Most duties may be delegated, unless the other party has a strong interest in having a
particular person perform the duty. However, a delegation does not relieve the obligation
of the delegating party. If the third party fails to perform, the original party must. R2d
§318, UCC 2-210

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