Contracts

Contracts

1 General Info
1.1 Contract types
1.1.1 Express Contract - the contract was explicitly formed between the parties
there was meeting of the minds
1.1.2 Implied in Fact - one party made some form of acceptance, even if it was not expressly said (e.g., a headshake)
1.1.3 Implied in Law - when the law/courts creates a contract between parties to prevent the unjust enrichment of one of them
1.1.4 Contract States
Executed cotract - a completed contract
Executory contract - an incomplete contract

1.2 Types of damages

1.2.1 Expectancy - focuses on an injured party to receive lost profits
1.2.2 Reliance - focuses on damages based on expenditures made in preparation for performance or in performance. Restate §349
1.2.3 Restitution - focues on getting parties back to where they were before the contract was made

2 Expectancy Damages
2.1 Expectancy Interest - General
2.1.1 Def: What a party reasonably expects to receive from a contract (profits, benefits, etc.).
2.1.2 The injured party can recover what they reasonably expected to receive from the contract.
2.1.3 A comparable compensation is given if the expected benefit is not monetary gain (i.e., some type of performance).
2.1.4 Case ex. Hawkins v. McGee - Doctor promised to make patient's hand "100% better". The surgery failed. The patient was awarded
Dollar amount promised MINUS dollar amount provided + Consequential & Incidential Damages -- avoided loss = Expectancy Damages
2.1.5 Restatement §347: ...injured party has a right to damages based on his expectation interest 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, cuased by the breach, less
(c) any cost or other loss that he has avoided by not having to perform.
2.1.6 Expectancy damages are limited by several other rules:
Diminution of value
Mitigation
Foreseeability

2.2 Diminution of Value

2.2.1 Def: To recover the price of the completed contract, the cost of completion cannot be extremely disproportionate to the value gained.
2.2.2 This is used to ensure that P is not placed in a better position that he would have been if the contract had been completed.
2.2.3 Case ex. Peevyhouse - Coal company paid royalties to use land and promised the restore land afterwards. D refused to spend $25,000 to add $300 to the land's value in the
end.
This would be economic wasteful. A society that follows this mentality will go broke.
The court should follow what the high statistical probability will be that society would prefer (i.e., don't spend alot to gain a little).
Consider the marginal costs v. marginal benefits.
2.2.4 Restatement §348 (2)(a)(b): If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficent
certainty, he may recover damages based on:
(a) the diminution in the market price of the property caused by the breach, or
(b) the reasonable cost of completing performance or of remedying the defects IF that cost is not clearly disproportionate to the probable loss in value to him.
2.3 Coase Theorum
2.3.1 People, when left to themselves, will move resources to their highest and most efficient use.
2.3.2 Use contracts (i.e., the private sector) to determine who pays what if a breach occurs.
2.3.3 Good lawyers contract around the pitfalls and uncertainty. Good lawyers don't really care which way courts decide cases, because their tightly written contracts don't have to go
to court and be decided on.
2.4 Mitigation
2.4.1 Def: Parties have a duty to mitigate circumstances after a breach has occurred (i.e., they cannot to continue "piling up" expenses that the other party will have to pay for.
However, the injured party is not obligated to mitigate to the point of not being "whole."
2.4.2 The plaintiff cannot recover for damages which were easily within his power to mitigate.
2.4.3 Case ex. Rockingham - County contracted with Luten to build a bridge. After construction had begun, the county breached and gave notice to Luten. Luten continued
construction and tried to recover all damages. They could only recover for expectancy interests (profits) and reliance damages to the point of breach.
This is economically wasteful. If the person doesn't want a bridge, don't build it.
They can recover on expectancy interests and reliance damages only.
Luten was under obligation to mitigate damages (i.e., stop construction).
2.4.4 Case ex. Hussey - Breach of contract for employment. P attempted to find work, but could not find a "comparable" contract (job). She was entitled to expectancy damages.
The injured party is required to attempt to mitigate damages; however, they ARE NOT required to accept a contract that will not put them in as good of a postion (i.e., not
comparable).
2.4.5 Two part test to mitigation: due diligence and comparable performance.
2.4.6 Restatement §350: Except as state in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk,
burden, or humiliation. [Rockingham]
The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid
loss. [Hussey]
P cannot sit around and not use due diligence.
If she found a new job, there would be an offset, or else she would receive a windfall.
2.5 Subsequent Contracts
2.5.1 Subsequent contracts, even for the same work, can be considered independent of the original contracts.
2.5.2 Case ex. Olds v. Mapes - D forms K1 with P for owner. D breaches. P forms K2 with owner to finish the job. D is liable but wants an offset for the profits received by P in K2.
Appellate court stated that P's damages from K1 should be assessed w/o reference to K2.
P could have handled multiple jobs at once. All of his labor was not necessarily tied up in the K1. This is not like Hussey where there was a single amount of labor.
The P assumed the risk with K2...if he had incurred a loss, D would not have helped pay for it.
If another contractor had done the job, D would not have shared in profits.
Economically sound - the owner would have used time/money to find another person to complete. P would have been out of another job.
If D was allowed an offset from P, there would be no reason for P to take the K2 because he would end up with the same thing.
2.6 Lost Volume Sellers
2.6.1 Def: Some sellers are allowed to recover the full price of the contract even if buyer does not purchase the merchandise. This type of seller must show that it can and would have
made the subsequent sale IN ADDITION to the original K.
Example: If someone contracts to purchase a car from a dealer and then breaches, and then the dealer sells the car to another person and can show that the subsequent sale could
have been made in addition to the first contract, then the dealer's volume of sales have been affected.
All other situations involving the resale of goods, the second contract is considered a substitution contract (mitigated).
U.C.C. §2-706: ...the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under
the provisions of this Article (§2-710), but less expenses saved in consequence of the buyer's breach.
2.6.2 Case ex. Diasonics - Seller agrees to sell to buyer. Buyer backs out of contract and seller resells to to 3rd party. Seller claims that it lost profits on the lost sale.
Criteria to be considered a "lost volume seller":
1. Did the seller have the capacity to make the additional sale?
2. Would it have been profitable to make the second sale?
Law of diminishing returns
3. Can the seller show that he would have made the sale absent the breach?
2.6.3 U.C.C §2-708(a)(b): Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (§2-723), the measure of damages
for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price
together with any incidental damages provided in this Article (§2-710), but less expenses saved in consequential of the buyer's breach.
If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of
damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental
damages provided in this Article (§2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
2.6.4 If you don't allow a LSV to recover the lost volume, they essentially receive nothing for the breach even if they resell the goods.
2.6.5 If a buyer repudiates a contract in which the seller must sell for scrap the materials, he is not a "lost volume seller" and must claim an offset.
Ex. Carpet layer cuts a triangle piece for an odd room and buyer breaches. The scrap carpet must be claimed as an offset.
2.7 Incidental Damages & Quantity Discounts
2.7.1 Quantity discouts - received when a buyer purchases a large amt. of goods...transaction costs get lower.
2.7.2 Case ex. Nobs Chem. v. Koppers - A purchaser agreed to sell goods to buyer...buyer breaches. Seller claims entitlement to losses stemming from loss of quantity discount he
would have received from supplier. Court holds that quantity discounts are not incidental damages along with expectancy interests.
These are simply an extra benefit that he would have received from the contract.
2.7.3 U.C.C. §2-710 Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping
delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods of otherwise resulting
from the breach.
 2.7 Incidental Damages & Quantity Discounts
2.7.2 Case ex. Nobs Chem. v. Koppers - A purchaser agreed to sell goods to buyer...buyer breaches. Seller claims entitlement to losses stemming from loss of quantity discount he
would have received from supplier. Court holds that quantity discounts are not incidental damages along with expectancy interests.
Contracts These are simply an extra benefit that he would have received from the contract.
2.7.3 U.C.C. §2-710 Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping
delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods of otherwise resulting
from the breach.
2.7.4 Benefits lost are not equal to costs incurred.
If Nobs had paid for storage, etc., this would have been an incidental damage that would be recoverable.
2.8 Cover
2.8.1 Def: Cover is when a buyer attempts to "cover" his losses by acquiring the goods elsewhere. (i.e., a substitute)
2.8.2 Case ex. Dura-wood - P agrees to buy from D, who breaches. P searches for a K2, but decides to cover internally by manufacturing. D says that they cannot recover losses since
they internally covered. Court says they can; however, you cannot internally cover and then claim lost profits b/c your facilities were tied up.
Court holds that externally in not the exclusive means of covering.
Cannot claim lost profits due to loss of K2, K3, etc. because facilities are tied up. - This is a cost that should have been considered when deciding to cover. They could have
externally covered and used their facilities to produce for other contracts.
These would have been "shoulda, woulda, coulda damages."
These are business calls that have to be made without complete knowledge. Hindsight is always 20/20.
The downside is that, in the future, P might cover externally at a higher price than internally cover. "Spend like a drunken sailor" approach.
U.C.C. §2-712(1)(2): After a breach within the preceding section the buyer many "cover" by making in good faith and without unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or
consequential damages as hereinafter defined but less expenses saved in consequence of the seller's breach.
2.9 Market Value
2.9.1 Def: Market value determination is used when the buyer DOES NOT enter into a subsequent contract (cover).
2.9.2 U.C.C. §2-713: allows the buyer to recover "the difference between the market price at the time when the buyer learned of the breach and the contact
price..."
2.9.3 Courts have interpreted "time when the buyer learned of the breach" to mean the "time of performance"

2.10 Warranty
2.10.1 Def: Expressed or implied promise that something in furtherance of the contract is guarteed by one of the parties.
2.10.2 Warranties shift risks to sellers...sellers have a lower information cost since they know the product better.
2.10.3 Case ex. Overstreet - A vet purchased new drug to cure virus. It does not work. Sues for breach of expressed & implied warranties.
Seller argued that he should only recover price of drug, even if he did breach.
2.10.4 Express Warranties: Reliance must be a basis for the bargain in expressed warranties.
These must be part of the contract that the buyer paid for.
Special words do not need to be used to form an expressed warranty; however, a seller can still "puff his wares" by giving opinions w/o forming a warranty.
U.C.C. §2-313 (1): Express warranties by the seller are created as follows:
1 Any (a) affirmation of fact or promise made by the seller to the buyer which relates to (b) Any description of (c) Any sample or model of the goods and
becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the (a) affirmation or promise (b) description (c)
sample or model.
2 (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.
2.10.5 Implied Warranties: There does not have to be reliance.
These are already implied by the seller. The goods must be of quality expected from that type of seller (mechantability).
E.g., If you purchase eggs from a dairy farmer, you expect them to be intact when you receive them.
U.C.C. §2-314: ...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.
U.C.C. §2-315: Where a 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
Ex. A person cannot sell someone a Toyota Camry for them to race with it in the Baja 500.
Because this is another implied warranty, reliance is not necessary.

2.11 Consequential Damages

2.11.1 U.C.C. §2-715 Consequential damages resulting from the seller's breach include: [damages that the seller at the time of contracting had reason to know of
and which could not be mitigated by cover.]
2.12 Foreseeability
2.12.1 To recover damages, they must be foreseeable by BOTH parties at the time of ENTERING into the contract.
Both parties had to reasonably know and contemplate these damages at formation.
Some courts will award these damages if the defendant should have known.
Foreseeability is a limitation on consequential damages.
2.12.2 Case ex. Hadley v. Baxendale - P's shaft breaks on his mill. D agrees to send it off. Agent of D says it will get sent next day. D is neg. in sending it, which delays return...mill is
stopped for longer than expected. P sues for lost profits. Court holds that these damages were not foreseeable.
D did not know that the mill was stopped. P could have had a replacement...or other parts could have been broken.
...and that's the point: D did not know. If he didn't know, he can't be held liable.
2.12.2.2 Restatement §351(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 [General damages]
(b) as a result of special circumstances beyond the ordinary course of events, that the party in breach had reason to know. [Special Damages]
2.12.3 General damages are those that arise naturally from the breach.
2.12.4 Special damages are one's that both parties would not necessarily know about. They must be stated (i.e., known) by both parties to be awarded.
2.12.5 Hypo: Pro photographer takes film to Kodak. Kodak loses film. Should he recover special damages since he was going to sell them?
If yes, then the P has no reason to take any special precautions. He has lower information cost...just tell the D!!
Kodak might take extra precautions (if marginal benefits outweighed the marginal costs). However, this would just be passed on to everyone else.
D would become extremely liable for suits and would become an absolute insurer for every customer.
Arguing no would be economically smart.
What if he had told the clerk when dropping the film off?
He might have a claim, but he would have to establish that the agent (clerk) had the authority to enter into a special contract [proper authority to receive notice].
2.12.6 Case ex. Morrow v. First Nat'l Bank of Hot Springs - P purchases safety deposit boxes in D's bank to store his coins in. The D says they will inform P when the boxes are
ready. Before D calls P, his house is broken into and the coins are stolen. P finds out the D forgot to call him. P sues D for general and special damages. Court held for D. The
court described a tacit agreement test.
Tacit Agreement Test:
The D must tacitly agree to the special damages. Mere knowledge or foreseeability of damages are not enough.
Since the D still had possession of the coins, he is in the best position to keep them safe.
What if he had put them out in the front yard for anyone to steal? Would he expect the bank to cover them?
Look at the situation ex ante...would the bank have agreed to sell a safety deposit box for $75 and to ensure them off-premises? NO.
WHAT DO THE TERMS OF THE CONTRACT CALL FOR!!!!!!!
2.12.7 Case ex. Kerr v. RCA - The D did not send a message it was contracted to send for P. P lost money due to the message not getting sent. P sued for these special damages.
Held for D, because the damages were not within the scope of the contract.
2.12.8 2 Part Test for Foreseeability
1. Need knowledge beforehand.
2. Damages limited to the limited terms in the contract. [Or the scope of the contract]

2.13 Punitive Damages

2.13.1 Case ex. Ainsworth v. Combined Ins. - P sued D because it refused to pay insurance claims. D said it didn't cover the claim. Court held for P and awarded damages based
on "oppression." Court says that punitive damages cannot be awarded unless the breach is accompanied by fraud, malice, or oppression.
Where is the vehicle to arrive at these punitive damages? The court just creates law to award these damages. Where's the beef?
Is this a contract case, a tort case, or a CONTORT case??
2.13.2 Case ex. Seaman's v. Standard - Court creates a new tort. Whenever a company in bad faith seeks to shield itself from liability by denying a contract occurred, is liable for a
tort.
The court is creating standards as it goes along. It should base its decision on the contract terms.
What's good faith v. bad faith?? Who can actually define this. The court uses ambiguous terms.
2.13.3 Case ex. Club Med. v. Stedry - Court awarded punitive damages because there was element of fraud in the contract. Was this actually fraud or mere "puffing".
5 Elements of fraud:
Representations were made
They were false
D new of their falsity at time of offer
Intention to deceive (scienter)
P suffered damages
2.13.4 Restatement §355: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive
damages are recoverable.
As seen in the cases, some courts just make up new torts as they go along...ex post facto?
 2.13.4 Restatement §355: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive
Contracts damages are recoverable.
As seen in the cases, some courts just make up new torts as they go along...ex post facto?

2.14 Emotional Disturbance

2.14.1 Restatement §353: Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a
kind that serious emotional disturbance was a particularly likely result.
Even emotional disturbance damages are foreseeable.
Case ex. Lamm v. Shingleton - Widow buys a coffin for her husband. The coffin ends up leaking. Wife sues for emotional disturbace. Court grants it.
2.14.2 It is rare that emotional disturbance awards are granted.
2.14.3 They are only available in service contracts. You can't collect on emotional disturbance for commercial contracts (i.e., delivery of goods).

2.15 Wrap-up
2.15.1 Contract formation & breach
Did the injured party mitigate the circumstance
2 Part test (due diligence & comparable performance)
Did they cover?
Did they enter into another contract?
Are they a lost volume seller?
Could they have made the second sale?
Would it have been profitable to make the second sale?
Would they have made the second sale?
If applicable, should diminution of value be applied?
Was a warranty involved in the breach?
Were all of the damages suffered by the injured party foreseeable?
Were the circumstances explained to breaching party?
Was there a tacit agreement to accept those terms as part of the contract?
Should punitive damages be awarded?
Was a tort involved? (e.g., fraud)
Should emotional disturbance damages be awarded, if was a services contract?

3 Reliance Damages
3.1 General
3.1.1 These damages focus on compensating the injured party for expenses incurred because they were relying on the contract being fulfilled.
3.1.2 §349: the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in
performance...
3.1.3 Case ex. Security Stove - D agreed to ship P's items to an exhibition in Atlantic City. One of the pieces didn't arrive in time for the exhibition. Because P was not selling anything,
he couldn't claim lost profits, but he did incur expenses which were essentially wasted (e.g., hotel room, cost of travel, etc.). The court said that since D knew of the situation,
these damages were foreseeable under (§351), therefore, D was liable.
Reliance damages are still subject to foreseeability (§351).
The key is whether the kind of damages were foreseeable, even if the form or amount are not...
Reliance damages are also subject to §352: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable
certainty.
3.2 Conflict on What Can be Recovered
3.2.1 There is a conflict over whether expenses incurred before entering the contract are recoverable.
Case ex. Anglia TV v. Reed - The court allowed P to recover costs which were incurred before the contract was entered into.
Case ex. Dempsey - The court did not allow damages for expenses before the contract.
Court also says that speculative profits cannot be awarded (§352).
Rule: You can claim prior expenses if both parties contemplated (at formation) that they would likely be wasted if a breach occurs.

3.3 Reliance and Pain & Suffering

3.3.1 Case ex. Sullivan v. O'Connell - P went to D for a face lift...the operation went badly. The court said that reliance damages for pain and suffering are recoverable, but the pain
and suffering must go beyond what would normally be expected in that situation.
This case could be argued for all three types of damages:
Expectancy - what was she expecting to gain from getting this face lift? Hawkins v. McGee
Reliance - the pain and suffering went above and beyond...this is considered an "expense" Sullivan v. O'Connell
She relies on not experiencing extra pain.
Restitution - she wants to be put in the position she was before the face lift
3.4 Reliance & Lost Profits
3.4.1 These profits are subject to foreseeability (§351)
3.4.2 Case ex. Freund v. Wash. Sq. Press - P contracted with D to publish his book. D did not published the book. P wanted either specific performance or lost profits. Court said that
the lost profits were too speculative. Who knows how many books he actually would have sold!? They were not foreseeable (§351)
His restitution was getting his manuscript back from D.
3.4.3 Case ex. Ferrel v. Elrod - D agreed to lease a building to P. D repudiates. P sues D for lost profits (he was going to use building to teach in). Yes to damages...
Look at similar businesses, or the business's track record.
3.4.4 How can reliance, lost profit damages be assessed for a new business?
This is much more speclative.

4 Restitution Damages
4.1 General
4.1.1 Restitution focuses on putting the parties back to where they were ex ante. The goal is get them back in the position they were before the contract.
4.1.2 Restitution differs from expectancy & reliance in that it goes in the opposite direction of them...here, the contract is NOT being enforced.
4.1.3 Restatement §370: A party is entitled to restitution under the rules stated in this Restatement only to the extent that he has conferred a benefit on the other
party by way of part performance or reliance.
4.1.4 Restatement §373: ...the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or
reliance.
(2) The injured party has no right to resitituion if all duties have been performed except final payment.
4.1.5 Case ex. Bollenback v. Continental Casaulty Co. - P sued his insurance company because they wouldn't pay for his claim. The ins. co. said that his policy had been expired for a
number of years. P tried to get back ALL of his premiums...even the ones from before the ins. co. said the policy had lapsed. The court said he could only recover those from after
the period where the ins. co. said the policy had lapsed. Rationale: He couldn't return the value conferred to him of those years of coverage. He would have received a windfall.
This case relies on Restatement §373 & §374
4.2 Measurement of Restitution Damages
4.2.1 Restatement §371: 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
Case ex. Cotnam v. Wisdom - D was thrown from a streetcar and was rendered unconscious. P, a doctor, attempted to save his life, but failed. D's estate refused to pay the
doctor because there was no contract. The court said that D was required to pay for the services rendered to him.
(b) the extent to which the other party's property has been increased in value or his other interests advanced.
Case ex. Michigan Cent. R.R. v. State - P contracted to ship D coal at $3.40/ton. P accidentally sent D an extra shipment, which D consumed. P sued for the market price of the
coal, which was $6.85/ton. The court (although bound by statute) gave P $3.40/ton.
4.3 Restitution and the UCC
4.3.1 UCC §2-601: "Perfect Tender Rule" - Before acceptance, the buyer can reject the goods for ANY nonconformity.
UCC §2-606: Acceptance of goods occurs when buyer takes possession and intends to keep them.
UCC §2-508: The seller has a right to cure if it is still within the contract time.
4.3.2 UCC §2-608: After acceptance, the buyer may only reject the goods if the non-conformity substantially impairs the performance of the goods.
4.3.3 Case ex. Durfee v. Rod Baxter Imports - P buys a Saab, which turns out to have a lot of problems. The seller has a chance to fix the problem before the court will allow a
cancelation of the contract. However, a seller does not have an infinite time to cure.
4.3.4 What can the buyer recover?
§2-711 - The buyer may cancel and recover the downpayment. [Restitution]
§2-712 - The buyer may cover and collect on the losses due to cover. [Reliance]
§2-713 + §2-715 - The buyer doesn't cover, but sues for expectancy. [Expectancy]
§2-716 - Specific performance for specialty goods.

§2-719 - Limits what could be considered for the remedy. Has to be contracted for!!
4.4 Implied Contracts
4.4.1 There are 3 types of legal vehicles to get to recovery in contract law:
1. Express contracts - the parties purposely agreed to enter into a contract (i.e., a meeting of the minds occurred)
2. Implied in fact contracts - one of the parties gave an indication to enter into a contract (i.e., a nod, etc.)
3. Implied in law contracts - the law creates a contract between parties, even though there was no "meeting of the minds".
Rationale: There are times when a party would become unjustly enriched by another if the law didn't enforce a contract between them.
4.4.2 2 Part Test to Determine if an Implied Contract Exists:
1. Was there a low transactions cost between the parties?
Contracts
4.4.2 2 Part Test to Determine if an Implied Contract Exists:
1. Was there a low transactions cost between the parties?
Could the parties have entered into a voluntary contract easily?
If the transactions costs were low (easily enter into a voluntary k), then the court probably will not uphold an implied contract.
(e.g., the person is unconscious)
2. Would the parties most likely have contracted if they could have, voluntarily?
4.4.3 These could be argued both ways:
Yes:
One party received a beneift
Statistical probability says they would have entered into it
No:
There was no meeting of the minds
The freedom to make and break contracts is impaired
He might not have wanted the contract.
4.4.4 Case ex. Cotnam v. Wisdom - The law implied a contract between a unconscious person and a doctor. The doctor rendered services and he should have been compensated for
it.
Quantum merit - a reasonable compensation for benefits conferred
The doctor should receive a market price for the services rendered to the patient.
4.4.5 Hypo: A person begins playing a violen out in a common area, and then comes to your door asking for money. Should this be upheld?
No - He could have sought a voluntary contract before rendering services.
Yes - You were unjustly enriched.
4.4.6 Must determine that the benefits conferred was not a gift.
4.4.7 Measurement of Damages in an Implied Contract
Restatement §371: ...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 hav cost him to obtain i from a person in the claimant's position, or
Case ex. Cotnam v. Wisdom - The amount the doctor received was based on the amount of services rendered.
(b) the extent to which the other party's property has been increased in value or his other interests advanced.
Case ex. Michigan R.R. - The R.R. accidentally sent D an extra shipment of coal. D consumed the coal. The coal had a higher market price than what D was paying in their
contract. The court awarded the amount that was contracted for. This was based on the amount of benefits received.
4.4.8 It is not enough that P suffered a loss...there must have been some benefit conferred to D for restitution recovery.
The contract had to actually start.
Case ex. Boone v. Coe - P and D made a verbal contract that P would come to TX from KY to work and live on D's farm. When P got there, the farm wasn't ready and D refused to
let P work it. The court would not allow restitution because no benefit had been conferred to D...it wasn't enough that P suffered a loss. If P had actually started working the farm,
then the case would have come out differently.
4.4.9 /\
/ \
/ \
/ \
/ \
/ Pvt. K \ Upper levels cannot violate lower level authority
/ Case Law \
/ State Const. \
/ U.S. Constitution\

5 Specific Performance
5.1 General
5.1.1 If a damages remedy is adequate to compensate the injured party, specific performance will not be granted.
Remedies are still the prefered way of handling disputes.
5.1.2 Restatement §359: Specific peformance or an injunction will not be orderd if damages would be adequate to protect the expectation interest of the injured
party.
5.1.3 Restatement §360: 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
5.1.4 Specific performance should be used when the contract involves something which cannot be properly calculated.
5.1.5 You can loose the possibility of efficient breach, if you always enforce SP.
If you enforce SP, it may force K to forego an efficient breach and not expand the pie.
5.1.6 3 Types of Equitable Relief
Specific Performance - tells a person that must do something
Injunction - tells someone they must stop doing something
Mandamus - order to a gov't agency
5.1.7 3 Part Test to See if SP should be used
1. If property is unique and no adequate substitutes can be found
Specialty goods
Land
Personal Services
2. If accurate calculation is inpractical, difficult to see
3. If the loss to D by SP is not disproportionate to the gain to P.
5.1.8 Times when SP should be granted:
land & specialty good
contracts for personal service
the difficulty and uncertainty in ascertaining the monetary amount
5.1.9 Uniqueness is not enough to award SP
Case ex. Van Wagner v. S&M - Even though the bilboard was unique as to its location, a reasonable monetary value could be determined for P's loss due to its other contracts
throughout the city.
5.1.10 Damages are the prefered way of dealing with contract breaches.
The courts can let the parties have more of a chance to work the contract out themselves.
5.2 Specific Performance & Employment Contracts
5.2.1 Courts normally will not force SP in employment contracts.
Why force two parties together who don't want to be? It will create animosity between them.
5.2.2 The court may employ a "negative enforcement" (i.e., an injunction).
Injunctions must be reasonable as to space and time.
Restatement §187: A promise to refrain from competition that imposes a restraint that is not ancillary to an otherwise valid transaction or relationship is
unreasonably in restraint of trade.
Restatement §188: (1) A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is
unreasonably in restraint of trade if:
(a) the restraint is greater than is needed to protect the promisee's legitimate interest, or
(b) the promisee's need is outweighed by the hardship to the promisor and the likely injury to the public
(2) Promises imposing restraints that are ancillary to a valid transaction or relationship include the following:
(a)a promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold;
(b) a promise by an employee or other agent not to compete with his employer or other principle
(c) a promise by a partner not to compete with the partnership
All of the non-compete agreements have consideration given for the agreement.

6 Agreed Remedies
6.1 Liquidated Damges
6.1.1 Restatement §356: Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the
anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on
grounds of public policy.
6.1.2 UCC §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, the difficulties of proof of loss, and the inconvenience or non-feasability of otherwise obtaining an
adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
Some courts take an and approach...this can change the outcome of cases involving liquidated damages.
This is when the parties agree in the K on what the damages will be if there is a breach.
It is an attempt, by the parties, to estimate what the damages will be if there is a breach.
It is an attempt to avoid the greater uncertainty of going to court.
6.1.3 The liquid. damages clause cannot be a penalty.
Penalties are grossly disproportionate to the damages.
They will always award the injured party more than actual damages.
Enforcing penalties deters efficient breaches.
 6.1.3 The liquid. damages clause cannot be a penalty.

Contracts They will always award the injured party more than actual damages.
Enforcing penalties deters efficient breaches.
If a party would perform an efficient breach, they may not because a penalty would make it inefficient.
Shotgun clause - a clause that will always award P more than actual harm.
This can be a single large sum to be paid on breach...no matter what the circumstances to the breach are.
If a sum is to be paid, and does not take into consideration the size of the breach, it is probably a penalty clause.
Argue no for penalties:
Makes contracting too risky
Deters inefficient breach
Windfall to the injured party
Argue yes for penalties:
They are consenting adults who are free to contract how they see fit...Who's contract is it, anyway?
There was a low statistical probability of breach, so they agreed to it.
The penalty clause may have been part of the basis for the K.
Helps ensure the other person won't breach.
Preserves the right of freedom to contract.
6.1.4 Case ex. Lake River Corp. v. Carborundum Co. - The parties put a liquid. dam. clause in the K. If D did not supply enough business to P by the end of a time period, there
would be an automatic lump sum awarded to P. No matter how big/small the breach was, P would have been awarded more than actual damages. The court struck this down
as a penalty.
The court also pointed out that when a breach occurs, loss avoided by the breach must be taken into consideration when determining damages.
6.1.5 2-Part Test to Determine if it is a Penalty (Ballpark Test)
1. The assessment must be a reasonable estimate ex ante of the likely damages that would flow from the breach
2. The estimation must be difficult to determine at formation
Essentially, this test is just asking, "Did the parties do the best they could, ex ante, with the information that they had?"
Was the amount of liquidated damages a reasonable estimate if there were a breach?
6.1.6 Case ex. California & Hawaiian Sugar Co. v. Sun Ship, Inc. - D agreed to build part of a ship for P. The other part was being built by another co. Even though the other company
was late (which would have made D's part useless, the court still held them liable. Furthermore, even though the damages, ex post, were higher than the liquidated damages
clause, the court upheld the clause...because the estimate was reasonable to both parties ex ante. They did the best they could at making a REASONABLE estimate with the
info that they had.
6.1.7 Contracting is a way to allocate risks between the parties. Liquidated damages is a way to set exactly how much risk each party will bear, in the case of a breach. If you don't do
this, you will have to fight it out in court...and who knows what will happen in court!!
6.1.8 Case ex. Southwest Engineering Co. v. United States - Court says that it is the situation ex ante that must be considered when determining liquidated damages. The parties
only have limited info at K formation.
The parties are choosing to narrow their risks by agreeing to liquid. damages.
Restatement §205: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
6.1.9 Case ex. Mahoney v. Tingley - They enter into a K for property. The liquid. dam. clause says that the seller can either keep the earnest money or force specific performance.
Seller sells the land to a 3rd party after buyer breaches. Seller now wants actual damages ($3000). The seller claims that forcing him to $200 is a penalty to him. The court
upholds the liquid. dam. because the parties are in the best position ex ante to decide what the damages may be.
6.1.10 Restatement §2-719: (1)...(a) the agreement may provide for remedies in addition to or in substitution for those provided in this Art. and may limit or
alter the measure of damages recoverable under this Art., as by limited 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
6.1.11 (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.
6.1.12 (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may may be had as provided in this Act.
6.1.13 (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.
Case ex. Kearney & Trecker Corp. v. Master Engraving Co., Inc. - P sold D a complicated machine. D had issues with the machine. The K stipulated that D could not recover
consequential damages and was limited to repair and/or return. D tried to say that since the liquid remedy (repair) failed its purpose (it kept breaking), they should not be bound to
the liquid. dam. clause. The court disagreed. Said that just because part of the contract fails, does not mean that the rest of the K should.
If the court had struck this down, the future price of the machines would have been mucher higher because they would now have to cover themselves for lost profits of their
customers.
The buyers are basically agreeing to pay a lower price for the lower statistical probability that the machine will have problems and they will lose profits. Otherwise, they would
have to pay a large price up front.
Argue yes:
Lost profits are similar to a penalty. By not allowing lost profits, the buyer would likely have higher damages than the liquid. dam.
Argue no:
It's in the black and white of the K! READ THE K BEFORE SIGNING IT!!
They were adults who voluntarily entered into the K.
They were attempting to minimise their risks.
If the buyer (or seller) didn't like the terms of the contract, then re-negotiate...or walk away. No one forced them to sign the K.
6.1.14 You cannot stipulate for both actual damages or liquidated damages.
Case ex. Lefemine v. Baron - The court held it as a penalty. If you contract for actual damages, then why would you need another liquid. dam. clause? You can't have it both ways.

6.2 Quantum Merit

6.2.1 There is an implied liquid dam. clause in employment K's for partial breach.
6.2.2 The court says that, in partial performance of an employment K, there must be adequate compensation ( quantum merit) for the work done up to the point of breach.
This prevents the employer from provoking a breach.
This prevents the employee from walking away after partial completion [because they won't get as much money].
6.2.3 Damages caused by the breach will still be taken into consideration.
6.2.4 This provides restitution on work already provided.
6.2.5 The old rule did not allow for any recovery of partial performance.
6.2.6 This basically looks at it as partial completion each day the person works.
6.2.7 Restatement §374: ...if a party justifiably refuses to perform on the gorund that his remaining duties of performance have been discharged by the other
party's breach, the party in breach is entitled to resitution for any benefit that he has conferred by way of party performance or reliance in excess of the loss
that he has cuased by his own breach.
6.2.8 Employer must pay if
1. He received any benefit from the employee's services
2. ...above the damages caused by the breach
3. Worth of services are valuable to employer.
6.2.9 If employee was a one-of-a-kind artist who was painting a portrait and quits halfway through, the employer probably won't have to pay for it. It is of no use to him.
In this case, if money has already been paid, this must be returned.

7 Consideration
7.1 General
7.1.1 Consideration is payment given for the contract.
Consideration is the inducement to enter into a K.
7.1.2 There are 2 theories on Consideration
Bargain/Exchange - the parties bargain for the price and exchange/promise to exchange
Reliance Doctrine - When someone cannot prove a bargain/exchange K, but they relied on the K.
7.1.3 Bi-lateral contract - a promise is given for a promise
Restatement §75: ...a promise which is bargained for is consideration if, but only if, the promised performance would be consideration.
7.1.4 Uni-lateral contract - a promise is given for an act
7.1.5 Not EVERYTHING is an enforceable K
Spousal promises are not usually enforced.
Case ex. Balfour v. Balfour - P (husband) made a promise to D (wife). P broke the promise. The court said that they do not interfere with "contracts" between spouses.
Case ex. Marvin v. Marvin - If a couple just lives together, there is more of a chance that they will find a contract was formed for domestic services.
Gratuitous gifts are not consideration.
7.1.6 Adam Smith's 3 Devices to Create Trust in a K
1. The Golden Rule - do unto others as you'd have them do unto you.
This is a voluntary action between adults...each wants the contract to be fulfilled.
To get the other side to be trustworthy, be trustworthy...or else they may take business elsewhere.
2. Competition
If X does not perform his contract with Y, Y will go to Z in the future.
3. Concept of the Rule of Law
Sometimes there are market breakdowns
99.9% of K's are performed.
Using the courts has a high transactions costs.
7.1.7 Case at law or equity for breach.
Law:
Breaches at law...the court is much more strict.
They won't consider the adequacy of consideration by the parties.
Equity:
The court MAY look into adequacy of consideration
 7.1.7 Case at law or equity for breach.

Contracts Equity:
The court MAY look into adequacy of consideration
...to see if its fair, reasonable, and just.
Breaches should only go to equity if the law would be inadequate.
7.1.8 Farnsworth on Contracts
Consideration
Virtually anything bargained for can be consideration
A promise for a performance is a unilateral K
A promise for a promise is a bilateral K
The consideration does not have to go to the other party...it can go to a third party.
Or one party can simply give up something (i.e., a forebearance)
The giving up of a legal right, is consideration.
Generally, if a performance itself would be consideration, then a promise to render that performance is also consideration.
Lacking Consideration:
Gratuitous promises (gifts) - promises for which there has been no exchange
Once a gift has been transferred, it cannot be taken back.
This is a now a property law area.
Past consideration is not consideration.
Unsolicited action is not consideration.
Even if the action occurs after the promise, it is not consideration.
If the action is not solicited by the promisor.
Unsolited action does not turn a gift into a binding K.
D. Transactions w/ Consideration under Bargain Test
Something with trifling value can be used for consideration as long as it is bargained for. - Peppercorn Theory
Generally, the adequacy of consideration is not a proper subject for judicial strutiny
Settlement of a claim is consideration.
Paying someone $1000 to forbear/wave the claim (i.e., right to sue, etc.), is consideration...and vice versa.
The policy favoring such compromises of disputed claims suggests that the claimant be allowed to enforce the promise, even if the settled claim later prove to be invalid.
The claim must have enough grounding to be at least "doubtful".
Form and Reform
Recitals
Claiming facts in a K.
These facts may or may not have happened.
Cannot turn something, which cannot be consideration, into consideration by saying "in consideration of..."
Not within drafter's power to change falsehood into truth by reciting that an act has been done as consideration in a promise if the act has not been done.
7.2 Bargain/Exchange Theory
7.2.1 For there to be valid consideration, each party must BARGAIN FOR the consideration, and there must be NEW LEGAL DETRIMENT.
7.2.2 Restatement §71: (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.
7.2.3 Actual benefit does not necessarily have to transfer to the other party for consideration to be held valid.
Forbearance/waiving of a legal right constitutes consideration.
The party must simply give up the legal right to something (i.e., legal detriment).
Case ex. Hamer v. Sidway - Uncle promises to give nephew $5000 if he refrains from smoking, etc. until he is 21. The nephew doesn't get his money and sues. D tried to say that
there was no consideration given to D. The court says that as long as P GAVE UP A LEGAL RIGHT (i.e., forbearance), this counted as consideration.
7.2.4 Case ex. Kirksey v. Kirksey - D told P to come see him and when she got there, he would give her a place to live. After 2 years, D told P to leave. Although there was detriment,
it was not bargained for...D received nothing, and P never really gave anything up...it was more a gift, according to the courts.
Argue there was consideration: P gave up her possessions and land where she was living and she acted for D's benefit. Giving up these right constituted a bargained for legal
detriment.
Argue no consideration: She was not asked to leave her stuff behind. D's offer was just a gift.
7.2.5 For there to be forbearance on a claim, the person must have a legal right to the claim.
Restatement §74 (1): Forebearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
(1) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
(2) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.
To use something as consideration, the person must have a legal claim on it.
(i.e., you cannot give away someone else's property as consideration)
You cannot forbear on a suit that you have absolutely no claim to bring.
Case ex. Duncan v. Black - P bought some land from D, and along with this land D was buying the cotton allotment with it (K1)...however, it was illegal/invalid for D to sell his
allotment...this wasn't allowed by the regulations. They were going to enter into a (K2)...P tried to say that he was going to give up his right to rescind the K1. This was invalid
consideration because he never really had a legal claim over K1 because it was an invalid contract.
(i.e., you can't promise to give up what you don't have)
7.2.6 The court usually does not consider the adequacy of consideration.
These are consenting adults who agreed to the terms of the K.
If they made a bad deal, they should live with the terms they made.
The court would be substituting their judgment in place of the party's own business judgment.
The court would be judging it ex post, instead of ex ante...like it should be judged.
Restatement §79: 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."
Case ex. Batsakis v. Demotsis - P gave D $25, and D agreed to pay P $2000. The court upheld this as consideration. It does not matter that there was a disproportionate
consideration given. The court usually does not get involved in the question of adequacy.
Argue no: She was in a time of crisis, and he took advantage of her.
Argue yes: This could have saved her life...wasn't this worth $2000? She agreed to the terms, she could have re-negotiated or found another seller.
7.2.7 The law permits a person to be an idiot. Parties must look out for themselves when creating K's. They should do their own research and look out for their own needs.
It is possible for both parties to walk away from the K as "winners." It is all about who values what...
If I value your Blackacre more than my $200, and you value my $200 more than your Blackacre...we can make a deal and both walk away in a better position than we were.
7.2.8 Atiyah's Model of Contract Theory:
1. Deal with each other at arm's length
2. They haggle.
3. They don't have a duty to share info.
4. The only limitation to non-government interference is opportunism (e.g., duress, fraud).
The court is only a referee.
5. The content of the K is for the parties to settle.
7.2.9 The court should step in when there has been opportunism.
7.2.10 Case ex. Schnell v. Nell - P agreed to pay D $0.01 as consideration. Here the court considered the inadequacy. Is it really bargained for if one of the party's just throws in some
ridiculously low amount that probably won't get paid? The court said that this was a sham. Also, the forbearance to bring that was also used for consideration was a false recital
(i.e., he had to legal claim to bring suit on).
7.2.11 Case ex. Newman and Snell's State Bank v. Hunter - Not only was there a false recital...there was NO consideration. The P tried to trade a worthless bank note and stock to an
insolvant company for a new bank note. The court said that the original note and stock were worthless...therefore, they couldn't be used as consideration...there was no new
legal detriment by the bank.
Restatement §175: (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative,
the contract is voidable by the victim.
(2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to
the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
Restatement §176: (1) A threat is improper if:
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a K with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat,
or
(c) what is threatened is otherwise a use of power for illegitimate ends.
Case ex. Post v. Jones - A ran-aground ship captain agreed to an auction of the oil he was transporting. The court held that it was duress because he had no other option.
Stone believed he did. He could have set a price minimum on the auction or waited until maritime law kicked in and then the other boats would have had to rescue him and his
cargo.
Case ex. Mitchell v. C.C. Sanitation - P was driving his truck for work when he was involved in an accident. His company pressured him to settle the claim by threatening his job. He
gave up his right to suit for a small settlement. The court held that he was under duress and the K (the settlement) was void.
 Case ex. Post v. Jones - A ran-aground ship captain agreed to an auction of the oil he was transporting. The court held that it was duress because he had no other option.
Stone believed he did. He could have set a price minimum on the auction or waited until maritime law kicked in and then the other boats would have had to rescue him and his
Contracts cargo.
Case ex. Mitchell v. C.C. Sanitation - P was driving his truck for work when he was involved in an accident. His company pressured him to settle the claim by threatening his job. He
gave up his right to suit for a small settlement. The court held that he was under duress and the K (the settlement) was void.
Stone believed that, because he was an at-will employee, he could have been fired at any time. He had no legal right to a job. He was trying to claim a right to something he did
not have (i.e., a contract for a job)... See Duncan v. Black
7.2.12 Restatement §205: Every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
7.2.13 Stone's 5 Elements of Critical Analysis
1. Don't assume anything
2. Never say never
3. You can't always say always
4. Use thinking (econ. criteria) instead of emotion (non-econ. criteria)
5. Don't worry about the results/conclusions...think about the "why's"...argue yes, argue no.
7.2.14 Financial hardship does not qualify as economic duress.
Is there really such of a thing?
7.2.15 Threatening not to do business is not economic duress.
7.2.16 You could argue yes for blackmail.
Why shouldn't you be able to use information to gain a better bargaining position.
What if it's a legal right?
These people made bad choices...they have to pay for them.
7.2.17 Argue no for rent control:
These are adults, they can go elsewhere.
The large down deposit is protection against damages...if you strike this, the monthly rent will increase.
It creates a housing shortage because builders won't build there.
7.2.18 Restatement §87: (1) An offer is binding as an option K if it:
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, 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 K to the extent necessary to avoid injustice.
Case ex. Seyferth v. Groves & Sand Ridge RR Co. - P signed an option K with D, where D could purchase P's land for $45/acre. The consideration to keep the option open was $1.
The court did not consider this a sham or false recital. In an option K, the court says that you only need a citing of the consideration. It is not even necessary that it be paid.
7.2.19 Common law courts will not scrutinize the adequacy of the consideration given up; while equity courts may scrutinize the consideration.

7.3 Reliance as Consideration

7.3.1 This is used when the consideration was not bargained for.
7.3.2 One of the parties says that they "relied" on the promise of the other.
7.3.3 Restatement 2nd §90: 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 the
breach may be limited as justice requires.
7.3.4 Restatement 1st §90: Inducement by the promisor which promisee relies on to his detriment...the reliance must be of substantial and definite nature.
7.3.5 The reliance doctrine is rarely used. You should bargain for your K!!
7.3.6 Case ex. Devecmon v. Shaw - Nephew takes a trip to Europe on request of his uncle. Uncle promises to pay for expenses, but dies...the estate doesn't want to pay. The court
found consideration. The uncle induced the nephew to take the trip.
Argue yes for C:
The nephew relied on the promise by spending money, which he could have spent elsewhere.
Uncle got the benefit of knowing his nephew got to visit Europe.
Argue no for C:
The nephew didn't really give up anything...he spent money on himself.
It was a gift.
There was no legal detriment to the nephew.
7.3.7 Elements to reliance as consideration
1. Reasonable reliance
2. Inducement
7.3.8 Estoppel - rests ont the generally shared moral intuition that a party who through some misrepresentation had induced another to change his position, should be precluded
(estopped) in a later action from claiming that the truth is different form what he had represented it to be.
7.3.9 Promissory Estoppel: It is generally true that one who has led another to act in reasonable reliance on his representations of fact cannot afterwards in
litigation between the two deny the truth of the representations, and some courts have sought to apply this principle to the formation of contracts,
where, relying on a gratuitous promise, the promisee has suffered detriment.
Case ex. Feinberg v. Pfeiffer Co. - D told P they would give her $200/mo. when she retired. After she quit, they didn't pay the money. The court held that she relied on the promise,
because they induced her to quit...because she wouldn't have otherwise.
You could argue that she didn't "give up" anything because she had no legal right to the job...she was an employee-at-will. This was just a gift.
The court just created a pension plan.
7.4 Mutuality
7.4.1 For a K to be valid, consideration must be given on both sides. It is not enough that one side give up something.
7.4.2 Both parties must be bound to the K. (i.e., If one is to be bound, then both must be bound.)
7.4.3 Restatement §77: A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative
performances unless
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the
promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
Ex: If Seller offers Blackacre to Buyer for $50,000 as long as I don't change my mind, this is illusory. Seller is not bound by the K.
7.4.4 Mutuality only looks to see if there is ANY consideration...it does not get into the adequacy of consideration.
Case ex. Lindner v. Mid-Continent Petrolium Corp. - D had the right to terminate the lease with a 10-day notice. P tried cancel the K by saying that the K was illusory because D
wasn't bound. The court said that D would be bound for at least 10 days...this is still consideration.
7.4.5 There are, however exceptions to the this rule: Requirement/Output K's, conditional K's, Best effort K's.
Requirement/Output K - This exception will be upheld so long the party doesn't have other alternative sources.
The consideration is giving up the right to purchase/sell to another party.
Case ex. Great N. RR. Co. v. Witham - D agrees to sell to P all needed supplies for 1 year. D backs out and says that the K is illusory because P is not bound. This is an
exception to the rule, because this is a Requirements K. This is upheld because P does not have any alternatives. They are exclusively contracted with D.
Case ex. De Los Santos v. Great Western Sugar Co. - P, along with other haulers, agreed to haul beets for D...after 2 months, D dismissed P. The court said there was no K
because D's promise was illusory. He was not bound to use P's services.
7.4.6 When party agrees to purchase "all of their needs" from another party, there are some stipulations that must apply.
A party must use "good faith" on the amount of product that they request.
UCC §2-306 (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.
Case ex. Loudenback Fertilizer Co. v. Tenn. Phosphate Co. - P agreed to buy phosphate from D. They didn't purchase anything for 1.5 years, and then D refused to sell to them.
The court said that fluxuations are allowed in these type of contracts, but the fluxuations must be reasonable and in good faith. The buyer agreed to purchase SOME rock.
Case ex. Empire Gas Corp. v. Amer. Bakeries, Co. - D agreed to purchase propane conversions kits from P as their needs required. D purchased none. The court had to apply
the good faith test here. Purchasing ZERO is highly disproportionate!! D showed no evidence of why they didn't purchase...so P won on an evidence issue. Purchasing no units
when you have no reason not to purchase is evidence of bad faith.
Argue for P: This was bad faith dealing. They could have made purchases and chose not to.
Argue for D: Could have shown that it was economically more feasable to stay with regular gas.
It would be possible to purchase zero, but you have to have more of a reason than a whim.
Mutuality Subject to a Condition Precedent - There is mutuality if the condition comes to pass.
A promise may be subject to the happening of a conditional event, even if this event is solely within the power of one of the parties.
Restatement §76 (2): A promise conditional on a performance by the promisor is a promise of alternative performances within §77 unless occurrence of the
condition is also promised.
Case ex. Scott v. Moragues Lumber Co. - D agrees to charter a boat to P if D purchases the boat. D does purchase the boat but then charters it to another person. D said that
there was not consideration given by him because he wasn't bound to buy the boat. Although he wasn't bound to buy the boat, if he did buy it, he was not bound by the orginal K.
2-Step Test Analysis
Remove the condition and see if it would be binding: If I purchase the boat, I will charter it to you BECOMES I will charter it to you.
If they had bargained only for the second part [after the condition] would there be consideration?
Limitation: A party cannot rely on the condition to avoid the K.
Case ex. Sorenson v. Connelly - Buyer agrees to purchase house from seller on the condition he is able to obtain a mortgage. Buyer makes no effort to find a mortgage and
cancels the K. Held for seller. Buyer was under an obligation to attempt to find a loan.
This could have been contracted around by putting in a "best efforts" clause into the K.
Implied Best Efforts - Sometimes the court will imply a "best efforts" clause to make an illusory promise into consideration.
UCC §2-306 (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.
Case ex. Wood v. Lucy, Lady Duff-Gordon - P agreed to market D's name on clothing designs. He had exclusive rights to use her name. D rescinded the K by saying that P's
promise was illusory. He was under no obligation to sell anything. The court implied a best efforts clause.
 Implied Best Efforts - Sometimes the court will imply a "best efforts" clause to make an illusory promise into consideration.
UCC §2-306 (2): A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed
Contracts 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.
Case ex. Wood v. Lucy, Lady Duff-Gordon - P agreed to market D's name on clothing designs. He had exclusive rights to use her name. D rescinded the K by saying that P's
promise was illusory. He was under no obligation to sell anything. The court implied a best efforts clause.
This is economically reasonable. Why would someone sign a contract and then not use that K to make money??
Case ex. Bloor v. Falstaff Brewing Co. - P sold D his brewery. Under the terms of the K, D was required to use best efforts to sell his beer label and he would get royalties for 6
years. The court held that D did not use best efforts to promote the beer.
Argue no to best efforts: D spent less and less money on the advertising of the brand.
Argue yes to best efforts: There was no market demand for the beer. They were making smart business decisions to sell less of it.
7.4.7 Employment-At-Will
Stone argues that an at-will employee does not have a legal right to his job, as in Mitchell. The court, however, does find exceptions to this rule, other than reliance.
Employment at will is a voluntary K
Freedom to K
the employer owns his property capital
the employee owns his labor capital
they could have negotiated for a "regular" K
They take the risk ex ante, to get the benefits of K's
there is a competitive market for labor - they aren't going to fire for no reason...the market will fix it
this is a good solution to imperfect information
(e.g., dating...you don't start with a K, because you don't know what you'll be getting. the can "quit" after a few dates. this is a low cost remedy, because you can just leave.
it is cheap to administer
it has low monitoring costs
it has a low exit costs
Case ex. Mabley & Carew v. Borden - P's sister worked for D. D informed P's sister that if she was still working for D when she died, he would give a beneficiary money. When she
died, D refused to pay. The court upheld the promise because he induced her to stay.
Case ex. Belline v. K-Mart Corp. - P reported his manager's suspicious activities to other people. He was fired by the replacement manager. He claimed retaliatory discharge. The
court said that you cannot fire someone for upholding public policy. They said that reporting crimes is upholding public policy.
The employee had other options in the case.
Argue yes: He was trying to uphold public policy. He was only doing what his job description required him to.
Argue no: He didn't uphold public policy because he just reported it internally. It just cost the company money...no one benefitted and there was no public good done. The
company made a smart business decision by letting a "busy-body" employee go. They are saving money.
Elements of a Wrongful Discharge
1. The employee was discharged
2. In retaliation for their activities
3. The discharge violates public policy
"Public policy concerns what is right and just and what affects the citizens of the state collectively."
Case ex. Grouse v. Group Health Plan, Inc. - P got a job with D, but before he started D changed their policies and required references. They could not obtain his references, so
they hired another person instead. The court upheld the suit because he relied by quitting his other job and turning down another.
Was a lawsuit the best way to handle the situation? If you sue your boss, you might not have another.
Hypo:
you're shopping with mother
she has purse and many other things, she puts the jewelry in her purse
she doesn't take it back out to pay
to be consistant with the k-mart case, should you call over the security guard?
you could handle this privately
tactfully say something to her directly

7.5 Pre-Existing Duty

7.5.1 Restatement §73: 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.
7.5.2 The consideration used for K1 cannot be used to form K2. The person already has a legal duty perform it.
There is no new legal detriment.
We need the virginity of contract consideration.
Hypo: A owes B $500 in K1
A says I'll transfer the $500, if you transfer your lawnmower to me
This is not consideration
A already had a pre-existing consideration
Case ex. Alaska Packers' Ass'n v. Domenico - D agrees to work for P. Once on the remote job site, D demands more money for the same work. The court said that there was no
new C for the K2 because D had already signed away his labor. (Also, this has duress written all over it.)
If the C is altered, then the court is more likely to uphold valid C.
Case ex. Glamorgon County v. Council v. Glasbrook Bros. - D asked the police to station a garrison at his mine to protect the workers from the one's who were striking. He
promised to pay for it...but then refused to pay. The court upheld the promise because the police were doing something extra beyond their normal capacity.
This is a way to get around the pre-existing duty rule.
7.5.3 The court also does not consider reassessment new C.
Case ex. Foakes v. Beer - The P won a suit against D. D asked if he could pay it off over time, and P agreed. Afterwards, P wanted the interest payment as well. The court said that
payment of part cannot satisfy the whole.
Argue yes: Only partial payment is not the same as full payment. This not a K2 because the C is already promised.
Argue no: The parties took a reassessment of their situation. What if someone risked losing the whole sum if the other person went bankrupt and they agreed to take a smaller
sum? Isn't this economically smart...they chose how to allocate risks.
7.5.4 Restatement & UCC Exceptions to the Pre-existing duty rule
Restatement §82: A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the
indebtedness is still enforceable or would be except for the effect of a statute of limitations.
Restatement §83: An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy proceedings begun
before the promise is made, is binding.
UCC §2-209: An agreement modifying a K within this Article needs no C to be binding. The UCC has abolished the pre-existing duty rule!!
7.5.5 Other Ways Around the Pre-existing duty rule
Liquidated v. unliquidated claims
Liquidated debt - one that is presently due and which there is no legitimate dispute
If a creditor is merely reassessing the claim, there is no new legal detriment
What if there is something new?
If we change the time terms, this because a unliquidated claim
Mutual discharge and substitution
Statutes
7.5.6 Commercial Impracticability
This is an exception to the pre-existing duty rule. This gives the parties a chance to modify their K due to extreme, unforeseeable circumstances.
Case ex. Blakeslee v. Board of Water Commissioners of City of Hartford - P entered into a K to build a dam for D. The dam required a lot of labor and raw building materials. Once
the K was entered into, the US entered WWI. This made it impossible for P to finish the work by the deadline. D agreed to modify the K. They then tried to back out of the
modification. The court upheld the modification. The court listed that the circumstances must be: substantial, unforeseen, & not within the contemplation of the parties at formation.
Stone's Test to Determine if the situation falls under commercial impracticability:
1. There must be a legitimate need (extremely changed circumstances)
Argue yes/no under each prong
2. The other side, promisor, voluntarily recognized this extreme circumstance and agree to the modification
Was it voluntary??
3. Promisee is not attempting to take advantage of the promisor to extract a more advantageous K
Argue yes/no
7.5.7 Accord and Satisfaction
Accord - a K under which the obligee promises to accept a stated performance in satisfaction of the obligator's existing duty.
Satisfaction - when performance of the accord is complete

When the peformance of the satisfaction is complete, the original duty is THEN discharged, and is said to be by accord and satisfaction.
7.5.8 Moral/Gift Obligations
Restatement §86(2)(a): A promise is not binding under Subsetion (1) if: if the promisee conferred the benefit as a gift or for other reasons the promisor has
not been unjustly enriched.
Case ex. Mills v. Wyman - The D agreed to pay P for taking care of his son afterwards. The court held that there was no consideration because it was a past benefit and moral
obligation is insufficient. There is no new legal detriment.
You can't even argue an implied K because there was EXTREMELY low transactions costs...they had time to form the K.
Good Samaratin don't make K's...they make gifts.
Case ex. Webb v. McGowin - P saved D's life, but was injured in the process. D agreed to pay P $15/week for life. D stopped paying. The court held that there was C.
D paid for awhile, this shows intent...he was serious.
Maybe he was estopped from saying the K didn't exist.
Argue no: this was only a gift based on moral obligation.
Here, you could possibly find an implied K because the transaction costs were high and D would want his life saved.
 Case ex. Webb v. McGowin - P saved D's life, but was injured in the process. D agreed to pay P $15/week for life. D stopped paying. The court held that there was C.

Contracts Argue no: this was only a gift based on moral obligation.
Here, you could possibly find an implied K because the transaction costs were high and D would want his life saved.
Case ex. Harrington v. Taylor - P saved D's life, but did a poor job and was injured in the process. The court denied that there was C.
If you're going to save someone, do a good job.
Maybe the court doesn't want to reward someone for their own negligence.
There is not a unanimous opinion on whether moral obligation should be C.
Use econ. analysis and look for implied K's.

8 Statute of Frauds
i Introduction
a Importance
1 -
a An oral K in enforceable, unless the statute of frauds requires it be in writing.
b If it must be in writing, it is termed as "being within the statute."
c This can invalidate otherwise enforceable K's.
d It is used for important K's.
b History
c Purposes
1 Protection against fraud and mistake
2 Assure deliberation before making a promise concerning important matters
3 To specify a method by which intention may be given legal effect
d Farnsworth
1 If a modified agreement is within the statute, the statute must be satisfied in order for that new agreement to be enforceable.
2 Effects in General
a What does unenforceable mean in this context?
If the statute precludes enforcement against a party, the K cannot be the basis of an action brought against that party.
Nor can it be the ground of a claim against that party in an action brought by that party.
Nor can it be the basis of a defense to a claim asserted by that party.
b The court will not raise the statute of frauds.
c In general, if one promise is within the statute, the entire K is within the statute, and no part of the K is enforceable unless the statute is satisfied.
3 Restitution
a Even though the statute of frauds may prevent an injured party from enforcing the K when the other party unjustifiably refuses to perform, courts generally allow the injured
party restitution of any benefit that the injured party has conferred on the other by part performance.
The usual relief is a money judgment
If the claimant has paid money under an unenforceable K, recovery is based on the amount paid.
If the claimant has rendered services or made improvements under an unenforceable K, recovery is based on the value of the services or improvements to the recipiant.
There is no recovery for reliance by the injured party that was not bargained for or requested and that has conferred no benefit whatsoever.
b According the Restatement a party can demand that the party that can enforce the K sign a memo.
If demand is refused, the party making the demand is entitled to suspend performance without being in breach and can therefore claim restitution with no deduction for
damages caused by the failure to finsh performing.
4 Reliance
a To the extent that the reliance has not resulted in a legally recognizable benefit to the other party, restitution will be unavailable.
b An estoppel might also arise when a party relies on "the promise that the K will be performed...when he changes his position."
...where either an unconscionable injury or unjust enrichment would result from refusal to enforce the K
ii Pervasive Problems
a Avoiding Injustice
1 Can be used as an instrument of fraud
a Part-performance can possibly take the K out from under the statute of frauds
b A party may be able to recover under restitution.
Restatement §139
1. Some kinds of reliance have been recognized as substitutes for a signed writing
2. Some kinds of reliance are codified in the statute as sufficient to make an oral promise enforceable
3. reliance that benefits the D amy result in recovery on an unjust enrichment theory even if the oral agreement itself is not made enforceable, but in some states courts will
reach further than in others to find a "benefit" when part performance has not increased the D's assets
4. The 2nd Restatement and some states find any reliance sufficient to overcome a statute of frauds objection to the extent necessary to avoid injustice.
Once the oral contract has been fully performed by both parties, one of them cannot undo it on the grounds that he could not have been compelled to do what he has done.
b Restitution
1 Usually a P will be compensated for benefits that part performance has conferred on the D to avoid unjust enrichment.
c The Kind of Writing Required
1 Some statutes require different things
a Some require that the consideration be cited...others do not.
b The letter need not be intended to be a letter of the agreement.
c The memo need not be sent to anyone in particular (or anyone at all).
d The memo must be signed.
d Oral Rescission or Modification
1 Usually held not to violate the statute if the rescission does not result in the retransfer of property that is the subject of the statute.
e Farnsworth
1 Nature and Contents of Writing Required
a Traditional way to satisfy the statute is by a signed writing, commonly called a "memorandum"
b The memo doesn't have to be any particular form.
It may be made up of several writings, and they may have been made at different times.
It need not have been delivered or communicated to the other party
It need not even have been directed to the other party or made for the purposeof satisfying the statute.
Among the many kinds of writings that have been held to satisfy the statute are:
letter, email, telegram, receipt, invoice, a check, a penciled price list, the minutes of a meeting, another K, a will
c The memo may be made either before or after the formation of the contract
d Courts agree that a writing is not insufficient as a memo merely because it has been made in a court proceeding, at least if the writing was made voluntarily.
e Under §2-201(3)(b), the statute is satisfied if a party admits in its pleading, testimony or otherwise that a K for sale was made even if the admission is not in a writing or other
record.
f The memo need not still be in existance at the time of the suit.
g In general, the memo must do the following with reasonable certainty:
1. Identify the parties to the K and show that a K has been made by them or offered by the signatory to the other
2. Indicate the nature of the K and its subject matter
3. State the essential terms of the promises to be performed under the K.
h Most courts now agree that the memo need not state the C if it has already been given, so that even a false recital of such a past event will not affect the sufficiency of the
memo.
Most courts insist, however, that the memo state the C if it has not already been given.
i The UCC requires that the quantity of goods be listed.
This can be satisfied by things such as: "output" "requirements" or "best efforts".
2 Requirement of Signature
a The statute's requirement that the writing be signed is not applied with rigor. The modern test is whether the other party reasonably beleives that the asserted signer's intention
is to authenticate the writing as the asserted signer's own.
It does not matter where the signature is located.
The symbol may be put in the writing by any means.
Even a letterhead can be a signature.
The signature can be done by agent.
b The memo only needs to be signed by "the party to be charged."
c If the memo consists of several writings, the requirement of a signature must be met with respect to the entire memo.
d §2-201(2) provides that if both parties to a K for the sale of goods are merchants, and one sends the other "within a reasonable time a writing or other record in confirmation of
the K and sufficient against the sender," the party receiving it must give "notice of objection to its contents" in a writing or other record "within 10 days after it is received" or the
statute will be satisfied in favor of the sender.
3 Satisfaction by Part Performance
a As a general rule, part performance does not of itself make a K within the statute enforceable. Part performance may, however, give the performing party an argument based
on reliance or at any rate a right to restitution.
b The Code drafters agreed that "receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that K actually exists."
They cut back the exception, however, by providing that the statute is enforceable only "with respect to goods for which payment has been made and accepted or which have
been received and accepted."
 3 Satisfaction by Part Performance

Contracts b The Code drafters agreed that "receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that K actually exists."
They cut back the exception, however, by providing that the statute is enforceable only "with respect to goods for which payment has been made and accepted or which have
been received and accepted."
If the court cannot make a just apportionment, as int he case of acceptance and receipt of some but not all of the parts of a dismantled machine, or partial payment against
an indivisible unit of goods, the prevailing view is that the K is enforceable in its entirety.
c What is called a "part performance doctrine" is also recognized in connection with the land K provision.
First, it is generally regarded as making the K enforceable only in equity and not in an action at law for damages.
Second, it has generally been applied only in favor of purchasers and not vendors.
Third, courts have required a measure of reliance that often seems unrelated to any evidentiary function.
d The rule in the Restatement states in gneral terms that the statute does not bar specific performance if the purchaser "has so changed his position that injustice can be avoided
only by specific enforcement."
e Though there is no exception for a party's part performance of a K within the one-year provision, most courts have held that a party who has fully performed such a K can
enforce it.
iii -----------------------
iv Sale of Goods
a UCC §2-201(1): When a Writing is Required and What Kind of Writing
1 The price must be $500 or more.
a Must indicate a K has been formed, name the parties, be signed by the party to be charged, and state a quantity.
b If labor and goods are being sold, the predominant portion of what is bargained for determines if its a goods or labor K.
b UCC §2-201(2): Written Confirmation
1 If both parties are merchants, one need not have signed a writing if he or she receives a signed confirmation of the K sent by the other and
does not within10 days after receiving the confirmation give written notice of objection to its contents.
a To be a merchant, the person must be acting in their mercantile capacity.
c UCC §2-201(3): Enforceability Without a Signed Writing
1 UCC §2-201(3)(a): Specially Manufactured Goods
a A K to sell such goods is enforceable if the seller has begun manufacture or made commitments to procure the goods under circumstances that indicate that the goods are for
the buyer and before receiving notice of the buyer's repudiation.
2 UCC §2-201(3)(b): Defendant's Admission
a The K is enforceable against a party who "admits in his pleading testimony or otherwise in court that a K for sale was made."
3 UCC §2-201(3)(c): Goods Delivered or Payment Made
a The K is enforceable if the goods have been received and accepted or payment for the goods has been made and accepted.
This applies only the portion that has been delivered or paid.
d Other Alternatives to a Signed Writing
1 Maybe -----> It depends on the jurisdiction
e Farnsworth
1 General
a UCC §2-201 applies to both a K under which ownership of the goods passes immediately to the buyer and also to a K under which ownership is to pass at some future time.
b UCC §2-201 does not apply unless the K is one "for the price of $500 or more."
If the price exceeds the dollar threshhold and the statute is not satisfied, the section does not make the K enforceable up to the amount of the dollar threshhold; it is
unenforceable in its entirety.
c UCC §2-201 does not apply to intangible property.
d With regard to K's that involve both goods and services: In doubtful cases courts have usually searched for the "predominant factor" of the K, as they have done under other
provisions of Art. 2.
v Sale of Land or an Interest in Land
a Interest in Land
1 Purchasing/Selling
a Both the promise to buy and the promise to sell land are within the statute, so long as the conveyance has not been made.
2 Interest in Land
a An easement to enter upon and use land is an interest in property but a "mere" license to use realy is not.
b Part Performance Making Contract Enforceable
1 The extent to which the acts are evidence of the oral agreement
2 The degree to which injustice may result if the party who has relied on the oral promise is not able to compel conveyance of the land.
c Farnsworth
1 General
a Transactions in land are almost always of such significance as to warrant an evidentiary formality and in part to the fact that the provision also performs a channeling function,
by furnishing a simple test to mark off unenforceable agreements from enforceable ones.
b The land K provision is generally limited to the contract for the sale of an interest in land; the formal requisites for a conveyance of land (e.g., deed) are determined by other
statutes.
2 Meaning of Contract for Sale
a The term "contract for sale" covers any agreement that contains a promise to create or transfer an interest in land.
b Since the land K provision does not apply to present conveyances, it does not cover a unilateral K under which a purchaser promises to pay the price in return for a present
conveyance of land.
3 Nature of Interest
a The term "interest," within the meanings of this provision, includes "any right, privilege, power or immunity, or combination thereof.
b The mere fact that a K relates to land or involves the use of land does not bring it within the land K provision. Thus the provision does not apply to a right to use land if it is not
characterized as a mere "license," as opposed to a lease or an easement.
A K to make a lease is plainly one to transfer an interst in land. SOF generally make an exception, however, for short-term leases, typically those for one year or less.
4 Scope of Land
a It comprises all tangible property other than goods.
b K's for the sale of products of the soil (e.g., crops) that result from cultivation have generally been regarded as K's for the sale of goods, even though the products are attached
to the soil when the K is made.
c In the case of a "contract for the sale of minterals or the like (including gas and oil) or a structure or its materials to be removed from realty, the classification depends on who is
to sever the property to be sold from the land.
If it is the vendor that is to sevel it, the K is one for the sale of goods.
If it is the purchaser that is to sever it, the K is one for the sale of an interest in land.

vi Contracts not to be Performed Within One Year

a Agreements Within the Statutes
1 Most courts have held that for the statute to apply there cannot be any possibility that the agreement will be performed, as distinguished
from prematurely discharged, within a year.
2 The one year does not being to run until an agreement is made, ordinarily when the offer is accepted.
b Part Performance
1 When one party has completed his part of the K, the other party's promise can be enforced, even if the completed performance took longer
than one year.
c Farnsworth
1 General
a Cover K's that are not to be performed within one year of their making.
In measuring the period of time, the two points of reference are the time of the making of the contract and the time when performance is to be completed.
The time before actual commencement is counted as well.
If any promise of either party cannot be fully performed within the one-year period, the entire K is within the statute, and it cannot then be enforced against either party unless
it is satisfied as to that party.
Most courts have read the words "not to be performed" to mean "not performable." Therefore, if the K is one of indefinite duration, but performance within a year is possible by
its terms, the K is not within the statute no matter how unlikely it is that it will actually be performed within a year.
The critical test is whether "by its terms" the agreement is not to be performed within a year.
Performance upon death or ceasing performance upon death does not fall within the SOF since death can occur at any time.
Excuse is not performance even if the excuse is expressed in the promise.
vii Answer for the Debt of Another (Surety)
a Promises Within the Statute
1 An oral promise to act as a surety (to pay another's debt if he does not) is unenforceable.
a It is not enforceable, even if C is given or that the promise was relied on.
b Exception: If A buys on behalf of B from Seller, this is not a promise to "anwer for the debt of another."
b Main Purpose Exception
1 If the surety's promise is made primarily for her own economic advantage, the promise is not within the statute.
c Farnsworth
1 Evidentiary Function
a Because a surety receives from the obligee nothing in exchange that might serve to evidence the surety's promise, it can be argued that there is a special need for written
evidence of that promise.
 c Farnsworth
Contracts 1 Evidentiary Function
a Because a surety receives from the obligee nothing in exchange that might serve to evidence the surety's promise, it can be argued that there is a special need for written
evidence of that promise.
2 Cautionary Function
a The writing helps bring home to the surety the significance of the promise, it guards against ill-considered promises.
3 General
a A surety is a person who is liable for the duty of another person, who is called the principal.
b The obligee is the creditor.
c There can be no suretyship relationship unless there is a principal duty.
4 No suretyship relationship
a No suretyship relationship exists when the obligee delivers goods or services to the other relying on the credit of the promisor.
In this case, the promisor is the principal and the 3rd party is simply receiving a benefit.
b A suretyship relationship does not exist when the surety promise is made to the principal rather than the obligee.
c Main purpose rule - a suretyship relationship does not exist if the actual or apparent main purpose in making the promise is an economic advantage to the surety rather than a
benefit to the principle.
(i.e., If someone is guaranteeing credit to make a profit.)

viii Promise of Executor or Administrator

a
1 The promise of an executor or administrator of an estate to answer personally for the duty of the decedent is a specialized example of a
promise to act as surety
a The novation exception applies when the executor promises to pay the decedent's debt if the creditor does not fiel his claim in the estate administration.
ix On Consideration of Marriage
a
1 An oral promise is unenforceable if all or part of the consideration is marriage or a promiseto marry.
a Cases must be distinguished in which marriage is the condition on which the promise is to be performed but not the consideration for the promise.

9 Parol Evidence Rule

9.1 Farnsworth
9.1.1 Should litigation ensure, one party may seek to introduce evidence of the earlier negotiations in an effort to show that the terms of the agreement are other than as shown on
the face of the writing.
The party will be met with a rule known as the "parol evidene rule," which may bar the use of such extrinsic evidence to contradict and perhaps even to supplement the writing.
9.1.2 The parol evidence rule is best understood in light of its purpose: to give legal effect to whatever intention the parties may have had to make their writing at least a final and
perhaps also a complete expression of their agreement.
If the parties had such an intention, the agreement is said to be integrated and the parol evidence rule bars evidence of prior negotiations for at least some purposes.
If the parties had no such intention, the agreement is said to be unintegrated and the parol evidence rule does not apply.
9.1.3 Integrated Contracts
The legal effect of a determination that the agreement is integrated, according to the Restatement 2nd, is that "evidence of prior or contemporaneous agreements or negotiations is
not admissible to contradict a term of the writing.
2 Types of Integrated K's
If the written K was meant to be a final expression of the terms it contains, but not a complete expression of all the terms agreed upon (i.e., some terms remaining unwritten) the
agreement is partially integrated.
If the parties intended the writing to be a complete expression of all the terms agreed upon, as well as a final expression of the terms it contains, the agreement is completely
integrated.
9.1.4 Is the agreement integrated?
The answer turns on whether the parties intended the writing as a final expression of the terms it contains, even if the writing was not intended as a complete and exclusive
statement of all terms on which agreement was reached.
If an agreement is only partially integrated, it must then be determined whether the evidence of prior negotiations sought to be introduced would be "consistant" with the writing and
would therefore merely "supplement" it, or whether it would "contradict" a terms of the writing.
Supplementing the writing is admissible.
Contradicting the writing is inadmissible.
9.1.5 If it is integrated, is it partially or completely integrated?
The answer depends on whether the parties intended the writing as a complete and exclusive expression of all terms on whih agreement was reached, as distinguished from
merely a final expression of the terms that it contains.
The point in dispute is whether the fact that the writing appears on its face to be a complete and exclusive statement of the terms of the agreement establishes conclusively that the
agreement is completely integrated.
Williston's view
It is generally held that the K must appear on its face to be incomplete in order to permit parol evidence of additional terms.
Corbin's view
Account should always be taken of all circumstances, including evidence of prior negotiations, since the completeness and exclusivity of the writing cannot be determined
except in the light of those circumstances.
9.1.6 The focus plainly is on the intention of the parties, not the integration practices of reasonable persons acting reasonably and naturally.
Some writings, such as elaborately drafted agreements signed by both parties, suggest complete integration; others, such as informal memos, do not.
9.1.7 In the face of this uncertainty, the contract drafter is wise to recite that the agreement is completely integrated if it is meant to be so regarded (i.e., do your own planning!!).
The drafter can do this by what is commonly known as a "merger clause," which "merges" prior negotiations into the writing.
A typical merger clause includes a recitals that the writing "contains the entire agreement of the parties."
9.1.8 Exceptions to the Parol Evidence Rule
The fact that an agreement is completely integrated does not affect an attempt to show an entirely separate and distinct agreement between the same parties.
This forms the collateral agreement rule.
Under this rule even the finding of a completely integrated agreement does not preclude the showing of a "collateral agreement," as long as it does not contradict the main
agreement.
Restatement §216: requires that there be "separate C" OR that the term be one that "in the circumstances might naturally be omitted from the writing."
Does not excluse negotiations that took place after the written agreement.
Does not exclude evidence to show that there was no agreement or that the agreement was invalid.
a Although "evidence to vary the terms of an agreement in writing is not admissible...evidence to show that there is not an agreement at all is admissible."
b Evidence of negotiations is admissible to show that no enforceable agreement was reached.
c It still may be shown that the offer was not accepted; that the writing was a forgery, joke, or sham; or that the agreement is unenforceable on grounds of public policy.
d Evidence is admissible to show an oral agreement that the written agreement is not to take effect, in the sense that no duty of performance on either sides arises, unless a
stated condition occurs.
a Extrinsic evidence is admissible only to show a condition that must occur before any duty of performance arises on either side.
b Extrinsic evidence is not admissible even to show a condition to the written agreement taking effect if showing this would contradict a term of the writing.
e The rule does not exclude evidence showing that the agreement is unenforceable for lack of consideration
f The rule does not exclude evidence to show mistake, misrepresentation, or duress as a ground for avoidance.
g The rule does not bar extrinsic evidence to show fraud as a ground for rescission, a tort action for damages, or reformation.
Does not exclude evidence offered to help interpret the language of the writing.
9.1.9 Reformation and the Parol Evidence Rule
The erroneous belief that the writing expresses their agreement can be characterized as a mistake as to expression (or a mistake as to integration).
In such a case the court, at the request of a party, may reform the writing to express the agreement actually reached.
The classic case for reformation is a scrivener's or word processor's error.
The function of reformation as a remedy for mistake is limited to making the writing express the agreement that the parties intended to express.
Reformation is not appropriate unless the parties reached an agreement and failed to express it correctly in the writing.
Reformation is also available when only one party is mistaken as to the contents or effect of a writing if that mistake was induced by the other party's fraudulent
misrepresentation.
In such a case, reformation is an alternative to the remedy of avoidance based on fraud.
Fraud sometimes takes the form of nondisclosure.
If one party is mistaken as to the contents or effect of a writing, and the other is aware of the mistake but does nothing to correct it, the prevailing view is that this
nondisclosure amounts to a representation that the writing is as the mistaken party understands it to be.
Rule does not bar evidence of prior negotiations to show either mistake or fraud as a basis for reformation.
Such evidence is admissible even though its purpose is to show that the writing does not properly express the agreement that was reached, rather than to show that there
is no valid written agreement as a ground for avoidance.
9.1.10 Oral Modification and No-Oral-Modification Clauses
Does not bar evidence of subsequent negotiations to show modifications of the contract.
A clause might read: "This K may be modified or rescinded only by a writing signed by the parties."
The protection sought by this type of clause might also be achieved by a clause that limits who may modify the K orally or non-orally.
Under the UCC, a signed agreement "which excludes modification or rescission" except by a signed writing or other record "cannot be otherwise modified or rescinded."
The drafters softened the reversal by adding in (4) that "an attempt at modification or rescission...can operate as a waiver" even though it is not in wiring as required by the
clause, but providing in (5) that "a waiver affecting an executory portion of the K" may be retracted "unless the retraction would be unjust in view of a material change of position
in reliance on the waiver."`
9.2 Class
9.2.1 Restatement §209(1): An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
(3) Where the parties reduce an agreement to a writing which in view of its ompleteness and specificity reasonably appears to be a complete agreement, it is
taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
 9.2
Contracts Class
9.2.1 Restatement §209(1): An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
(3) Where the parties reduce an agreement to a writing which in view of its ompleteness and specificity reasonably appears to be a complete agreement, it is
taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.

9.2.2 Restatement §213(1): A binding integrated agreement discharges prior agreements to the extent that it is inconsistant with them.
(2): A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.

9.2.3 Restatement §214: Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establishg:
(a) that the writing is or is not an integrated agreement;
(b) that the integrated agreement, if any, is completely or partially integrated;
(c) the meaning of the writing, whether or not integrated;
(d) illegality, fraud, duress, mistake, lack of C, or other invalidating cause;
(e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

9.2.4 Restatement §216 (1): Evidence of a consistant additional term is admissible to supplement an integrated agreement unless the court finds that the
agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing.