Contents

Performance..............................................................................................................3
Jacob & Youngs v. Kent (Reading Pipe) – Idiosyncratic party ................................................................... 4
Stees v. Leonard (Building in quicksand) – Allocating Risks ..................................................................... 4
Taylor v. Caldwell (Music hall fire) – Excuse for nonperformance ........................................................... 5

Remedies for Nonperformance.................................................................................6

Freund (Professor’s book publishing) -Compensation ............................................................................. 6
Klein v. Pepsi Co (CEO reneging plane sale) – Specific Performance ....................................................... 6
Hadley (Mill crank) – Limitations on Compensation................................................................................ 7

Consideration............................................................................................................8
Hamer (Stop nephew smoking) - Bargain................................................................................................ 8
Kirksey (Widow come stay) - Gift............................................................................................................. 8
St. Peter (Theatre raffle) – Illegal Lottery or Award................................................................................. 9
In re Greene (Mistress blackmail) – Blackmail or K.................................................................................. 9
Batsakis (Loan during wartime) – Adequacy............................................................................................ 9
Wolford (name your kid) - Adequacy....................................................................................................... 9

Promissory Estoppel................................................................................................10
Haase (Sister-in-laws in will) – Intrafamily Promises............................................................................. 10
Ricketts (Don’t work granddaughter).................................................................................................... 10
Feinberg (board offers pension) –Promises during employment .......................................................... 10
Hayes (pension “taken care of”)............................................................................................................ 10

Offer.........................................................................................................................11
Bailey (Sent back lame horse)................................................................................................................ 11
Zehmer (Drunken land sale).................................................................................................................. 11
PepsiCo (Pepsi points Jet)...................................................................................................................... 11
McWane (Faxed PO&waiver)................................................................................................................. 11
Lefkowitz ($1 women’s coats)............................................................................................................... 11

Acceptance..............................................................................................................12
Ever-Tite Roofing (loaded trucks) –method of acceptance .................................................................... 12
 Ciaramella v. Reader's Digest (Settlement w/o consulting client)......................................................... 12
Pavel (sub-bidder mistake) – Revocation of offer.................................................................................. 12

Battle of the Forms..................................................................................................13

Dataserv (volatile comp equip).............................................................................................................. 13
Ionics v. Elmwood (small print thermometer waiver) ........................................................................... 13
Step-Saver v. Wyse (box-top waiver)..................................................................................................... 14
Hill v. Gateway 2000 (box-top K)........................................................................................................... 14

Statute of Frauds.....................................................................................................14
McIntosh (job in Hawaii)........................................................................................................................ 14
Schwedes (House phone sale)............................................................................................................... 14
Monetti (2 unsigned memos=K)............................................................................................................ 15

Preliminary Negotiations.........................................................................................15
Coley (Govt Bids using company’s name).............................................................................................. 15
Hoffman v. Red Owl (inexperienced franchisee)................................................................................... 15

Indefinite Promises and Open Terms......................................................................15

Varney v. Ditmars (“fair share” to employee)........................................................................................ 15
Curtis v. Matthews (no price in K).......................................................................................................... 15
Mooney problem p. 297 (Miltary squash player).................................................................................. 16

Binding Preliminary Agreements.............................................................................16

Brown v. Cara (Rezoning parking lot)..................................................................................................... 16

Requirement Ks and Impracticability......................................................................17

Eastern Air Lines v. Gulf Oil (single index & fuel freighting) ................................................................... 17
Empire Gas v. American Bakeries (zero propane purchase).................................................................. 17

Exclusive Dealings....................................................................................................18
Wood v. Lucy (getting endorsement deals herself)............................................................................... 18
Bloor v. Falstaff Brewing Corp (“good efforts” to sell beer) ................................................................... 18

Mistaken Beliefs about Facts...................................................................................18

ALCOA v. Essex (Greenspan’s flawed index).......................................................................................... 18
Atlas Corp. v. U.S. (p. 745) (govt’s radioactive land sale)....................................................................... 19

Modification of existing Ks......................................................................................19

 Alaska Packers (fishermen’s bad net).................................................................................................... 19

Misrepresentation...................................................................................................19
Speiss v. Brandt (crappy resort)............................................................................................................. 19
Danann Realty (K’ing around fraud)...................................................................................................... 20

Disclosure and Concealment...................................................................................20

Laidlaw v. Organ (Buying tobacco after 1812)....................................................................................... 20
Strong v. Rapide (Selling govt land in Philippines)................................................................................. 20
Obde (hidden termites)......................................................................................................................... 20
Reed v. King (Murder House)................................................................................................................. 21
Jordan v. Duff (employee/shareholder)................................................................................................. 21

Interpretation of Terms - Parole Evidence..............................................................21

Columbia Nitrogen (phosphate market tanks)...................................................................................... 21
Southern Concrete v. Mableton Contractors (quantity not ambiguous) .............................................. 22

Applying concepts: Corporations cases...................................................................22

Sharon Steel v. Chase Manhattan Bank................................................................................................. 22
Met Life v. RJR Nabisco.......................................................................................................................... 23
Katz v. Oak Industries............................................................................................................................ 23
Morgan Stanley v. Archer Daniels.......................................................................................................... 23

Unconscionability (Limits on Enforcement)............................................................24

Williams I & II (unconscionable furniture payments) ............................................................................. 24

Performance
 
 R2d 237: Effect On Other Party's Duties Of A Failure To Render Performance:
Except as stated in § 240, it is a condition of each party's remaining duties to render performances
to be exchanged under an exchange of promises that there be no uncured material failure by the
other party to render any such performance due at an earlier time.
 
 R2d 241 - Circumstances Significant In Determining Whether A Failure Is Material:
In determining whether a failure to render or to offer performance is material, the following
circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably
expected;
 (b) the extent to which the injured party can be adequately compensated for the part of that benefit
of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports
with standards of good faith and fair dealing.
 
 UCC § 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.
 

Jacob & Youngs v. Kent (Reading Pipe) – Idiosyncratic party

o K says install Reading pipe only. Constructor installs non-Reading (practically identical)
pipe. Homeowner refuses to pay remaining balance, Constructor sues for the balance.
o Ct (Cardozo) says before granting specific performance we must weigh:
1. Purpose to be served
 Install with virtually identical pipe.
2. Desire to be gratified
 Follow exact terms of K.
3. Excuse for deviation from the K
 Oversight, figured it was the same to him.
4. Cruelty of enforced adherence
 Would cost a LOT of money for negligible change.
5. Intentional lack of performance or negligent oversight?
 Negligent
 Ct sides with constructor; idiosyncratic party must make their idiosyncrasies
clear.

Stees v. Leonard (Building in quicksand) – Allocating Risks

o D constructing building for P, sank into wet soil twice, refused to build the 3rd time, P
sues.
o Ct: Where a party contracts to undertake a duty that is possible (here it would be very
difficult, but possible), short of an act of God, the law, or the other party to the contract, he
must perform.
 
 R2d § 261- Discharge By Supervening Impracticability
Where, after a contract is made, a party's performance is made impracticable without his fault by
the occurrence of an event the non-occurrence of which was a basic assumption on which the
contract was made, his duty to render that performance is discharged, unless the language or the
circumstances indicate the contrary.
 R2d § 263 - Destruction, Deterioration Or Failure To Come Into Existence Of Thing Necessary
For Performance
 If the existence of a specific thing is necessary for the performance of a duty, its failure to come
into existence, destruction, or such deterioration as makes performance impracticable is an event
the non-occurrence of which was a basic assumption on which the contract was made.
 

Taylor v. Caldwell (Music hall fire) – Excuse for nonperformance

o K agrees to rent out music hall. Fire burns down with no one at fault. Who takes the loss
for cancelling concert?
o Ct: performers take loss, if performing at that specific music hall was idiosyncratically so
important, they should have negotiated for it.
 
 R2d § 344. Purposes Of Remedies
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the
following interests of a promisee:
(a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put
in as good a position as he would have been in had the contract been performed,
(b) his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not been
made, or
(c) his “restitution interest,” which is his interest in having restored to him any benefit that he has
conferred on the other party.
 R2d § 347. Measure Of Damages In General
Link to Case Citations
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.
 § 349. Damages Based On Reliance Interest
As an alternative to the measure of damages stated in § 347, the injured party has a right to
damages based on his reliance interest, including expenditures made in preparation for
performance or in performance, less any loss that the party in breach can prove with reasonable
certainty the injured party would have suffered had the contract been performed.
 § 359. Effect Of Adequacy Of Damages
(1) Specific performance or an injunction will not be ordered if damages would be adequate to
protect the expectation interest of the injured party.
(2) The adequacy of the damage remedy for failure to render one part of the performance due does
not preclude specific performance or injunction as to the contract as a whole.
(3) Specific performance or an injunction will not be refused merely because there is a remedy for
breach other than damages, but such a remedy may be considered in exercising discretion under the
rule stated in § 357.
 § 360. Factors Affecting Adequacy Of Damages
Link to Case Citations
In determining whether the remedy in damages would be adequate, the following circumstances
are significant:
(a) the difficulty of proving damages with reasonable certainty,
(b) the difficulty of procuring a suitable substitute performance by means of money awarded as
damages, and
(c) the likelihood that an award of damages could not be collected.
  § 371. Measure Of Restitution Interest
Link to Case Citations
If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be
measured by either
(a) the reasonable value to the other party of what he received in terms of what it would have cost
him to obtain it from a person in the claimant's position, or
(b) the extent to which the other party's property has been increased in value or his other interests
advanced.
 

Remedies for Nonperformance

Freund (Professor’s book publishing) -Compensation
o Professor agrees K with publisher to publish his book, includes $2k advance, royalties
and agreement to print hardcover within 60 days followed by paper back. Publisher merges,
reneges. P sues for specific performance, royalty lost and reputational costs.
o Ct: No evidence of royalties lost (speculative), reputational costs (intangible and
unproven -- he was still eventually promoted) and no specific performance issued. Also at
likely at play: If its not worth it to them to print, it's probably worth very little and thus
royalties would be very little. But did he give consideration by not shopping it around to
other places?

Klein v. Pepsi Co (CEO reneging plane sale) – Specific Performance

o wants to buy plane, middle man negotiates price, CEO reneges on deal, P sues for
specific performance.
o Ct: money damages would make P whole, jet not that unique to require specific
performance.
 
 
 § 351. Unforeseeability And Related Limitations On Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a
probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in
breach had reason to know.
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by
allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the
circumstances justice so requires in order to avoid disproportionate compensation.
 
 § 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.
 

Hadley (Mill crank) – Limitations on Compensation

o Mill's crank breaks, take it to courier, try to get it sent quickly, it is negligently delayed,
mill sues for lost profits.
o Ct: crank could have been needing fixing under other circumstances (e.g. there's a spare),
mill should have revealed its idiosyncratic needs if it wanted damages, perhaps paid extra for
insurance.
 
 
 § 71. Requirement Of Exchange; Types Of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for
his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It
may be given by the promisee or by some other person.
 § 73. Performance Of Legal Duty
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest
dispute is not consideration; but a similar performance is consideration if it differs from what was
required by the duty in a way which reflects more than a pretense of bargain.
 § 74. Settlement Of Claims
1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not
consideration unless
(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined
to be valid.
(2) The execution of a written instrument surrendering a claim or defense by one who is under no
duty to execute it is consideration if the execution of the written instrument is bargained for even
though he is not asserting the claim or defense and believes that no valid claim or defense exists.
 § 79. Adequacy Of Consideration; Mutuality Of Obligation
If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
§ 81. Consideration As Motive Or Inducing Cause
(1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being consideration for the promise.
(2) The fact that a promise does not of itself induce a performance or return promise does not
prevent the performance or return promise from being consideration for the promise.
Consideration
 

Hamer (Stop nephew smoking) - Bargain

o Uncle promises son $5k if he stops vices until 21. He does, asks for money, uncle says
wait, uncle dies, estate has creditors, nephew sues for the 5k, creditors say no consideration
was given because nephew was not harmed, only benefited. Therefore it was an
unenforceable gift not a K.
o Ct.: Nephew gave up a legal right, that is consideration.

Kirksey (Widow come stay) - Gift

o Widow w/ children living on public land, brother in law writes letter offering a place to
stay and raise family and keep him company. Widow abandons her APing land moves in 60
miles awa, 2 years later he tells her to move to the forest out back and the eventually to move
out altogether.
o Ct: offer to stay was mere gratuity, no consideration. But didn't she give up her tacking
rights on the AP land? And the hardship in moving? Yes it was detrimental reliance and she
got screwed by the jerk, but its still not a K. You can't contract for "company."

St. Peter (Theatre raffle) – Illegal Lottery or Award

o P go to theatre where D is doing raffle w/ no purchase necessary, announce prize, P wins,
D ducks out and P is unable to collect in time. D argues no consideration given by P or in
the alternative, if there was consideration, it was a lottery and therefore illegal and
unenforceable.
o Ct: Consideration was showing up (which the theatre wanted), and showing up is not the
immoral behavior lotteries seek to discourage (gambling money is).

In re Greene (Mistress blackmail) – Blackmail or K

o Bankrupt guy has affair with woman, signs K after realtionship was over agreeing to
$1k/month alimony, $100k life insurance, 4 yrs rent, and sealed it with consideration of: $1
cash, release of all potential claims, and "other good and valuable consideration." He dies,
creditors deny her claim saying invalid K.
o Ct: $1 too nominal, claims against him = zero, "other good and valuable consideration" =
too vague à no K. Possibly what's really going on is K for blackmail and court can't enforce
K for illegal activities.

Batsakis (Loan during wartime) – Adequacy

o During time of great need, D agreed to pay P $2000 at 8%/yr in future for $25 in Greek
currency right then. P later sued for the money.
o Ct: $25 is some consideration, not nominal. Valid K, court will look into whether there
was consideration vs. no consideration, but not whether consideration was a fair amount.

Wolford (name your kid) - Adequacy

o D told P that if he would name his son Charles Lehman Wolford he “would make the
child’s welfare his chief object in life, and provide for it generously and give it a good
education”. D did name his child accordingly and rendered other services to Lehman such as
caring for him when he was sick. Lehman signed a promissory note in the amount of $10,000
 to care for the child and passed away shortly thereafter. Creditors of estate say no
consideration, not valid K.
o Ct: naming the child is valuable consideration, again does not go into whether it was
"fair." consideration. Agreed though that care while he was sick was past consideration and
not valid in the K.
 
 § 90. Promise Reasonably Inducing Action Or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the
part of the promisee or a third person and which does induce such action or forbearance is binding
if injustice can be avoided only by enforcement of the promise. The remedy granted for breach
may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without
proof that the promise induced action or forbearance.

Promissory Estoppel
Haase (Sister-in-laws in will) – Intrafamily Promises
o Husband agrees to give money to sisters from soon-to-be-acquired estate. He dies before
he gets the estate and what he has automatically goes to his wife. Wife agrees to give some
money to sister-in-laws. On what she thought was her death/sickbed, she revealed that her
husband had actually planned to give more and she would do that. She did for a few months
before the recipient asked for a promissory note on the balance. At this request D refused to
pay any more (likely offended at request). P then sued for the balance.
o Ct: No consideration, no reliance
 But may she had relied by taking out a loan
 But almost any promise leads to some sort of reliance.
 Possibly example of intra-family promises not being enforced.
 

Ricketts (Don’t work granddaughter)

o Grandfather promises money to grandaughter, saying he doesn’t want any of his
grandchildrent o have to work. She quits her job, then gets another a year later with his
permission. He dies before finishing the gift.
o Ct: promisor intended for it to be legally binding, she did give up job for a year, promisor
never changed his mind while alive even though she worked. Not intra-family dispute.
 

Feinberg (board offers pension) –Promises during employment

o Company's board promised P to give P $200/mo pension for life. New company takes
over and reduces it to $100 saying she didn’t give any compensation.
o Ct: valid K.
 Fact that it was a board meeting shows legal significant of the act and also that it
probably was not meant as a mere gratuity as that would have been a violation toward
shareholders.
Hayes (pension “taken care of”)
o P worked for D for 25 yrs, announced retirement 6 months out, 1 week before he talked
with a manager (who didn't have the authority to approve pensions) who told him he would
be "taken care of."
 Ct: Promise was vague and not given by person with authority. No K.
 
 § 22. Mode Of Assent: Offer And Acceptance
(1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or
proposal by one party followed by an acceptance by the other party or parties.
(2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be
identified and even though the moment of formation cannot be determined.
 § 24. Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is invited and will conclude it.
 § 26. Preliminary Negotiations
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is
addressed knows or has reason to know that the person making it does not intend to conclude a
bargain until he has made a further manifestation of assent.

Offer
Bailey (Sent back lame horse)
o F: D sends back lame horse, seller refuses, delivery guy calls D who says he won't pay
for any upkeep, do whatever. Delivery guy takes it to stable who keeps it for 4 years and
bills D for it.
o Ct: that was P's choice, no actions by D imply a contract, not a meeting of the minds.

Zehmer (Drunken land sale)

o Drunk agreement to sell land as hilarious "joke."
o Ct: its about what one side reasonably infers by the actions, not what the idiosyncratic
party does. If you are an idiosyncratic party, you have to let the other side know your
idiosyncracies.
 

PepsiCo (Pepsi points Jet)

o Commercial featuring sunglasses, hat and…..a harrier jet for purchase with pepsi points
o Ct: clearly unreasonable contract that a reasonable person would know it was not an
actual offer. No real reliance, no social benefit in enforcing this K.
 

McWane (Faxed PO&waiver)

o P prepares bid, gets quotes from sub-contractor D who faxes quote with "Estimate" along
the top and "please call." P calls to order. D fedexes materials w/ purchase order and
liability release. P says purchase order never arrived and D faxes it over w/o liability release
on reverse side. When was offer made? Before or after purchase order w/ liability release
was sent?
 o Ct: "Estimate" is a magic word showing it is an invitation to negotiate, not an offer.
Also, hypothetical bargain would have been liability release...but why is necessarily the case
that P would have agreed to it?

Lefkowitz ($1 women’s coats)

o D posted newspaper advertisement offered fur coats for $1 to the first three customers on
two subsequent weeks. Both times, the plaintiff was the first in line, with $1, but the
defendant refused to sell the coats because the “house rule” was that the offer was intended
for a woman.
 Newspaper ad may be construed as an offer, acceptance of which would
constitute a K.
 Consideration was getting people to arrive at his store early in droves.
 Ad had no gender restriction.
 Offer may be modified before acceptance, not after.
 
R2d Sections 30, 32, 35, 36, 42, 50, 54, 56

Acceptance
Ever-Tite Roofing (loaded trucks) –method of acceptance
o K written up for roofing job for D. K said K was executed upon commencing authorized
signing or performance of the work. P signed by unauthorized representative. P wanted to
do credit check on buyers first. Credit check goes through, they load up the trucks and got to
house the next day, find other crew already working on it.
o Could you think of this case in terms of reliance (promissory estoppel, even though that
is generally to be avoided -- ironically you shouldn't rely on promissory estoppel)
 

Ciaramella v. Reader's Digest (Settlement w/o consulting client)

o P alleged employee discrimination. Settlement orally agreed to b/w D and P's lawyer. P
doesn't like settlement, P's lawyer drops out, P can't find new lawyer before it goes before
trial court who rules to enforce settlement and dismiss case.
o Ct: 4-factor test for determining whether there was a K before it was signed.
 Express reservation? (probably dispositive)
 A form of contracting around the default rule (whatever that may be)
 Partial Performance?
 All terms agreed upon or left open for negotiation?
 Type of K that is usually not finalized until signed?
 But does this show that they have lots of Ks that they just don't sign or
rather that they don't like to obligate themselves into Ks?
 Example of Hollywood studios who never like to sign things but they otherwise
appear to be valid Ks.
 
R2d Sections 25, 36, 38, 45, 87
UCC 2-205
Pavel (sub-bidder mistake) – Revocation of offer
o PEI seeks sub-bids for job, Johnson gives quote, PEI submits bid, wins it, PEI asks
subbidders to review their bids and separate costs, Johnson finds mistake in bid and wants to
withdraw, PEI says no and accepts general contract 4 weeks later.
 General contractor could have contracted for a binding K by offering payment to
make the subK binding.
 CL only bound gen K'ers, not subK'ers. Latter's was just an offer with could be
drawn, not a unilateral K.
 Restatement: both bound to higher ups. Gen K'ers reliance is consideration so
that subK'er is estopped from withdrawing for a reasonable time.

Battle of the Forms

Dataserv (volatile comp equip)
o Dataserv wants to sell $100k worth of computer equipment to Technology
Timeline:
8/30- Proposal generally agree upon
9/2 - Dataserv sends over K
10/1 - Technology doesn't agree w/ 3 terms including cause 8
10/later - Dataserv says we'll change 2 of those terms, but cause 8 still in controversy
11/8 - Dataserv says they will remove clause 8, but Technology says "too late"
Possible interpretations:
o Each response is a new offer
o All part of negotiation, once Dataserv gets rid of clauses, K is binding
o Ct: Approach #2
o Possibly because price is so volatile that we don't want to give one side an
advantage to grab hold of when the price is most to their advantage.
o UCC 2-207 seems to favor Approach 2. key must have been the price volatility.
 
 

Ionics v. Elmwood (small print thermometer waiver)

o Elmwood (D) makes thermostats. Ionics (P) makes water dispensers. Ionics, on 3
occasions, purchased thermostats from Elmwood. Each time Ionics made a purchase, they
sent Elmwood a purchase order which contained some conditions. After receiving the PO,
Elmwood would send a letter that looked a lot like an acceptance letter but purported to be,
in the small technical writing, a "counteroffer" and limiting Elmwood’s liability (particularly
for lost profits) if there were problems. Ionics then had many problems with the thermostats
and is suing Elmwood.
o Competing default rules -- UCC has fairly generous liability for manufacturers
o Key issue is that form from D says both "notice of acceptance" AND "this is a
counteroffer"
o ?Ionic wins battle of forms because it had the last form that was "accepted" by
the other party?
 
Step-Saver v. Wyse (box-top waiver)
o Step-saver (buyer) contacts TSL (dismissed D, producer)
o P order programs over phone, discuss price, quantity & shipment terms.
o Product arrives with box-top license saying "open only if you agree to these terms..."
including limited warranty (what the suit is over) and non-transferable license (when both
parties knew that transferring was always the intended purpose).
o D argues: there was no "battle of the forms" there was only one, the K we put on the box.
o Ct says that the phone conversation consisting of price, quantity & shipping was a K.
The box-top license was superfluous, meaningless and non-binding. Goes through UCC 2-
207 each of the 3 subsections.
 

Hill v. Gateway 2000 (box-top K)

 
o List of terms inside the box saying "accept or return in 30 days."
o Ct here says that price, quantity & shipping did NOT make for a K.
o Ct justifies that terms in box did not solely benefit Gateway (included warranty)
Hypothetical bargain is that if you want this cheap computer in this highly competitive
market, it’s a take-it-or-leave-it K.
 
 Gateway and Step-Saver very different approaches to what we envision as a K.

Statute of Frauds

R2d Sections 131, UCC 2-201

McIntosh (job in Hawaii)

o Guy from LA, orally offered a job in Hawaii for a year, moves out there, works for a
couple months, sucks at his job, fired, sues for remainder of year wages.
o Ct: TC mangled the statute of frauds, but in the interest of equity we're going to protect
the employee. He incurred significant expenses. Rules K was for a year (Are they just
making this figure up to fit the maximum under the statute of frauds?)

Schwedes (House phone sale)

o Sent letter offering land, Schwedes agree for 60k, finalizing date keeps getting postponed
until 3 days before deadline, sold for 64k to someone else.
o Ct: No dispute that there was a K, just that it wasn't in writing. Seems unfair, purpose of
fraud statute is to prevent fraudulent Ks. BUT no consideration given, no reliance, no
writing, no K.

Monetti (2 unsigned memos=K)

o Manufacturer (P) K'ed with distributor (D). P had 2 unsigned memoranda from D as
evidence of K. Posner rules that these do show evidence of the oral K, concerns with
substantial performance by P and opportunism by D.
 
Preliminary Negotiations
Coley (Govt Bids using company’s name)
o P sued for specific performance and damages. D wanted to purchase P stock but really
wanted P's company's name and goodwill for use in government contract bids. There was a
letter agreement saying they would come to an agreement on Sept 18th.
o Ct: Agreeing to agree is NOT a K.
o BUT it seems there was partial performance when D used company's name for
govt K bids.
 However, P provided little evidence they would have won any bids (or
even bid at all) during that time with their name.
o NB: court followed 1st restatement which included words "substantial and definite".
Gulati: been largely followed the same after the 2nd restatement, but those words caused
problems.

Hoffman v. Red Owl (inexperienced franchisee)

o Negotiation for establishing a franchise. Frachisor tells Franchisee $18k will be enough.
Franchisor continues to drag him along, Franchisee liquidates his assets including current
business, Franchisor demands he get loan from father-in-law, then demands the loan be
given as a gift instead. Franchisor eventually backs out of deal. Franchisee sues and wins
for promissory estoppel.
o Key differences with Coley:
Damages in this case were much more specific and real. (selling business, moving)
o Huge information asymmetry and difference in sophistication of parties (Franchisor could
have clearly told Hoffman they required non-borrowed money)
 

Indefinite Promises and Open Terms

Varney v. Ditmars (“fair share” to employee)
o Employer promised employee a "fair share" of the profits.
o Ct: too vague to be a K.

Curtis v. Matthews (no price in K)

o P agrees to buy wheat from D but they do not agree on price. Later in the season, P says
$14, D says no and buys to someone else.
o Ct: sometimes agreement to negotiate some parts later is part of the deal (although
sometimes it means no deal). Lack of specificity in price is not enough to negate a K. Ct
inserts market price and P wins.
o Buying/selling goods, applies UCC which is less harsh than CL.

Mooney problem p. 297 (Miltary squash player)

Mooney works for military in Germany, wants to open athletic club, talks to Norton employee of
big money guy Craddock, . Based on communications, Mooney concludes he could negotiate a
lease for an athletic club and retires from service (losing accrued PTO). At that point still had to
 resolve rental amount and erction of extra building. Mooney advised to generate 12,000/year
income from the facilities. Mooney makes plan, Craddock reviews it, says "let's go." Moves kids
and wife to CO, gets some loans, installs a sauna, makes brochures for potential members, etc.
Only gets 3 members
Craddock backs out, imposes "minimum membership requirement"
 
Promissory Estoppel Approach:
o Foreeseable Reliance by Promisor
o Actual reliance by Promisee
o Injustice avoided only by enforcement
 Doesn't tell us much, legal realist would say "when the court feels like it"
o Remedy limited as justice requires
 
Was it foreseeable that Mooney would move? Other parts of plan was foreseeable (after "let's
go"), reliance was specific and real. Ct does find promissory estoppel. Craddock let him rely a lot
on without doing a lot of work.

Binding Preliminary Agreements

 

Brown v. Cara (Rezoning parking lot)

o Parking lot owner (Cara) and property developer (Brown). Create MOU (Memo of
Understanding --preliminary agreement). Cara provides property at no cost, supposed to try
to get financing. Brown working on the majority of stuff including getting the main issue to
be resolved that the project hinges upon: getting lot rezoned for development. Brown gets
that done and sends K to Cara. Cara claims to be so offended by terms of K that he refuses
to negotiate any further.
o Factor Test for whether Type II agreement exists (would bind them to negotiate in good
faith):
 Whether the intent to be bound is revealed by the language of the agreement
 The context of the negotiations
 The existence of open terms
 Partial performance
 The necessity of putting the agreement in final form, as indicated by the
customary form of such transactions
o We want to encourage people to enter into Ks, if we let people out of preliminary
agreements too easily, making them meaningless, they won't enter into them when they serve
a valuable and efficient service.
o Allowing Cara to back out like he does instead of negotiate in bad faith would allow
people to back out of K's too easily by subjective (potentially fraudulent) objections to the
initial offer . Even if this is just spending some time and money negotiating with no K in the
end.
o Process and procedure is what courts can evaluate, not evaluating the value of a specific
K.
 
Requirement Ks and Impracticability

 UCC 2-306 -- driven by good faith.

 Requirement K: You sell me what I require and in exchange I'll only buy from you

Eastern Air Lines v. Gulf Oil (single index & fuel freighting)
o Oil company selling to airline, requirement K, sets price to index of domestic crude oil
reporting that it is only based on government controlled lower-than-market price. Also
Eastern participating in fuel freighting where they overfill in areas with lower gas prices to
take advantage of market disruption by govt.
o Ct: Refuses to modify original K. Perhaps would have done if it was it was
impossible to sustain, but instead it was just expensive.
o Fuel-freighting -- standard industry practice, rational practice, not bad faith
enough. Also, court may not want to open to litigation all other instances of fuel-
freighting .
o Now these requirements are just done with multiple indices.
 

Empire Gas v. American Bakeries (zero propane purchase)

o Bakeries wants to convert and fuel their delivery trucks with propane to save money
during the fuel crisis. Requirement K with Empire Gas for more or less 3000 units. Ends
up buying zero units and Propane co. sues
o Fits into box of "requirement contract" and "option contract." Dispositive that they used
magic word? Or maybe no evidence that they paid money for an option? Or perhaps just
will of judge.
o Without the UCC's guidance regarding requirement K's would be straightforward case for
Empire Gas. Zero is not "more or less 3000"
o Posner is most concerned with opportunism. Interprets 2-306 "no quantity unreasonably
disproportionate to any stated estimate"
o 2 ways to see this Requirement K
 A "right to buy" in exchange for exclusivity which means they can buy
zero.
 Deviations allowed around the focal point estimate if they are in good
faith.
o Posner interprets that rule forbids not going way above the estimate because it
would allow for opportunism if market price took off a buyer could resell it and
compete with seller. Hypo bargain would never agree to such a situation.
o However, because American Bakeries refused to give any reason for their lack of
purchase, he says it implies bad faith and rules for Empire Gas.

Exclusive Dealings
Wood v. Lucy (getting endorsement deals herself)
 Exclusive K to secure endorsements deals for Lucy. Lucy secures her own endorsements deals.
Lucy argues K was invalid because there was no consideration or obligation on Wood's part.
 Cardozo says there is an implied obligation in the K for Wood use reasonable efforts to secure
endorsements and thus, consideration. Rules for existence of K and Wood exclusive rights, even
from Lucy herself.
 

Bloor v. Falstaff Brewing Corp (“good efforts” to sell beer)

o Falstaff buys Ballantine brewery. Ballantine is supposed to receive $.50 per barrel of
beer sold, and Falstaff agrees to use their “best effort” to sell Ballantine Beer. Falstaff has
trouble selling, hires manager to fix it, decides best method is to focus on lower volume,
higher prices.
o Ct: D clearly did not make "best effort." Perhaps threat of bankruptcy would warrant
modification, but fewer profits does not.
o What if good efforts are unprofitable?
Different views
o You have to keep trying to sell it unless it will send you to bankruptcy
o If it’s a crap product you don't have to keep trying
o Ct here is somewhat in the middle
 

Mistaken Beliefs about Facts

ALCOA v. Essex (Greenspan’s flawed index)

o Highly sophisticated party makes painstaking effort (including hiring ALAN
GREENSPAN!) in K terms to protect against fluctuations in price yet still doesn't account
for something.
o Ct seems to say that they were so sophisticated and put so much effort in making the
deviation between 1 and 7 cents profit, that we will honor (force?) their purpose.
o But couldn't they have just set a floor like the other party set a ceiling? Isn't that
the whole purpose of floor/ceiling prices which sophisticated parties are well aware of?
o They could also have used some vague language like "fair/reasonable" price
 

Atlas Corp. v. U.S. (p. 745) (govt’s radioactive land sale)

o Government sells land for mining that is known to be a little radioactive. Turns out to be
very radioactive and radiation turns out to be very damaging to health to the point where
Congress even passes legislation making them clean it up.
o Ct still refuses reformation of K. High level of radiation at the time of K formation was
unknowable by either party. Mistake about fact must be knowable.
 

Modification of existing Ks
Alaska Packers (fishermen’s bad net)
o Bunch of guys signed to go fishing on expedition for $50 + 2 cents per salmon. Show up,
claim the nets are shoddy, and demand $100 instead. Local manager on site initially says he
 doesn't have authority but eventually caves to $100 but company reneges when expedition
finishes. TC says initial K was waived and new one was made.
o Ct: Cannot agree to new contract terms for same services without giving new
consideration (common law rule). Ct does not believe net was shoddy since company has as
much interest as fisherman in keeping net maintained.
o But there was reliance on both sides, seems to only acknowledge fishing
company's side.
o UCC & restatement depart from common law rule. They do not require
consideration. Instead just look to equity and fairness at stake.
 

Misrepresentation
Speiss v. Brandt (crappy resort)
o P bought resort from D. Prior to the purchase, the D informed P that they made "good
money" from the resort. P claims fraud, in that D actually lost money on the resort every year
for a decade prior to the sale.
o Elements of Fraud:
 Untrue statement/representation
 of a material fact
 made with knowledge of falsity (or you don’t know but say you do)
 for purpose of inducing
 justifiable reliance by other party on statement.
 Ct seems to also hold the inexperience of the buyer and the friendly relationship
b/w buyer and seller important.

Danann Realty (K’ing around fraud)

o D made oral representations which P alleges were false. Contract VERY explicitly
contracts around fraud liability.
I: is fraud liability a default rule or mandatory rule?
Ct: If this contract doesn't make it clear that you are contracting around fraud liability, what
does?
Dissent: Nothing does, its is a mandatory rule. You can't contract around fraud with a
contract based on fraud.

Disclosure and Concealment

Laidlaw v. Organ (Buying tobacco after 1812)
o D selling tobacco to P, P has connections that tell him War of 1812 is about to end so
prices are about to go back up. D asks if there's anything P knows which might affect the
price. Unclear what his response was. Agreement made but D reneges and P sues for breach
of K.
o Ct (Marshall): when information is equally accessible, no duty to disclose, P wins.
o Scholars:
 o Kronman, in the theory of law & economics (where law is supposed to be the most
economically productive system possible), we want to encourage people to seek information.
We don't need to encourage "casually" acquired information, only information that you
deliberately work or invest to obtain.
○ Problem with this interpretation of Laidlaw is that it wasn't a deliberately learned
information.
o Schepple distinguishes between shallow secret and deep secret, former is okay not to
disclose.
○ Problem with this is it was not a shallow secret, even President didn't know about war
ending at that moment in time.

Strong v. Rapide (Selling govt land in Philippines)

o Negotiation to sell land in Philippines to u.s. govt. Major shareholder/negotiator knows
U.S. will go higher in bid, gets uninformed minor shareholders to sell to him through proxy,
then sells to govt at very high price.
o Ct: Duty disclose -- why? Active steps he took to conceal identity? Obligation to
shareholders? Not equal access to information?

Obde (hidden termites)

o Building has termite problem, exterminator they higher says it will be at least a year
before he can say for sure that termites are gone. Covers up signs of termites. D sells
without disclosing.
o Duty to disclose:
 Is it material? Yes, clearly.
 Is there therefore a duty to disclose?
 Equal access by both parties? No, it was not something a regular
inspection would find out.
 Hypothetical bargain - would want it disclosed up front.
 Hypo - what if K says "might be termites" (seems clearly yes)
 What if K says "as is"?
 
Murder in the house
o Is the key factor that its $10,000
 Price gets you the materiality, but not the duty to disclose. These concepts are
related by not synonymous

Reed v. King (Murder House)

o P sold house without disclosing murder had taken place at the house. Knew it materially
affected market price. Told a neighbor not to tell the buyer.
o Ct: Because 1) information known only to the seller 2) information is not readily found
out by regular inspection, and 3) has a significant and measurable effect on market value and
the seller is aware of the effect, there is a duty to disclose, even when the defect is not
physical.
 

Jordan v. Duff (employee/shareholder)

 P resigned and cashed in stocks before merger went down.

  Ct: D was obligated, to disclose possible merger that would greatly affect the share price.
Although no duty in publicly traded companies because it would be impractical and injurious
to shareholders, close corporations do not have those concerns..

Interpretation of Terms - Parole Evidence

Columbia Nitrogen (phosphate market tanks)
o K specifies minimum quantity and price for specified time (3 years). Phosphate market
value falls drastically, D orders far below the min (1/10th) and wants to only pay market
value, P refuses.
o D wants to introduce evidence that custom and trade usage shows that normally those
minimums aren't followed after changes in the market.
o UCC 2-202 (formally adopted in the jurisdiction) - a K may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be
explained or supplemented
 By course of dealing or usage of trade (Section 1-205) or by course of
performance (Section 2-208); and
 By evidence of consistent additional terms unless the court finds the writing to
have been intended also as a complete and exclusive statement of the terms of the
agreement .
 
o Reasons why parole evidence rule not enforced this court, even for unambiguous terms
(price & quantity)
1. No explicit statement in K forbidding custom evidence
1. K isn't vague, it says "K expresses all terms of the agreement"
2. UCC is the default, does not require it to be explicitly in the K
2. K does not specify provisions for if there is a large reduction in market value
(didn't foresee it?)
3. Past practices b/w parties there were lots of adjustments
1. Was it a case of one party allowing the other to renegotiate but when the
show was on the other foot...
2. Or was it a case where the less powerful party was more willing to
renegotiate regardless of the side they were on in the deal?
4. K does not specify damages for buyer not buying
 But since when does a court need specified damages in a K? That just
means they accept the default rule. Also, damages are not a difficult calculation
in this case.
 

Southern Concrete v. Mableton Contractors (quantity not ambiguous)

 K provided price and approximate quantity needed. D reneges. D wants to introduce
trade usage evidence – that it was understood that the quantity was subject to renegotiation.
. Court does not feel that §2-202 was meant to “invite a frontal assault on the
essential terms of a clear and explicit K”
. Parties may decide to renegotiate, but the option to enforce contract rights is still
there.
. Parties contemplated placing the risk of variation in quantity on the buyer.
 . Reasonable approach is to assume that specifications are intended to be observed
as written and the unilateral right to make a major departure from those must be
expressly agreed to in the writing.
 (Weakly) distinguishing from Royster:
o No repricing rights
o No prior dealings 

Applying concepts: Corporations cases

Sharon Steel v. Chase Manhattan Bank

 
Most imp case on standard form Ks.
 
F: UV industries borrowed money at low rate.
Wanted to liquidate assets during a time where market rate is high
UV wants to hold on to this debt because it's at such a great rate.
UV intends to sell its company piece by piece until it can sell its debt for cash to avoid triggering the K
clause about "liquidation."
 
Clause talks about "all or substantially all" -- but what does that mean?
Clause is boilerplate (UCC doesn't govern b/c not sale of "goods")
No industry custom to look at because this hadn't been sued over before.
Interpretation therefore has huge implications because it is first impression.
Court therefore emphasizes importance of uniformity in interpretation, nor just what
the two parties at bar thought during negotiation
 Furthermore it was a boilerplate so there wasn't much "negotiation"

Met Life v. RJR Nabisco

 
Nabisco starts out with tiny bit of debt and ton of valuable assets. That means bonds issued was highly
credited and valued.
Propose to do a leveraged buy out (LBO) of themselves through issuing a LOT more debt, thereby
making their low-interest bonds worth much less.
Indenture K explicitly says no restriction on loading up with debt.
Because of this, P's move to last resort of "violation of good faith"
Notable case because rare to make that case for highly sophisticated parties.
 
Ct. - highly sophisticated party knew of these K provisions and chose not to negotiate for those explicit K
provisions. Very narrow reading of good faith.
 

Katz v. Oak Industries

 
Oak had too much debt, needed to renegotiate, modify the terms to get bondholders to take less
money.
This bond required 100% of bondholders to agree to renegotiate
 Less important stuff can be changed by anything >50% agreement
Oak therefore needs to
 
Good faith argument: (must be based on not getting the existing terms of the K bargained itself,
NOT just general principles of fairness)
Hypo bargained for provision in K requiring 100%, this conduct subverted that provision.
Ct denies argument:
1. No fiduciary duty to bondholders, just contractual (fid duty to stockholders)
2. Relevant that these are sophisticated and few bondholders, detailed K with
carefully negotiated provision.
 

Morgan Stanley v. Archer Daniels

o Company borrows at a very high rate, debtholders negotiate for provision that you can't just
refinance the debt when interest rates go down.
o To get around, Archer borrows at low interest rate, makes money some other way (issues
stock) and then pays back the debt.
o Ct outlines why general K principles did not help decide the case, therefore looked at
nonbinding (much-criticized) Illinois case (Franklin) as persuasive authority. Sets up
incentive scheme for sophisticated companies to keep apprised of these case law
developments.
 

Unconscionability (Limits on Enforcement)

Williams I & II (unconscionable furniture payments)
o Poor person buys multiple pieces of furniture from store over years (like a rent-to-own),
each subsequent purchase & K spreads payments across all pieces of furniture so that none
are paid off until all are paid off. P defaults and D repossesses everything.
o Ct: No meeting of the minds when unsophisticated party did not read or understand K.
Rules unconscionability, UCC and general concepts of equity are persuasive authority.
Unconscionability = you know it when you see it.