ContractsOutline Shupack ReallyHuge

CONTRACTS OUTLINE, 2005-2006
Professor Shupack
SOURCES OF BLACK-LETTER LAW IN CONTRACTS

• Restatement of Contracts (Published by A.L.I.)
o Not binding, but very persuasive
o Restatement (First) of Contracts
 1932
o Restatement (Second) of Contracts
 1981
 Refined Restatement 1st and lined it up with U.C.C.
• Uniform Commercial Code (U.C.C.)
o Adopted by all states except for Louisiana
WHAT IS A CONTRACT?
• An oral or written agreement
• Involves 2 or more persons
• Is an exchange relationship (each party must give up something to get something in return = consideration)
• There has to be at least one promise = some commitment to the future by which liability is created
• Must be enforceable
I. REMEDIES FOR BREACH OF CONTRACT/ PROMISE

• GOALS OF CONTRACT DAMAGES – to provide an incentive for people to keep their promises, because
our economy runs on promises/contracts
o Election/ Choice of Remedies – the non-breaching party must choose which remedy to pursue at trial:
 Monetary Damages
 Specific Performance
 Restitution of benefit conferred on breaching party
 Quasi-Contract/ Quantum Meruit (payment for work performed)
o Types of Damages Recoverable: Expectation, Reliance, Restitution (Restatement §344)

 EXPECTATION DAMAGES = meant to put the promisee in the same position that he would
have been in had the promisor performed
• Generally the 1st type of damages that courts will award for breach (often yields the
most $), unless the particular situation calls for reliance or restitution damages
• Calculation of Expectation Damages
o Restatement §347:
 “The injured party has a right to damages based on his expectation
interest as measured by (a) the loss in the value to him of the other
party’s performance caused by its failure or deficiency, plus (b) any
other loss including incidental or consequential loss, caused by the
breach, less (c) any cost or other loss that he has avoided by not
having to perform.”
o E.g. Hawkins v. McGee, New Hampshire, 1929
 A surgical procedure did not result in the restoration to plaintiff of a
“hundred per cent good hand” as had been promised, but rather, in a
worse hand than the injured one with which the plaintiff had started
out.
Remedies: Goals of Contract Damages – Expectation, Reliance, Restitution
 Holding: Pain and suffering are not the determinants of the amount of
damages owed (that would be reliance damages, as in Sullivan), but
rather, damages are based on difference in value between the
contracted result and the result actually achieved.
o Calculating Expectation Damages in Construction Contracts
 Restatement (1st) §346: Courts may calculate damages according to
either:
• Cost of Repair/ Completion (when builder breaches), or;
• Difference Between Market Value of Uncompleted Project
and Market Value of Contracted Project (when buyer
breaches)
o If the owner breaches after the builder has finished,
builder may recover the contract price
 Cost of Completion/ Repair – Groves v. John Wunder Co., Minnesota,
1939
• Wunder contracted to lease land from Groves for 7 years and
remove the gravel and sand from the property; Wunder agreed
in the contract to “leave the property ‘at a uniform grade’”
upon returning it to Groves; D breached contract deliberately,
removing the gravel, but not at the uniform grade that had been
agreed upon
• Holding: P should recover the cost of repair (returning the
land to uniform grade) even though that cost would be over 4x
the market value of the property had the property been
returned at uniform grade as per the contract
o Court explains that a “bad faith” breach may be
compensated in this overgenerous way, though the
general rule in contracts (as opposed to torts) is that
the aggrieved party should be made whole and no
more
 Difference in Value - Peevyhouse v. Garland Coal and Mining Co.,
Oklahoma, 1962
• Facts are almost identical to Groves, yet court’s holding is the
exact opposite
• Holding: Damages = the difference in market value between
the property as left and the property as it should have been left
according to contract
• a person can’t “recover a greater amount in damages for
breach of an obligation than he would have gained by the full
performance thereof on both sides”
 Louise Caroline Nursing Home, Inc. v. Dix Constr. Corp.,
Massachusetts, 1972
• Abandonment of Construction Project: Dix failed to
complete the nursing home within the time agreed upon in the
contract (without justification); P hired another contractor to
finish the project, and the cost came in under the original Dix
contract price
• Holding: The aggrieved party cannot recover excess damages
if the cost of completion was within the contract price.
• Note: P wanted to recover for the difference in market value
between the unfinished property as left by Dix, and the market
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value of the property as it would have been had there been a

nursing home there, as per the contract
o Court points out that what P wanted is only the case in
a situation of defective construction, not
abandonment
o Calculating expectation damages in contracts for sale of goods:
 Acme Mills & Elevator Co. v. Johnson, Kentucky 1911
• Johnson breached contract to deliver sacks of wheat to Acme
Mills, which were to have been paid for upon delivery;
Johnson promised to sell the wheat to another buyer for more $
than the Acme contract; the market price of wheat on the
expected delivery date was actually less than the Acme-
Johnson contract price  Should Acme be able to recover the
extra profit Johnson made from the later sale?
• Holding: “In contracts for the delivery of personal property at
a fixed time and at a designated place, the vendee is entitled
to…the difference between the contract price and the market
price of the property at the place and time of delivery.” (like
U.C.C. §2-713)
o No damages where contract price exceeds market
price at date of delivery
 U.C.C. § 2-713. Buyer's Damages for Non-delivery or Repudiation.
(1) …the measure of damages for non-delivery or repudiation by the
seller is the difference between the market price at the time when
the buyer learned of the breach and the contract price together
with any incidental and consequential damages…but less expenses
saved in consequence of the seller's breach.
o Calculating expectation damages in land sale contracts
 Generally the same measure of damages as in contracts for sale of
goods (difference between contract price and market value of land at
time of breach)
o In general, expectation damages are calculated so as not to turn the plaintiff’s
loss from breach into a windfall of unexpected profits
 RELIANCE DAMAGES = meant to put the promisee in the position she was in before the
promise was made; damages incurred because the promisee relied on the promise
(Restatement §349)
• Sullivan v. O’Connor, Massachusetts 1973
o Sullivan sues for expectancy damages because of botched nose job
o Holding: The proper measure of damages in most medical cases is reliance –
expectation damages are too uncertain to calculate in medical situations, while
mere restitution of doctor’s fees is too little compensation.
o Because Sullivan was getting reliance damages, she was—unlike Hawkins—
entitled to pain and suffering damages from the surgery (she suffered because
she relied upon the doctor’s promise that she would have a better nose)
 RESTITUTION DAMAGES = meant to prevent the promisor from unjust enrichment as a
result of his breach; damages incurred because promisor induced promisee to confer a benefit
upon promisor which promisor did not reciprocate
• Lauren v. DeCarolis Constr. Co. Inc., Massachusetts, 1977
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o D removed gravel from the land that P had purchased from D without asking
P’s permission, however, the sale transaction had not yet closed (gravel was
“converted” before P had ownership of the land)
o Holding: Restitution damages are appropriate because D’s breach was
“deliberate and willful”, and the damages here are meant to deprive the
defendant “of a profit wrongfully made, a profit which the plaintiff was entitled
to make”.
 Normally, the difference in value of the property pre-gravel removal
and the value of the property as transferred would be the appropriate
measure according to land sale contract expectation damages
(above), however, that amount is not enough to adequately compensate
P here
• LIMITATIONS ON EXPECTATION DAMAGES

o Duty to Mitigate
 The aggrieved party in a breach has an affirmative duty to exercise reasonable efforts to avoid
the worst consequences of the breach by taking steps to mitigate damages:
• Must not increase damages by further action, or by failing to take reasonable alternative
action  courts want to encourage efficient breach
 Builder’s Duty to Mitigate – Construction Contracts

• A builder shouldn’t continue to build after the contract is breached, but is not under
duty to find an alternative construction job during the rest of the contract period (unlike
in employment contracts)
• E.g. Rockingham County v. Luten Bridge Co., U.S. Circuit Court, 1929
o Action by Luten Bridge Co. to recover expectation damages (cost-of-
completion according to contract price) when Rockingham County repudiated
the contract after Luten had begun building the bridge; Luten had continued to
build the bridge after notification that Rockingham would not longer require
the bridge to be built
o Holding: “after an absolute repudiation…by one party to a contract, the other
party cannot continue to perform and recover damages based on full
performance…the plaintiff must, so far as he can without loss to himself,
mitigate the damages caused by the defendant’s wrongful act.”
 Luten Bridge Co. is been entitled to recover $ spent on labor and
materials before the notification of breach, and anticipated net profits
for the rest of the project (i.e. the full contract price less anticipated
labor and materials costs)  because Luten did not mitigate, they lose
the labor and materials $ that they spent on completing the bridge
 Allocation of Overhead
• Overhead is by definition “fixed”, so the cost of overhead may not be deducted from
the contract price as part of P’s cost of completion when P has not finished
performance at the time of D’s breach
• E.g. Leingang v. City of Mandan Weed Board, N. Dakota 1991
o City breached, giving some of the weed-cutting work that was part of
Leingang’s contract to another contractor; the City added Leingang’s overhead
costs into Leingang’s cost of completion to be deducted from the net profits
that the city owed as damages  the court held that this calculation was
wrong:
o Held: value of a contract is dependent on 2 items:
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1) the party’s reasonable expenditures toward performance, not including fixed

overhead costs
2) the anticipated profits
 The anticipated profits should be calculated by subtracting the cost to
perform (not including fixed overhead) from the contract price.
• E.g. Kearsage Computer, Inc. v. Acme Staple Co., New Hampshire 1976
o After Acme breached, Kearsage took on new data processing business, but P
claimed that this new business should not be subtracted from the contract price
as mitigated damages because Kearsage could have handled the new business
whether or not the breach had happened (the breach didn’t save P any money,
because P’s operation costs were fixed independent of P’s volume of business)
 the court agreed:
o Holding: “In the absence of evidence to the contrary a data processing
contract does not involve unique personal services to such an extent that
when the provider of such services seeks new business after a breach of
contract, the income from such new business mitigates the damages owed to
him by the breaching party.”
 Court here compared data processing to construction contracts
 Wrongfully Discharged Employee’s Duty to Mitigate

• Wrongfully discharged employee must make reasonable efforts to find a position of
similar employment  burden is on employer to show that such positions were
available
• Parker (MacLaine) v. Twentieth Century-Fox Film Corp., California 1970
o When Fox informed MacLaine of their breach (they wouldn’t be making the
movie she had contracted to start in), it also offered her a starring role in
another film, a western; MacLaine wasn’t given director and screenplay
approval rights in the new film, and she would have to film in Australia instead
of California  new employment was both inferior and different
o Holding: Wrongfully discharged employee is under no obligation to accept
inferior or different employment in order to mitigate damages
• Billetter v. Posell, California 1949
o Employee wrongfully discharged sues for and is awarded damages in the form
of her promised salary for the remainder of her contractual term (even though
she received unemployment benefits and was offered to keep her job, but for
less $), and for the remainder of a partially-paid contractual Christmas bonus.
o Holding: the employee “is not required to perform the same work for less
pay” in order to mitigate damages
• Collateral Source Rule: Unemployment, social security, insurance, etc. benefits
(collateral sources) are now usually deducted from wrongfully discharged employees’
contract damages (while they wouldn’t be in tort damages)  it would be overly
punitive to employer to force employer to pay contract damages that, when added to
the collateral source, would equal more than the original contract
 Mitigation in Contracts for Sale of Goods (Limitations on Recovery under U.C.C.)
• U.C.C. §2-610: Anticipatory Repudiation. When either party repudiates the contract
with respect to a performance not yet due the loss of which will substantially impair the
value of the contract to the other, the aggrieved party may
o (a) for a commercially reasonable time await performance by the repudiating
party; or
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o (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even
though he has notified the repudiating party that he would await the latter's
performance and has urged retraction; and
o (c) in either case suspend his own performance or proceed in accordance with
the provisions of this Article on the seller's right to identify goods to the
contract notwithstanding breach or to salvage unfinished goods (Section 2-
704).
• § 2-723. Proof of Market Price: Time and Place.

o (1) If an action based on anticipatory repudiation comes to trial before the time
for performance with respect to some or all of the goods, any damages based
on market price (Section 2-708 or Section 2-713) shall be determined
according to the price of such goods prevailing at the time when the
aggrieved party learned of the repudiation.
o (2) If evidence of a price prevailing at the times or places described in this
Article is not readily available the price prevailing within any reasonable time
before or after the time described or at any other place which in commercial
judgment or under usage of trade would serve as a reasonable substitute for the
one described may be used, making any proper allowance for the cost of
transporting the goods to or from such other place.
o (3) Evidence of a relevant price prevailing at a time or place other than the one
described in this Article offered by one party is not admissible unless and until
he has given the other party such notice as the court finds sufficient to prevent
unfair surprise.
• Buyer’s Remedies in U.C.C., §§2-711, 12, 13

o E.g. Missouri Furnace Co. v. Cochran, Pennsylvania 1881
 Missouri Furnace Co. seeks to recover damages for breach of forward
contract, by Cochran, to deliver coke to Missouri Furnace Co. at a
fixed price every working day for a year; after Cochran breached, P
signed a new forward contract for coke that was almost 4x the
Cochran-contract price (market price at that time was high)  P wants
to recover the difference between the “cover” price of its new contract
and the price it contracted with D
 Holding: Damages are to be calculated as the “difference between the
contract price and the market value of the article at the time it should
be delivered.”  P had a duty to cover in the “spot market”, not in the
“future market” for undelivered goods on a forward contract (P should
not have entered into such an unreasonable contract, but rather, should
have bought coal on the spot market until the price of coal went down
again)
o U.C.C. §§2-711, 2-712, 2-713, 2-723, would apply to Missouri Furnace today,
though courts do have trouble making these sections all fit together in cases
like Missouri Furnace  The majority view is that the injured party has a
duty to mitigate damages as much as reasonably possible when a contract for
sale is repudiated; the minority view is more inclined to make sure that the
injured party is compensated, whatever the cost to the repudiating party
 E.g. majority view: Oloffson v. Coomer, Illinois 1973
• Cover for the corn that D failed to deliver was easily and
immediately available at the time of D’s repudiation, and
therefore, the court held that P should not have waited to cover
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until the actual delivery date, when the price of corn became
much higher than the contract price
• Under §2-610(a) P has the right to wait a “commercially
reasonable time” to look for the best cover price, but in this
case waiting until the actual contract delivery date was not
commercially reasonable, and therefore P had to fulfill his duty
to mitigate
 E.g. minority view: Reliance Cooperage Corp. v. Treat, 8th Cir. 1952
• Treat notified Reliance a few months before the contract time
was up that his costs were rising and that he would not make
any barrel staves under the contract price = anticipatory
breach by repudiation
• Holding: “there is no duty to mitigate damages until there are
damages to mitigate”  Reliance was under no duty to cover
until the actual date of the contract arrived
o “The doctrine of anticipatory breach by repudiation is
intended to aid the injured party, and any effort to
convert it into a benefit to the repudiator should be
resisted.”
o § 2-711. Buyer's Remedies in General; Buyer's Security Interest in

Rejected Goods. (1) Where the seller fails to make delivery or repudiates or
the buyer rightfully rejects or justifiably revokes acceptance then with respect
to any goods involved, and with respect to the whole if the breach goes to the
whole contract (Section 2-612), the buyer may cancel and whether or not he
has done so may in addition to recovering so much of the price as has been
paid
• (a) "cover" and have damages under the next section as to all the goods
affected whether or not they have been identified to the contract; or
• (b) recover damages for non-delivery as provided in this Article (Section 2-
713).
(2) Where the seller fails to deliver or repudiates the buyer may also
• (a) if the goods have been identified recover them as provided in this
Article (Section 2-502); or
• (b) in a proper case obtain specific performance or replevy the goods as
provided in this Article (Section 2-716).
o § 2-712. "Cover"; Buyer's Procurement of Substitute Goods. (1) After
a breach within the preceding section the buyer may "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.
(2) 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 (Section 2-715), but less
expenses saved in consequence of the seller's breach.
(3) Failure of the buyer to effect cover within this section does not bar him
from any other remedy.
o § 2-713. Buyer's Damages for Non-delivery or Repudiation.

(1) Subject to the provisions of this Article with respect to proof of market
price (Section 2-723), the measure of damages for non-delivery or repudiation
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by the seller is the difference between the market price at the time when the
buyer learned of the breach and the contract price together with any
incidental and consequential damages provided in this Article (Section 2-715),
but less expenses saved in consequence of the seller's breach.
(2) Market price is to be determined as of the place for tender or, in cases of
rejection after arrival or revocation of acceptance, as of the place of arrival.
• Seller’s Remedies in U.C.C., §§2-708, 2-709, and 2-710

o § 2-708. Seller's Damages for Non-acceptance or Repudiation.
(1) Subject to subsection (2) and to the provisions of this Article with respect to
proof of market price (Section 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 (Section 2-
710), but less expenses saved in consequence of the buyer's breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put
the seller in as good a position as performance would have done then the
measure of damages is the profit (including reasonable overhead) which
the seller would have made from full performance by the buyer, together
with any incidental damages provided in this Article (Section 2-710), due
allowance for costs reasonably incurred and due credit for payments or
proceeds of resale.
o § 2-709. Action for the Price. (when seller is unable to resell goods according
to §2-708)
(1) When the buyer fails to pay the price as it becomes due the seller may
recover, together with any incidental damages under the next section, the price
(a) of goods accepted or of conforming goods lost or damaged within
a commercially reasonable time after risk of their loss has passed to
the buyer; and
(b) of goods identified to the contract if the seller is unable after
reasonable effort to resell them at a reasonable price or the
circumstances reasonably indicate that such effort will be unavailing.
(2) Where the seller sues for the price he must hold for the buyer any goods
which have been identified to the contract and are still in his control except that
if resale becomes possible he may resell them at any time prior to the collection
of the judgment. The net proceeds of any such resale must be credited to the
buyer and payment of the judgment entitles him to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods
or has failed to make a payment due or has repudiated (Section 2-610), a seller
who is held not entitled to the price under this section shall nevertheless be
awarded damages for non-acceptance under the preceding section.
o § 2-710. Seller's Incidental Damages.

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 or otherwise resulting from the breach.
 e.g. Neri v. Retail Marine Corp., New York 1972
• Action by Neri to recover deposit he had put down on the boat;
Neri had repudiated the contract to purchase the boat.
Counterclaim by D (seller) to recover damages as a result of
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Neri’s breach  Even though D was able to resell the boat, D

lost the profits of this sale, because D would have been able to
sell 2 boats had P not breached, and D had to incur expenses to
store the boat for longer
• Holding: According to U.C.C. § 2-708 (2), even though the
seller is usually entitled to only the difference between market
price and contract price if the seller can’t recover the contract
price on his/her own, if this would not place the seller in as
good a position as he would have been in had the buyer not
breached, the seller is entitled to recover lost profits and
incidental damages.
o Market-based damages alone (as in 2-708(1))are “with
mathematical certainty” never adequate in cases like
these when the retail seller could have made multiple
sales
o See also §2-718 (below) on liquidated damages
 R.E. Davis Chemical Corp. v. Diasonics, Inc.
• Clarifies Neri: in cases of multiple sales possibilities, the seller
must establish both:
o That it could have sold more of the breached unit and
o That it would have been profitable for the seller to have
produced and sold the breached unit as well as other units
(because at some point producing extra units is no longer
profitable to a seller)
o Consequential Damages/ Damages Arising from Special Circumstances

 Added to standard damages, the breaching party is liable for all losses resulting from the breach
which the parties should have reasonably foreseen at the time of contracting as likely to flow
from the breach
• Special circumstances: damages that are unique to the plaintiff are only considered
recoverable if the breacher knew specifically of the plaintiff’s special circumstances
 Hadley v. Baxendale, England 1854
• Mill operator Hadley seeks to recover damages for lost profit incurred when defendant
carrier breached contract by negligently delaying delivery of mill operator’s broken
crankshaft to manufacturer for repairs.
• Holding: The plaintiff may recover only damages that were reasonably foreseeable to
the breaching party at the time that the contract was made
 Holmes “tacit agreement test” = a promisor’s liability in contract cases should be presumed to
have been within the promisor’s contemplation at the time that he made the contract (the tacit
agreement); therefore, if the liability is so large that a reasonable person cognizant of that
liability would probably not have entered into such a risky contract, we can assume that the
promisor was not cognizant of that liability, and made no sort of “tacit agreement” to be held
liable for more than ordinary damages.
• E.g. Lamkins v. International Harvester Co., Arkansas 1944
o P contracted to by a tractor with lights on it; when the lights took more than a
year to arrive, P sued for lost profits incurred by not being able to plow at
night.
• Held: The lost profits don’t pass the “tacit agreement test”  it is not
“reasonable…to believe that the dealer at the time tacitly consented to be
bound for more than ordinary damages in case of default on his part” – if D had
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known that exorbitant lost profits damages could result, he never would have
taken on the liability for such a contract
• E.g. Victoria Laundry (Windsor) Ltd. V. Newman Indus., Ltd., England 1949
o Ps were launderers and dyers and had contracted with D to buy a large boiler
machine; D knew that Ps were launderers and needed to use the boiler for their
business as soon as possible; the boiler accidentally broke and was delivered
late
o Held: P could recover for regular lost laundry business profits, because those
would have been “within the promisor’s contemplation”, but P could not
recover for especially “lucrative” dyeing contracts, because D could not have
been expected to know of those special circumstances
• E.g. The Heron II, England, 1967
o The ship Heron II was liable to sugar dealers for their lost profits when the ship
delayed in reaching port, by which point the price in sugar had gone down
significantly  the Heron II could have “reasonably foreseen” that because of
the fluctuating nature of the sugar market, its delay could adversely affect P’s
profits
• E.g. Hector Martinez & Co. v. Southern Pacific Transp. Co., 5th Cir. 1980
o D was late in delivering a dragline to P; a dragline is a machine that has uses
on its own (as opposed to a machine part, like a crankshaft), and it can be
considered foreseeable that P needed it for business uses and would lose
business profits because of delay in delivery
o Held: “A plaintiff need not show that a harm was ‘the most foreseeable of
possible harms’”, but rather, that the harm is not unforeseeable to a
reasonable person at the time of the contract.”
 U.C.C. § 2-715. Buyer's Incidental and Consequential Damages.
(1) Incidental damages resulting from the seller's breach include expenses reasonably
incurred in inspection, receipt, transportation and care and custody of goods rightfully
rejected, any commercially reasonable charges, expenses or commissions in connection
with effecting cover and any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of which the
seller at the time of contracting had reason to know and which could not reasonably
be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
o Restatement of Contracts, Second, §351 limits this by adding (along the lines
of the “tacit agreement” reasoning in Lamkins) that “a court may limit damages
for foreseeable loss by excluding recovery for loss of profits, by allowing
recovery only for loss incurred in reliance, or otherwise if it concludes that in
the circumstances justice so requires in order to avoid disproportionate
compensation.”
• E.g. Prutch v. Ford Motor Co., Colorado 1980
o P suffered losses from crop damage as a result of defective equipment provided
by D
o Holding: It is not necessary, according to the U.C.C., to prove that D actually
knew at the time of contracting of the lost profits that might result, but that D
might reasonably have known that such loss could result
o No Mental Distress Damages in Contracts

 Valentine v. General American Credit, Inc., Michigan 1984
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• P claims that losing the “peace of mind” that comes with the “job security” of having
an employment contract can be expected to cause mental distress, and that because this
distress is a “reasonably foreseeable” consequence of breach of employment contract,
she should be able to recover mental distress damages as consequential damages
• Held: Mental distress damages in contracts are awarded only in extenuating
personal circumstances (e.g. marriage, birth, death, personal freedom), or when the
contract was expressly made to prevent mental distress of the type suffered by the
aggrieved party.
 Hancock v. Northcutt, Alaska 1991
• P could not recover emotional distress damages for breach of construction contract
• Holding: The cost of building housing would skyrocket if emotional distress breach of
contract suits had to be taken into account  there must be a “principled limit” on
contract damages
o Nominal Damages: Where a right of action for breach exists, but no monetary harm has been done or
is provable, the plaintiff may get a judgment for nominal damages, i.e. a small sum in
acknowledgement of the harm done
 E.g. Freund v. Washington Square Press, Inc., NY 1974
• D merged with another publishing company and refused to publish P’s academic book,
after having already paid the advance; P claims that D owes him the $10,000 D saved
by not publishing the book in hardcover
• Held: Damages should be measured not “by what the defaulting party saved by the
breach [cost of publication], “but by the natural and probable consequences of the
breach to the plaintiff”
o Therefore, P would be able to recover for proven lost royalties and lost
reputation, however, since P could not prove any lost royalties, and waived his
claim to lost reputation, the only damages recoverable were nominal
o Anticipated Profits Damages

 Fera v. Village Plaza, Inc., Michigan 1976
• Ps had contracted to open a “book and bottle” shop in D’s proposed shopping center; D
delayed the building, and gave P’s space to another tenant; D offered an alternative
space, but P found the new space unsuitable to their business’s needs; P seeks damages
as measured by their lost profits.
• Lower court ruled that, as in Freund, the “lost profits” were too speculative to calculate
because the business was new = New Business Rule
• Held: P doesn’t need to prove lost profits damages for its new business with
“certainty” but only needs to “lay a basis for a reasonable estimate of the extent of
[harm], measured in money” (which the court believes that P did in this case)
 Most judges prefer to use standards of reasonability rather than a rule when looking at lost
profits of new businesses, because standards allow for flexibility, and govern by their reasoning
rather than by their exact terms.
 Restatement of Contracts, Second §352, Comment B (1981). “Proof of Profits”: “Damages
are not recoverable for loss beyond an amount that the evidence permits to be established with
reasonable certainty.”
• It’s easy to prove the value of a lost sale to an aggrieved seller; more difficult to prove
the value of resultant lost profits to an aggrieved buyer.
• With established businesses, lost future profits are fairly easily based on previous profit
records; with new businesses, speculative lost profits are more difficult to prove, but
can be done with the aid of expert testimony.
11
• RELIANCE AND RESTITUTION (ALTERNATIVE INTERESTS)

o RELIANCE DAMAGES – generally appropriate in certain situations when expectation damages are
not suitable, such as indeterminate lost profits or an unenforceable contract:
 P cannot show lost profits with sufficient certainty
• Chicago Coliseum Club v. Dempsey, Illinois 1932
o Action to recover damages for D’s breach of contract to perform in a boxing
match that P expended much money in setting up and promoting both before
and after the actual contract was signed; P also spent money in procuring an
injunction against D that was never enforced
o Held: Only expenses incurred by plaintiff after the enactment of the contract
until the date of breach may be recovered – reliance damages.
 The lost profits from the upcoming match were considered too
speculative for expectancy damages
• Security Stove & MFG. Co. v. American Ry. Express Co., Missouri 1932
o D shipped all but one crucial piece of P’s new stove invention to a trade show;
as a result, P couldn’t exhibit his new stove; P claims lost profits
o Held: Lost profits of the new invention are too speculative, and so P’s
expenses in reliance on D’s shipping contract are the only damages that can be
calculated—and thus awarded—with certainty
o “In cases of this kind the method of estimating the damages should be adopted
which is the most definite and certain and which best achieves the fundamental
purpose of compensation.”
• L. Albert & Son v. Armstrong Rubber Co., 2nd Cir. 19949
o P contracted to have 4 rubber reconditioning machines delivered; seller
breached and only sent 2; P no longer needed the machines since the breach
came after the war ended, so he sent the first 2 machines back, and sued for
reliance damages (the money he spent preparing foundations for the machines
in his rubber department)
o D claimed that if P had actually received the machines, P would have been
operating at a loss, and that this loss should offset the amount of reliance
damages owed by D
o Held: D owes the reliance damages, but has the right to reduce those damages
by the amount of the P’s business loss if D can prove what that loss would have
been (Judge Hand)
 Burden of proof is on D if he wants to reduce damages
 See §333 in Restatement 1st
 P relied on a void/ unenforceable contract (Statute of Frauds)
• Boone v. Coe, Kentucky 1913
o D breached an oral contract to allow Ps (who traveled from Kentucky, left their
homes, etc.) to rent, live on, and farm D’s land in Texas; P seeks to recover the
money spent in reliance on D’s oral promise
o Held: Because of the Statute of Frauds, P could only recover restitution
damages—in quantum meruit—if D had become enriched in any way by P’s
partial performance of the contractual obligations (unfortunately for P, this was
not the case)
• The newest draft of the Restatement has attempted to fix the “Boone problem”; it states
that the performance of a service at the request of D, even if the service didn’t confer
benefit on D, puts P in a position to claim restitution damages after D’s breach
• Kearns v. Andree, Connecticut 1928
o P had an oral contract with D that D would buy P’s house (unenforceable
according to the Statute of Frauds); D breached, but then said that if P fixed up
12
the house according to certain specifications, D would buy it; relying on D’s
statement (a new quasi-contract), P fixed up the house, which made it less
salable to others, and D still wouldn’t buy
o Holding: P couldn’t recover on the unenforceable oral contract of land sale,
but P could recover the cots of fixing up the house in reliance on D’s second
statement
 Restatement of Contracts, Second §349 – Damages Based on Reliance Interest
• Essential reliance = costs incurred by preparation for performance or actual
performance of the contract
• Incidental reliance = preparation for collateral transactions that the party plans to
carry out when the contract is performed
o RESTITUTION DAMAGES – generally appropriate when one party has performed to the benefit of
the other party, who gave nothing in return  the performing party may recover in quantum meruit =
for the value of his services, which had generated a quasi-contract or implied contract when no
explicit contract originally existed
 United States v. Algernon Blair, Inc., 4th Cir. 1973
• P had completed about 28% of the steel erection work it had been subcontracted to do
when D refused to pay P’s crane rental, claiming it had no contractual obligation to do
so; P took the refusal to pay as breach and stopped working; P claims restitution of the
labor and equipment costs it expended in doing 28% of the work (quantum meruit); D
claims that had P completed the contract work, P would have lost more than P was
claiming in restitution damages
• Held: P is entitled to restitution in quantum meruit; because the total breach made the
contract disappear and the claim is for quantum meruit, rather than suing for the
contract price, P does not need to offset damages by what P’s loss would have been had
P completed the contract
o This situation is different from Albert v. Armstrong Rubber  P’s business
losses could offset the damages there, because the damages were for reliance,
not for restitution to P of the D’s wrongful profit from P’s labor
 Oliver v. Campbell, California 1954
• A client breaches on an employment contract with his lawyer after the trial, but before
the court announced its decision. P lawyer sued for restitution, claiming the value of his
services was well beyond the contract price.
• Held: P was limited to the unpaid balance of the contract price. Restitution was not
available to him because he had, in effect, fully performed the terms of the contract.
 Britton v. Turner, New Hampshire 1834
• P brings action to recover wages for 9.5 months of work, when P had breached by not
working for the contracted year.
• Held: Even though P breached, P may recover the wages that he rightly earned, less
any damages the employer suffered as a result of P’s breach. (using the contract price
as the upper ceiling for employer’s damages)
 Pinches v. Swedish Evangelical Lutheran Church, Connecticut 1887
• P completed building church for D with several changes (unintentional) from the
specifications in the contract (one of which was due to D’s error as well); the church
was still useable, and D accepted the building and began to use it
• Holding: When a builder completes a building in good faith and the defects that result
cannot be remedied without destroying the whole structure and rebuilding, as long as
the building is usable to the benefit of the aggrieved party, the builder is only
13
responsible for paying the diminution of value between the building as planned and the
building as resulted (or for the cost of fixing the building, if it is reasonable)
o Basically, the court is awarding P restitution damages for the building work P
had done, offset by diminution of value or cost of repair
 Schwasnick v. Blandin, 2nd Cir. 1933
• D refused to pay an installment to P lumberman who D claimed had done defective
work; lumberman than left the job; lumberman sues in quantum meruit
• Held: The burden of proof is on P to prove how much D was enriched by his labor 
the jury should have been instructed to award damages based on the “net benefit” of
P’s work for D, i.e. labor and services less damages done to the D by P’s defective
work
o Judge Learned Hand: “the promisor shall not profit at the promisee’s expense”
 Kelley v. Hance, Connecticut 1928
• P was supposed to excavate the earth and construct a sidewalk for D; P abandoned the
site after excavation; D cancelled the contract; P sues in quantum meruit for the
excavation work
• Held: No restitution damages for P because the work was of no value to D  D did not
accept the benefits of P’s labor as in Pinches
 Vines v. Orchard Hills, Inc., Connecticut 1980
• P Buyer breached contract for condominium sale, and seeks to recover down payment
from D (on theory of restitution); P claims that since the house was worth much more
to D when D finally sold it than what the contract price was, D didn’t need the down
payment to cover the damages that flowed from P’s breach
• Held: The defaulting buyers (P) are entitled to restitution of the down payment if the
damages sustained by the seller (D) are found to be less than the amount by which the
seller benefited from the breach (was “unjustly enriched”) at the time of the breach
(not at the time of D’s later sale);
o Burden is on the breaching buyer to prove that the seller’s losses from the
breach were less than that amount of the down payment. (If the seller was the
breaching party, the seller would have the burden of that proof.)
• The ruling here is an example of the modern view on restitution of down payments;
the traditional view did not allow for any recovery of down payments when the buyer
breached.
• CONTRACTUAL CONTROLS ON DAMAGE REMEDY – Liquidated Damages, Down Payments, and

Deposits
o Liquidated damages provisions may be enforced so long as they are not “in the nature of a penalty”
(penalty clauses are deemed “unconscionable”), and the court determines that the stipulated damages
were a good faith effort by the parties to determine the actual damages that would result in the event of
a breach
o To be enforceable, a liquidated damages clause must meet two requirements:
 Damages difficult to estimate at time of contract
 The amount specified must have been a reasonable forecast of fair compensation at the time of
contracting
o U.C.C. § 2-718. Liquidation or Limitation of Damages; Deposits.
(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 nonfeasibility of otherwise obtaining an adequate remedy.
A term fixing unreasonably large liquidated damages is void as a penalty.
(2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is
entitled to restitution of any amount by which the sum of his payments exceeds
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(a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages
in accordance with subsection (1), or
(b) in the absence of such terms, twenty per cent of the value of the total performance for which
the buyer is obligated under the contract or $500, whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller
establishes
(a) a right to recover damages under the provisions of this Article other than subsection (1), and
(b) the amount or value of any benefits received by the buyer directly or indirectly by reason of
the contract.
(4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale
shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's
breach before reselling goods received in part performance, his resale is subject to the conditions laid
down in this Article on resale by an aggrieved seller (Section 2-706).
o Restatement, 2nd §356. LIQUIDATED DAMAGES AND PENALTIES: 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 or loss. A term fixing
unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
 Changed from §339 in 1st Restatement, which only allowed reasonability to be compared to the
anticipated losses, not the actual losses
o Unenforceable Liquidated Damages Clauses:
 An excessive liquidated damages clause often signifies that there was some unfair dealing
involved in making the contract (i.e. that the writer of the excessive clause was in more control
of the contract-making process), and the courts do not wish to uphold unfair bargaining
situations
 Pacheco v. Scoblionko, Maine 1987
• P withdrew his child from summer camp on June 14 because she needed to go to
summer school instead; P had already paid the full amount of the camp fee; the
liquidated damages clause said that for withdrawal after May 1, any money paid to the
camp will be retained as liquidated damages.
• Held: The clause was an “unenforceable penalty” because the damages required by it
were “excessive” and did not pass the “reasonable forecast” and “difficult to estimate”
test for enforceable liquidated damages clauses
o Unenforceable “penalty damages” clauses are called in terrorem clauses
 City of Rye v. Public Service Mut. Ins. Co., New York 1974
• D was taking too long to complete buildings for the P, the City of Rye; P seeks to
recover a $100,000 surety bond that was put up by D in order for P to secure timely
completion of 6 buildings
o The main damages that P claims are that the city’s zoning ordinances are being
violated as long as the buildings remain uncompleted  these damages are not
measurable in money, however
• Held: The bond amount is considered a penalty that is “grossly disproportionate to the
anticipated probable harm”, and its exactment is therefore unenforceable.
 Massman Constr. Co. v. City Council of Greenville, Miss., 5th Cir. 1945
• P was late completing construction of a bridge, but the highway connecting to the
bridge was finished even later, making the bridge unusable even at late completion time
• Held: The liquidated damages clause for delay was too excessive in this case, because
no revenue could have been collected from the bridge had it been completed by the
fixed time anyway, and the inconvenience to the public was not made greater by P’s
delay anyway, because the bridge was still unusable even at the late finish date
o Enforceable Liquidated Damages Clauses:
 Yockey v. Horn, 7th Cir. 1989
15
•
Yockey & Horn (former business partners) agreed by contract to refrain from
voluntarily participating in any litigation against each other (even litigation brought by
others); this agreement included a liquidated damages clause of $50,000 in case of
breach; Horn breached.
• Held: Yockey gets the liquidated damages since the injury (to business reputation) that
Yockey suffered as a result of Horn’s breach was (according to one prong of the test for
enforceability of liquidated damages) “difficult to estimate”
 Kelly v. Marx, Massachusetts 1999
• Similar facts to Vines v. Orchard Hills  buyer breached, and then the seller resold the
property a few weeks after the breach for $5K more than the original contracted price;
Buyer wants to recover the 5% down payment.
• Held: Court allowed seller to keep the 5% deposit as liquidated damages according to
the “anticipation” of those damages at the time of the contract (not according to the
“actual harm”, as in the U.C.C. 2-718) because the anticipated damages were
reasonable and not in the nature of a penalty
o The court also wishes to prevent the costly litigation that would result from
always allowing “second looks” into down payment clauses to determine what
actual damages were when the amount in the clause seems just
o Liquidated Damages Clause as Limit on Recovery?
 Wilt v. Waterfield, Missouri 1954
• Seller breached in sale of farm to P; seller argued that P’s damages should be limited to
the $1,900 that was set out in the liquidated damages clause.
• Held: A liquidated damages clause doesn’t limit recovery if it is an “undifferentiated”
clause, i.e. applies to a variety of breaches, and therefore is not a “reasonable effort to
estimate damages”
o Because the liquidated damages clause was meant to cover damages in the
event of the buyer’s breach, the amount did not apply to the case of the seller’s
breach
o The correct measure of damages for P was calculated to be the difference
between the contract price and the price at which the seller resold the farm
(which was close to market price)
 Fretwell v. Protection Alarm Co., Oklahoma, 1988
• P seeks to recover as damages the value of the property that was burglarized from their
home after D alarm company was negligent in checking up on the system when D
received a burglary signal; however, D’s contract limited D’s liability 50$ or P’s actual
loss, whichever is less, and stated that “Protection is not an insurer; that the payments
[for the alarm system] are based solely on the value of the services provided”
o P claims that D’s indemnity clause was unconscionable, as a liquidated
damages clause for too much $ would be
• Held: D’s clause is a “limiting” and indemnity clause, not a liquidated damages
clause, and may therefore be upheld as long as its terms were “unequivocally clear” to
the parties at the time of contracting
 The 3rd Restatement tries to deal with situations in which liquidated damages clauses end up
under-compensating for damages that flowed from the breach (since most of the cases tend to
deal with clauses that over-compensate
• ENFORCEMENT IN EQUITY
o Requirements for Specific Performance
 Contract terms are definite and certain so that the court may easily determine what it must
order each party to specifically perform
 Monetary damages/ remedy at law is inadequate
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 Enforcement must operate equitably – no specific performance if enforcement will cause

undue hardship
 Enforcement must be feasible – no specific performance if enforcement is difficult to oversee
or will require extended judicial supervision
 Availability of equitable remedy is mutual to both parties (though courts don’t generally use
this requirement anymore)
o Restatement of Contracts, 2nd, §360. FACTORS AFFECTING ADEQUACY OF DAMAGES
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.
o Specific Performance in Contracts for Sale of Goods
 U.C.C. § 2-716. Buyer's Right to Specific Performance or Replevin.
(1) Specific performance may be decreed where the goods are unique or in other proper
circumstances.
 Curtice Bros. Co. v. Catts, New Jersey 1907 (before U.C.C.)
• D farmer contracted to sell his entire tomato crop to P, a canning plant; D breached and
P seeks specific performance because at the time of D’s breach, P was faced with “the
inability to procure at any price at the time needed and of the quality needed the
necessary tomatoes to insure the successful operation of the plant” during that tomato
season
• Held: Because P’s situation is “extraordinary” (what the U.C.C. might call “other
proper circumstances”), specific performance can be ordered against D
o Another consideration here is Restatement §360(c) – even though the court
probably could calculate P’s monetary damages for lost seasonal canning
profits, the likelihood that D could pay those damages is slim; specific
performance gives P a much greater chance of recovery
 Paloukos v. Intermountain Chevrolet Co., Idaho 1978
• P wanted court to demand that D deliver a 1974 pickup truck after D returned P’s
deposit stating product shortage
• Held: According to U.C.C. §2-716(1), specific performance is not required here
because the item in question was not “unique”, nor did this qualify as “other proper
circumstances”
o Also, “the courts will not order the impossible, such as ordering the seller to
sell to the buyer that which the seller does not have”
 Laclede Gas Co. v. Amoco Oil Co., 8th Cir. 1975
• D and P contracted for D to supply propane gas to P on a yearly renewable contract for
10-15 years (i.e. until the subdivisions served by P converted to natural gas use); P
could cancel contract with 30-day notice, or 30 days before the end of a year (there was
no such provision for D = lack of mutuality)
• D cancelled because of low gas supply, and claimed that specific performance couldn’t
be demanded because P could buy gas on the open market—i.e. a remedy at law was
available (D also claimed that the contract’s lack of mutuality in its cancellation
provision was an issue, but the court said it wasn’t)
• Held: P’s circumstances fit into the category of “other proper circumstances” in
which specific performance can be demanded according to UCC §2-716(1), because
even though propane gas was available on the open market at the time,
P would not have been able to find another long-term supplier that would enable P to
continue to serve its clients (other suppliers wouldn’t enter into a new long-term
17
contract for propane because most ppl. were converting over to natural gas); D already
had the propane-supply mechanism set up
 Eastern Rolling Mill v. Michlovitz, Maryland 1929
• D, a sheet steel manufacturer, contracted to sell all its scrap metal to P; the price to be
paid was variable; D repudiated the contract 4 years early.
• Held: Specific performance was proper because “how could a jury determine the
contract price, derived from a variable market price, during the years to come? Any
estimate of damages would be ‘speculative’, not compensatory.”
o Specific Performance in Land Sales Contracts
 Gartrell v. Stafford, Nebraska 1882
• D refused to convey a piece of Nebraska land that D had contracted (in writing) to sell
to P
• Held: P gets specific performance because it is “universally maintained” that in cases
of sale of real estate, the remedy of specific performance is not limited to special
circumstances, because every land sale is, in essence, a special circumstance
o A buyer picks out a piece of land based on circumstances (locality, soil quality,
accommodations, etc.) that might not be present in another piece of land that
has the same market value
 Van Wagner Advertising Corp. v. S & M Enterprises, New York 1986
• P seeks specific performance in the form of D’s continuance of a lease to P of unique
advertising space on the side of a building that D bought with P’s lease attached
• Held: If monetary damages are easily calculable, then monetary damages are an
appropriate compensation for breach of contract to lease a unique advertising space.
o It is the “uncertainty of valuing” a property, not the property’s inherent
uniqueness, that really determines whether specific performance, rather than
monetary damages, is appropriate  in this case, the monetary value of the
advertising space to P was easily calculable based on the amount of money P
had made leasing the space to advertisers
 Equitable conversion = executory land sale contracts create immediate equitable interests in
the land
• The buyer is regarded as the beneficial owner of the property from the moment the land
sale contract is executed
• Constructive trust theory = the seller under an executory land sale contract holds title
to the land in “constructive trust” for the buyer until the seller receives full payment 
the purchaser holds equitable title, while the seller retains legal title
o Specific Performance in Employment Contracts
 Fitzpatrick v. Michael, Maryland 1939
• P was a nurse in D’s home for D’s wife until she died; after that, D asked P to stay on
as a companion and housekeeper for 8$/week, room + board, title to D’s cars, and the
promise of D’s home after D died (this was reiterated in D’s will); D suddenly
breached and kicked P out of his home
• P seeks specific performance by way of a receiver who would be appointed to make
sure that she gets all that was promised to her as long as she continues to perform her
end of the contract.
• Held: No specific performance in employment contracts because if the personal
servant is abhorrent to the employer, enforcement of specific performance would be too
great a harm to the employer (“best interest of society” forbids this kind of
enforcement).
18
o Also, as in Manchester Dairy below, enforcement of specific performance such

as this would be too difficult to supervise  generally, the courts will only
enforce negative injunctions, not positive orders to perform
 Dallas Cowboys Football Club, Inc. v. Harris, Texas 1961
• D Harris had a contract to play for the Rams; the contract stipulated that D must play
for any team that the Rams might assign him to, and that since D had “special,
exceptional, and unique knowledge, skill and ability as a football player,” the Rams
could enjoin D from playing for anyone else for the duration of the contract; the Rams
reassigned D to play with the Dallas Cowboys (P); D breached and signed with the
Dallas Texans
• Held: Court could enjoin D from playing for any other team but the Cowboys
(negative injunction), but could not force D to play for the Cowboys (no positive
injunction)
 Anticompetitive covenants = when there is a provision in the contract stating that the
employee will not perform the same service elsewhere for a period of time after leaving
employer in order to prevent competition to the employer
• Courts don’t like to enforce anticompetitive covenants (though U.C.C. §2-302, below,
helps solve these problems) because:
o They often impair the employee’s ability to earn a living
o They go against the “general competitive mold of society”
• E.g. ABC v. Wolf, NY 1981
o P sough to enjoin D from working at CBS after leaving ABC because D
breached his contract with P to negotiate for contract renewal/ other
employment in “good faith”
o Holding: Courts will not decree any specific performance after a personal
service contract ends, and courts will carefully scrutinize any specific
anticompetitive covenants, and enforce them only if they meet certain
requirements  here there was no specific anticompetitive contract breached,
and while remedy at law may be available, specific performance is not
• E.g. Fullerton Lumber Co. v. Torborg, Wisconsin 1955
o D’s contract with P had included an anticompetitive covenant that enjoined
him from doing lumber business for himself or others for 10 years after
termination of contract with P, and within a 15 mile radius of where he had
worked for P; P sought to enforce the covenant when D started a lumber
business of his own
o Held: An anticompetitive covenant was fair here because P’s successful
business depended on the contacts that D would take with him to his new
business, though 10 years was considered excessive, and the court remanded
for a more fair determination of how long the covenant should last
• U.C.C. § 2-302. Unconscionable contract or Clause.
(1) If the court as a matter of law finds the contract or any clause of the contract to have
been unconscionable at the time it was made the court may refuse to enforce the
contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable the parties shall be afforded a reasonable opportunity to present
evidence as to its commercial setting, purpose and effect to aid the court in making the
determination.
o E.g. Data Management, Inc. v. Greene, Alaska 1988
19
 P sued D for breaching the anticompetitive covenant in their

employment contract that barred them from giving computer services
to certain people for 5 years in all of Alaska
 Court used the 3rd approach from §2-302(1) – the court can limit the
unconscionable clause so as to make it conscionable (similar to
outcome in Fullerton Lumber)
o Problem of Supervision in Specific Performance
 Manchester Dairy System v. Hayward, New Hampshire 1926
• P Dairy System had a contract with D Hayward (identical to contracts the P had with
other members of their dairy Association) in which D was to sell all his dairy products
to the P for 3 years; the contract had a clause that provided for equitable relief in the
form of an injunction for specific performance if D failed to deliver; D breached.
• Held: An injunction for specific performance would not work here because
supervision of D’s dairy operation by officers of the court would be “cumbersome
and expensive”; however, a negative injunction that prevents D from selling his
products to others would be appropriate
o Legal remedy would not be adequate here because of the structure of the dairy
association and the effect that one member’s breach would have on all other
members
 Northern Delaware Indus. Dev. Corp. v. E.W. Bliss Co., Delaware 1968
• P seeks court supervision of building project in order to ensure that more workers are
hired for round-the-clock hours so that the building project is completed on time;
contract called for extended work-shifts during certain phases of the project, but did not
specify how many, if any, extra workers were to be hired
• Held: The contractual right is not specific enough to be understood in the way P
wishes; enforcing such a request to order performance is impracticable – the court
could not adequately supervise the hiring of an unspecified number of extra workers
 City Stores Co. v. Ammerman, D.C. 1967
• P agreed in a contract to write a letter to the Fairfax County, VA zoning board
supporting D’s building of a new mall at Tyson’s Corner because the zoning board was
going to give construction rights to another builder for a mall nearby; in return, D
promised to lease retail space in the new mall to P; after P performed, D refused to
lease space to P; P seeks specific performance
• Held: The court did grant specific performance here, even though supervision of the
leasing agreement would be difficult, because “relief ordering building construction
should not be withheld ‘unless the difficulties of supervision by the court outweigh
the importance of enforcement to the plaintiff.’”
o Use of Arbitration
 Modern statutes allow judicial enforcement of arbitration decisions, since many commercial
transactions include agreements to resolve disputes in arbitration, and this allows courts to
leave equitable decisions to arbitrators who have more experience in specific commercial
practices
 Grayson-Robinson Stores v. Iris Constr. Corp., NY 1960
• D could not continue its building contract with P unless P agreed to a rent increase;
Arbitrators ordered specific performance  D must keep building
• The court upheld the arbitration decision in this case even though D had shown that it
would not financially be able to comply with the specific performance decree to
continue building (it had been refused loans by 27 banks, and couldn’t continue
building without more money)
o The existence of a liquidated damages clause does not bar the remedy of specific performance
20
II. GROUNDS FOR ENFORCING PROMISES – CONSIDERATION & RELIANCE

• FORMALITY
o Generally, in order for a promise to be enforceable, it must be supported by consideration = a
bargained-for-exchange for something of legal value
o Historically, a promise that lacked consideration (like a donative or gratuitous promise), was
enforceable if the promise was made under the formality of a seal; today, ½ of the states have enacted
statutes against the enforceability of these types of sealed promises, and most courts will not uphold
any promise that lacks consideration (or reliance):
 U.C.C. § 2-203. Seals Inoperative. The affixing of a seal to a writing evidencing a contract for
sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the
law with respect to sealed instruments does not apply to such a contract or offer.
 E.g. Congregation Kadimah Toras-Moshe v. DeLeo, Massachusetts 1989
• Rabbi of P congregation, visited decedent during decedent’s illness; decedent made an
oral promise in the presence of witnesses to give P $25,000; promise was never put in
writing; P planned to use the money to build a library in the synagogue named after the
decedent, but there is no evidence that these library plans were what induced the
decedent to make the promise
• Held: In order for a promise of a gift to be upheld, it must be substantiated by a written
agreement (Mass. law still allowed sealed promises to be upheld, and an oral promise
for after death is barred by the Statute of Frauds), or contain elements of bargained-
for-consideration or reliance
o P could not prove that it had spent any $ or effort building the library in
reliance on decedent’s promise, nor had the decedent made the promise in
order to get the named-library in return
• EXCHANGE THROUGH BARGAIN – What constitutes consideration?

o Courts vary in their approaches to what constitutes consideration, and as a result, there is not just one
“black letter law” that emerges  the cases demonstrate how different courts have defined what is and
isn’t consideration
o Restatement, 2nd §71: Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promise in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be
given by the promisee or by some other person.”
o Restatement, 2nd §81: Consideration as Motive or Inducting Cause
(1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being consideration for the promise.
(2) The fact that a promise does not of itself induce a performance or return promise does not prevent
the performance or return promise from being consideration for the promise.”
o Oral Promise to Give a Gift ≠ consideration
 E.g. Congregation Kadimah Toras-Moshe v. DeLeo, Massachusetts 1989 (above)
o Legal Detriment/ Forbearance = consideration
 E.g. Hamer v. Sidway, NY 1891
• P, nephew of decedent, seeks to recover $5,000 from the D, executor of decedent’s
estate, that the decedent had promised P would receive on his 21st birthday if P
refrained from drinking, smoking, swearing, or gambling until then
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• Held: “In general a waiver of any legal right at the request of another party is a
sufficient consideration for a promise,” even if the waiving of that right is beneficial
to the promisee.
o The more important meaning of consideration is that one party limits himself,
rather than that one party profits from the other
 E.g. Whitten v. Greeley-Shaw, Maine 1987
• P and D had an extra-marital affair; D counterclaimed (against P’s claim for D’s
defaulted mortgage payment) that D had, in a written document specifying things that P
would give D, agreed to refrain from calling P, and that this forbearance should be
consideration for the money and gifts that P had promised to give D
• Held: Because D’s forbearance was not “sought by the promisor” in exchange for the
money and gifts, as in §71(2), it does not constitute consideration
o Love and Affection ≠ consideration; Nominal Consideration ≠ consideration
 E.g. Fischer v. Union Trust Co., Michigan 1904
• P, mentally incompetent daughter of the late William Fischer, Sr., brings action to
recover money that was foreclosed (in order to pay an outstanding mortgage) by D
from property to which Fischer Sr. had given P the deed; Fischer Sr. had orally
promised P that he would pay the mortgages on the gifted property; P gave D nominal
consideration of 1$ as a joke in return for the deed
• Held: The only consideration in the father’s promise to P to pay the mortgages was the
father’s “love and affection” for his daughter, and love and affection are not legal
consideration that can compel performance of the promise to pay the mortgages.
o The 1$ was not consideration because the court does not use nominal
consideration as grounds for enforcing a gratuitous promise (because the
promise was meant as a gift, it wouldn’t make sense to view the nominal
consideration as true consideration, because a gift is meant to be given without
exchange)
o Acceptance of Prize Money after Performance = consideration
 E.g. Simmons v. United States, 4th Cir. 1962
• P caught a fish and later found out that prize money was being offered for it; P brought
the fish in to collect the prize money, but didn’t want to pay income taxes on the money
because he claimed that it was a gift
• Held: P owes income tax, because his catching of the fish was in the nature of
performance of an employment contract  by taking the $, P was considered to have
accepted the offer to catch a fish in exchange for money, even though he hadn’t set
out to catch the fish for the purpose of that “contract”
 Reward Cases in General:
• American View: If someone refuses a reward after performing, he is considered not to
have accepted, and may not later claim that he be given the award because he
performed his half of the contract.
• English View: The performance itself is considered acceptance of his half of the
bargain, and even if he at first refuses the award, he may later claim it.
o Unequal Monetary Value in Exchange / Monetary “Inadequacy” of Consideration
 Batsakis v. Demotsis, Texas 1949
• D borrowed money from P during WWII in Greece, and promised in a contract to repay
P after the war $2,000 (U.S. dollars) with 8% interest. The Greek money that D
actually borrowed was worth only $25 U.S. dollars at the time. P sues to recover the
$2,000 + interest; D claims that she only owes the actual amount borrowed, because the
actual amount was the consideration
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• Held: “Mere inadequacy of consideration will not void a contract.” – D owes the
$2,000.
o Even though the monetary value of the exchange is unequal, the $ that D
borrowed had great value to D at the time of borrowing, and therefore, the
exchange was supported by consideration
 Grubstake Contracts = an investment in a venture in return for a promise of a share of the
venture’s profits, should the venture become profitable
• E.g. Embola v. Tuppela, Washington 1923
o Tuppela, who was in and out of mental asylums, wanted to pursue action to get
the back a gold mine in Alaska that his guardian had sold while he was
committed; P took Tuppela in after Tuppella got out; Tupella promised P that if
P gave him $50 to get up to Alaska to try to get the mine back, Tuppela would
give the friend $10,000; Tupella got the mine back but was again committed,
and his guardian doesn’t want to give P the promised $, stating that the 50$
wasn’t “adequate” consideration for Tupella’s promise
o Held: Though consideration was small ($50), the court sees the $50 as an
investment, like a grubstake contract – P knew that Tupella was unlikely to
get his mine back when P gave the $50; therefore, the promise had
consideration
 “If there be any legal consideration for the promise, the court will not inquire into its
adequacy”  consideration must be of some value to the promisor, but the value may be slight
(Buckner v. McIlroy, Arkansas 1877)
o Forbearance from Asserting Good Faith Legal Claim = consideration
 Restatement, 2nd §74. Settlement of Claims
(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is
not consideration unless
a. The claim or defense is in fact doubtful because of uncertainty as to the facts or
the law, or
b. The forbearing or surrendering party believes that the claim or defense may be
fairly determined to be valid.
(2) The execution of a written instrument surrendering a claim or defense by one who is under
no duty to execute it is consideration if the execution of the written instrument is bargained
for even though he is not asserting the claim or defense and believes that no valid claim or
defense exists.
 Duncan v. Black, Missouri 1959
• D contracted to sell P a farm along with a 65-acre cotton growing allotment; However,
growing allotments are determined by the government and may not be sold away; the
growing allotment was reduced after P bought the farm; P said that if D promised to
pay him $1,500, P would not bring suit about the reduction of the growing allotment; D
did not pay the $1,500 on his promissory note, however, and P sues to recover that $ on
this alleged second contract.
• Held: According to a two-part test, forbearance from bringing suit may be valid
consideration if, 1) the forbearance contract was made in good faith, and 2) the claim
from which plaintiff is forbearing has some foundation.
o The claim that P was forbearing from bringing here had no foundation,
and therefore, P’s forbearance was not a valid form of consideration for
the $1,500.
 Military College Co. v. Brooks, N.J. 1929
• P dismissed D’s son at the start of the semester (P alleges that the dismissal was for
good reason; D claims that it was wrongful), and P seeks to recover the full year’s
tuition from D’s promissory note; D had renewed the promissory note in order to
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secure the peace of mind that would come with knowing that the school wouldn’t sue
him for tuition
• Held: Peace of mind secured by another’s forbearance from suit is considered
“adequate consideration to support the [promissory] note.”  D must pay the full
value now that the note has run out, because P forbore from suit during the life of the
note
o The claim that P forbore from pursuing was sufficiently “doubtful” according
to §74(1)(a) – the case could have gone either way – and both D and P believed
that P had a valid legal claim, according to §74(1)(b)
o Volunteered Services ≠ consideration for suit in quantum meruit/ quasi-contract
 Martin v. Little, Brown & Co., Pennsylvania 1981
• P alerted D that P had found a book that infringed the copyright of one of D’s
publications; P volunteered to send D the infringing book, in which P had highlighted
all of the infringements; D later pursued the copyright suit; P sues D in quantum meruit
to recover 1/3 of the profits of D’s copyright suit
• Held: “As a general rule, volunteers have no right to restitution.” In this situation
the services were voluntary and not solicited, therefore no quasi/implied-contract has
been made nor breached, and P has no right to recover in quantum meruit.
 Collins v. Lewis, Connecticut 1930
• P sheriff cared for cows that Kinne was selling to D after P seized the cows (thinking
that they would pay for Kinne’s debt, and not realizing that they were already sold to
D); P told D that he expected to be paid for the cows’ upkeep if P held onto them until
D could take them; P sues to recover the upkeep $
• Held: A quasi-contract was created by P’s stated expectation that he would be paid
for his services, and D’s acquiescence to that expectation by not acting to stop P from
providing the services, and further, by accepting the benefit of the services by selling
the cows and keeping the profit.  P’s services were explicitly not volunteered
 Seaview Ass’n of Fire Island, N.Y., Inc. v. Williams, NY 1987
• P provided maintenance services to all the homes in a particular Fire Island
development of summer homes; D owned homes for which P provided maintenance,
but D claims that since D didn’t use the homes, D shouldn’t have to pay the
maintenance fees
• Held: D knew or should have known of the services (creation of implied contract)
provided by P, and impliedly accepted those services by owning homes in Seaview 
P’s services were implicitly not volunteered
 Difference between an action in quantum meruit and an action in restitution to recover for
unjust enrichment:
• Quantum meruit: brought because there is neither an express nor implied contract,
but services have been conferred and benefit accepted (this creates a quasi-contract
that is “implied in law” but not in fact)
• Restitution claim of unjust enrichment: relies on a “true” contract (not a quasi-
contract) based on the parties’ intentions  a contract that was “implied in fact”
(Martin v. Campanaro, 2nd Cir. 1946)
• PROMISES GROUNDED IN THE PAST/ MORAL OBLIGATIONS

o Moral Obligation based on a past promise generally does not constitute consideration (a transient
feeling of gratitude is also not consideration)  however, this area is a grey one, and many cases of
moral obligation are enforced for various reasons (often because the moral obligation stems from what
could be an actual restitution claim)
o Restatement of Contracts, 2nd §86 – Promise for Benefit Received
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(1) A promise made in recognition of a benefit previously received by the promisor from the promisee
is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
a. If the promisee conferred the benefit as a gift or for other reasons the promisor has not been
unjustly enriched; or
b. To the extent that its value is disproportionate to the benefit
o Moral Obligation ≠ consideration:
 Mills v. Wyman, Massachusetts 1825
• P voluntarily cared for D’s son when D’s son was sick; when D later heard of P’s
kindness, D promised to repay P for his expenses in caring for D’s son; D never paid
• Held: Moral debt alone (without an underlying, “pre-existing obligation” which can
be characterized as consideration) is not sufficient consideration for a bargain.
o D himself did not receive the benefit of P’s care here  perhaps if D had
received the benefit, as in Webb, below, P could have recovered
 Harrington v. Taylor, N. Carolina 1945
• D’s wife took refuge in P’s home when D was abusing her; D came to P’s home and
D’s wife was about to kill D with an axe when P stopped her, severely injuring P’s
hand in the process; D promised to pay for P’s medical expenses, but then didn’t
• Held: No cause of action – “however much D should be impelled by common gratitude
to alleviate the P’s misfortune, a humanitarian act of this kind, voluntarily performed, is
not such consideration as would entitle her to recover at law.”
o A defense to this harsh ruling is that promises of the kind made by D are made
at a great moment of trauma, and this sort of transient feeling of gratitude
toward a Good Samaritan is not enough to constitute consideration
o Moral Obligation = Consideration
 Material benefit to the promisor makes the moral obligation enforceable
 Webb v. McGowin, Alabama 1935 – opposite result of Harrington, above
• P saved D’s life by preventing a 75 lb. wooden block from falling on D; P’s action
caused P to become crippled for life; D promised P that in consideration of P’s having
saved D’s life, D would pay P’s medical expenses and support P during P’s life; after D
died, P seeks continuation of the promised payment from D’s estate
• Held: If P saved D from death or grievous bodily harm, and D subsequently agreed to
pay P for the service rendered, “it became a valid and enforceable contract.”
o This case is distinguished from the usual moral obligation cases because a
person’s life and limb have a high monetary value  it’s not just moral
obligation that forces D to fulfill his promise
 Muir v. Kane, Washington 1909
• P real estate broker found a buyer for D’ home, however, the real estate contract was
oral, and void according to the statute of frauds; to remedy this, P wrote into the
contract of sale between D and the buyers that D would pay P for services rendered; D
claims that since P rendered the services before the “real” contract was written, the
services were voluntary and didn’t need to be paid.
• Held: P may recover the fees  D had a moral obligation to pay for P’s service that
was fully as strong a moral obligation to pay a debt that is barred at law by a statute of
limitations
o Also, D was unjustly enriched by not paying P as promised – P should recover
in restitution
• RELIANCE ON A PROMISE/ PROMISSORY ESTOPPEL
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o Traditional View: One relied on another’s promise at one’s own risk  if there was no bargained-for
legal consideration, a promise was not enforceable
 E.g. Boone v. Coe (above, though Statute of Frauds was involved)
 E.g. Kirksey v. Kirksey, Alabama 1845
• After P’s husband died, at D’s (P’s brother-in-law’s) urging, P left her home and
moved 70 miles with her children to a house that D promised her; D then moved her to
a smaller house, and then completely kicked her off of his land; P seeks damages
incurred as a result of relying on D’s promise
• Held: “The promise on the part of the defendant, was a mere gratuity…an action will
not lie for its breach.”  P relied on D’s promise at her own risk
o Modern View = Doctrine of Promissory Estoppel: Reliance on a promise to one’s detriment acts as a
substitute for legal consideration, making a promise enforceable that otherwise would not be  the
promisor is then estopped from denying his promise
 Restatement 2nd, §90:  Promissory Estoppel according to the Restatement
(1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without
proof that the promise induced action or forbearance.”
• Two ways of looking at inducement of promise using the Tramp example  a
man tells the Tramp, “if you get up and go into the store around the corner, I will
buy you a new coat”:
o The man’s offer was a charitable promise, which induced the Tramp to
get up and go get the coat, or;
o The man was induced by the Tramp’s undesirable presence in front of his
store (driving away business) to make the offer of the new coat simply so
that the Tramp would get up and move away from his store
 Development of Promissory Estoppel Doctrine:
• Ricketts v. Scothorn, Nebraska 1898
o P’s grandfather gave P a promissory note to be paid to her if P stopped
working; P did stop working for a year, but then had to take another job when
her grandfather died and she no longer received interest on the note; P claims
that she relied detrimentally on her grandfather’s promise, and that D (executor
of grandfather’s estate) should be estopped from denying payment to P
o Held: Even though the grandfather’s promise was gratuitous, with no
“condition, requirement, or request” attached such as would constitute
consideration, because there was “expenditure of money or assumption of
liability by the donee on the faith of the promise”, D is estopped from
denying consideration.”
• Allegheny College v. National Chautauqua County Bank, New York 1927
o Mary Yates promised to donate money to P 30 days after her death; She
stipulated that the money was to be used for scholarships and should be named
after her. She made a partial payment, but repudiated before her death; P seeks
payment of the rest of the donation from D
o Held: The duty assumed by P to name the fund after Mary Yates constitutes
consideration. (Cardozo’s reasoning is similar to the doctrine of promissory
estoppel, but he does not call it that)
 Applications of Promissory Estoppel Doctrine

• Promise to Give Charitable Subscription
26
o Allegheny College v. National Chautauqua County Bank (above)

o I. & I. Holding Corp. v. Gainsburg, NY 1938
 D promised to give Beth Israel Hospital (rights assigned to P) $5,000
“to aid and assist…the Ass’n in its humanitarian work and in
consideration of others contributing to the same purposes”; P sued on
the D’s pledge claiming that it had kept doing its humanitarian work
and obtained other subscriptions.
 Held: D must honor his promise to give $; there no need to even
invoke promissory estoppel here because a request or invitation to
promisee to act based on the promise was implied
o Salsbury v. Northwestern Bell Tel. Co., Iowa 1974
 D promised to give $15,000 to a new college, which shut down soon
after opening; D didn’t pay its pledge.
 Held: The promise must be kept, even though P hadn’t relied on it to
P’s detriment, because “a requirement of evidence of reliance might
result in the enforcement of fewer charitable promises”  public
policy is concerned with helping charities collect money; “where a
subscription is unequivocal the pledgor should be made to keep his
word.”  like §90(2)
• Promise to Obtain Insurance
o Siegel v. Spear & Co., NY 1923
 P stored furniture with D, and D promised to procure insurance for P’s
furniture; D didn’t secure insurance, and P’s furniture was destroyed in
a fire; P claims damages because he relied on D’s actions as bailee of
his furniture as consideration for D’s promise to procure insurance
 Held: Though D’s promise was gratuitous, it was accompanied by
misfeasance of an assumed duty, and this misfeasance can be taken as
consideration. (Whereas a gratuitous promise that results in
nonfeasance is not enforceable.)
• If a promisor takes action/ starts to perform as a result of a
gratuitous promise, and that action is relied upon by the
promisee, then that action is consideration
o East Providence Credit Union v. Geremia, Rhode Island 1968
 D took out a promissory note from P using their car as collateral; a
condition of the loan was that D must take out insurance on the car. D
was unable to make insurance payments, so P undertook to pay them,
adding the amount to the principal of D’s loan; D’s car was totaled in
an accident, and P hadn’t paid the insurance
 P sues to recover the balance of the loan; D counterclaims to recover
the cost of the car because D had relied on P’s promise to get the
insurance
 Held: The interest that P would charge D on the money P paid for the
insurance premiums = consideration; However, promissory estoppel
would have operated even without the interest because D relied on P’s
promise and forbore from trying to pay the insurance on their
own, to D’s detriment.
• Promise to Give Land
o Seavey v. Drake, New Hampshire 1882
 Seavy Sr. promised (orally) to give P land; P took possession of the
land and spent money improving it (part performance), and also
forgave Seavy Sr. a $200 promissory note; Seavy Sr. died without
27
officially handing over the deed to P, and P brings a case in equity for
specific performance of transferring the deed to the land that P already
occupies.
 Held: Part performance of an oral land contract lifts the bar of the
statute of frauds against enforcing oral land contracts (or gifts). Also,
P spent $ and labor on the land in reliance on the promise
• The $200 promissory note that P forgave the father cannot
constitute consideration, since the land was not given in
exchange for that
• Promise of Permanent Employment/ Employment At-Will
o Forrer v. Sears, Roebuck & Co., Wisconsin 1967
 D induced P to come back to work at Sears by promising P “continuing
permanent employment” as a manager in consideration of P coming
back to work full time and giving up his farming; P sold all of his
farming stuff at a loss and came back to work; Sears then discharged P
without cause.
 P sues on a theory of promissory estoppel because P had relied on D’s
promise of “permanent employment” to his detriment
 Held: P may not recover because D kept its promise in that it
employed P according to the usual meaning of “permanent
employment”  “continuing employment, terminable at the will of
either party”
o Hunter v. Hayes, Colorado 1975
 P quit her work at the telephone company in reliance on D’s promise to
employ her as a “flagger” on a construction project; D then did not
employ P; P tried to look for work (mitigate damages), but was
unemployed for two months anyway.
 Held: The doctrine of promissory estoppel/ §90 applies here  P
should be compensated for her two months’ lost work in reliance on
D’s promise
• Different from Forrer because Hunter was never hired to begin
with, and not hiring = breach, whereas termination at will after
hiring = what is expected from the meaning of “permanent
employment at will”
• Promise of Franchise Grant
o Goodman (D) v. Dicker (P), D.C. 1948
 P applied to D for a “dealer franchise” to sell Emerson Radios; D
represented to P that P’s application had been accepted, and that radios
would be shipped; in reliance on D’s acceptance of the franchise
application, P hired salespeople and solicited radio orders; D never
shipped the radios and gave P notice that the franchise would not be
granted; P seeks damages for breach of contract.
 Held: Equitable estoppel  “he who by his language or conduct
leads another to do what he would not otherwise have done, shall not
subject such person to loss or injury by disappointing the expectations
upon which he acted. Such a change of position is sternly forbidden…
to promote the ends of justice”
• D made misrepresentations to P on which P relied, and D is
estopped from denying this (however, no lost profits
damages, because P had not proved a contract)
• Promissory Estoppel Can’t Override Statute of Frauds in Employment Promises
28
o Stearns v. Emery-Waterhouse Co., Maine 1991

 By an oral contract (not enforceable under the Statute of Frauds) D
offered P a management job that would last for 5 years; in reliance on
D’s promise, P moved and took a pay cut; D reduced P’s salary and
then dismissed him before the 5 years were up; P seeks enforcement
through equitable estoppel
 Held: Enforcement of an oral employment contract for a term longer
than 1 year is barred by the Statue of Frauds unless there is clear
evidence of fraud on the part of the employer.
 Judge Posner on equitable estoppel: “Reliance is easily, perhaps too
easily, shown in the employment setting. Agreeing to work for a
particular employer, thereby giving up alternative opportunities for
employment, can easily be described as reliance on the employer’s
alleged oral promises concerning the terms of employment.”
(Goldstick v. ICM Realty, 7th Cir. 1986)
• Therefore, in employment situations like Stearns, the court
must look not to the reliance of the promisee, as in
promissory estoppel, but instead the court must look at
whether the promisor intended to defraud the employee using
the bar of the Statue of Frauds for protection
o Difference between equitable and promissory estoppel:
 Equitable estoppel = looks to behavior of the promisor (has the
promisor made misrepresentations?), which the promisor is now
equitably estopped from denying
 Promissory estoppel = looks to the behavior of the promisee  has
the promisee relied on the promise?
o Legal Duty Rule = a promise to do what one is already legally bound to do is not a promise supported
by consideration
 a lesser sum can never satisfy an agreement for a greater sum
o Reliance on Adjustment to Contract
 Generally the rule is that adjustments to contracts are not enforceable unless there is
consideration
• Exception: Fried v. Fisher, Pennsylvania 1938
o P leased space to D and Brill for a florist shop; D wanted to get out of the lease
in order to start a restaurant, and P told D that if Brill took over the lease, P was
fine with D dropping it, and said to D, “I release you”; when Brill defaulted on
the lease, P sued both Brill and D to enforce the lease
o Held: P is estopped from taking back his promise to release D; D does not have
to cover the lease
o See Restatement §89 – Modification of Executory contracts
 Executory contract = a contract that has yet to be performed/executed
 §89(c): A promise modifying a duty under a contract not fully
performed on either side is binding…to the extent that justice requires
enforcement in view of material change of position in reliance on the
promise.
• U.C.C. § 2-209. Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs no consideration to be
binding.
o The legal duty rule will sometimes override §2-209(1), as in Levine, below
• Levine v. Blumenthal, New Jersey 1936
29
o P agreed orally to let D the 2nd year’s rent on D’s clothing store lease at the 1st
year price until D’s business improved”(i.e. P intended for D to pay the
difference later on); D did not renew the lease after the 2nd year and left the
premises without paying the last month’s rent; P sues for recovery of the last
month’s rent + the unpaid monthly increases for the 2nd year
o Held: D must pay up  there is no consideration to the oral modification of
the lease – P has not benefited, and D has suffered no detriment.
 According to the legal duty rule, D’s lesser rent payments cannot
satisfy his contractual obligation to pay rent at a higher rate
• PROMISES OF LIMITED COMMITMENT: Conditional and Illusory Promises

o If the promisor is limited in some way, there is probably consideration
o The law does not want to enforce conditional or illusory promises in which the promisor hasn’t really
promised anything/ is in total control over the promisee
o Mutuality of Obligation = both parties must be bound by the bargain, or neither will be bound by the
courts
 Required in bilateral contracts = an exchange of promises under which the performance of
each promise must be legally sufficient consideration for its counter-promise in order for both
parties to be bound by a bilateral contract (there must be mutuality of obligation)
• E.g. Nat Nal Service Stations v. Wolf, NY 1952
o D had promised P that if P purchased its gas through D, and D accepted P’s
offer of purchase and sold to P, D would pay P a discount on each gallon
purchased; P bought a lot of gas through D, and D did not pay the discount
o Held: The agreement described above was not a contract at all since neither
party was obligated to do anything after D made its statement (an illusory
promise); However, once P offered to buy gas on D’s terms, and D accepted
the offer and sold gas to P, then a new separate, enforceable contract was
formed based on P’s performance, and D was obligated to give the promised
discount in consideration of P’s performance  once P was bound, both
were bound
• Obering v. Swain-Roach Lumber Co., Indiana 1927
o P and D signed a contract that stated that “in event Swain-Roach Lumber Co
(P)” buys the Buhner land, P “agrees to sell” to D (Obering), and D “agrees to
pay” P $8,000 for the land; P bought the land and D refused to buy.
o D contends that P cannot get specific performance because there was no
mutuality in the contract because neither party was bound to it unless P did a
specific act—purchase the Buhner farm
o Held: The mutuality of obligation here does not occur at the original time of
contracting (i.e. when the document was signed), but rather, once the purchase
of the land occurred  this act put the contract into effect, and from purchase-
point onward the contract was mutually binding; neither was bound until
both were bound
• Illusory promises = a statement that seems like a promise, but isn’t a promise in
substance  since the promisor is not bound because his promise is illusory (it leaves
the promisor a free way out of the “deal”), there is no mutuality of obligation and
neither party is bound
o E.g. Davis v. General Foods Corp., NY District Court, 1937
 P wrote to D that she had an idea and recipe for a food product; D
wrote back saying that they would be glad to look at the idea, but that
“the use to be made of it by us, and the compensation, if any, to be
30
paid therefore, are matters resting solely in our discretion”; P sent in

the recipe; D did not pay; P sued on the contract and in quantum meruit
 Held: D’s letter is not a binding agreement because it constitutes an
illusory promise = “too indefinite for legal enforcement” because the
“promisor retains an unlimited right to decide later the nature or extent
of his performance”
• P’s actions were those of a volunteer
• P couldn’t recover in quantum meruit either, because reliance
on an illusory promise is not even reliance on an implied
contract
nd
o Restatement 2 , §77: Illusory and Alternative Promises
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.
 Alternative Promises = promises in which the promisor has made the promise conditional on
several options
• Not illusory because the promisor is still bound, though it is by several options (one of
which will definitely occur, even if the promisor gets to decide which one – there is
still a limit on the promisor)
• These promises often rely on “good faith” obligation
 Mutuality of obligation not required in unilateral contracts = an exchange of action for a

promise  the promisee’s action is acceptance of the promise, and the only obligation left is
for the promisor to perform
o Conditional Promises = promises contingent on a specific event or occurrence  these types of

promises are enforceable as long as the condition is not within the promisor’s full control (i.e. the
promisor could cancel at any time), and the promisor has undertaken something that might result in
legal detriment to him
 Wood v. Lucy, Lady Duff-Gordon, NY 1917 – An Implied Obligation
• D contracted with P to give him exclusive rights to place her label on clothing designs
and to market her designs; in return, D would get half of P’s profits; D put her label on
goods without P’s knowledge and kept the profits
• D claims that P’s promise was not enforceable because he didn’t assume a duty to use
reasonable efforts to promote D’s goods, and therefore, there was no guarantee that D
would get her half of the bargain  P’s promise was conditional on P’s using
reasonable efforts
• Held: The promise is enforceable because P’s promise to pay D half the profits was
also a promise to use reasonable effort to market the goods (P would not choose to opt
out of the condition to use reasonable effort, since marketing clothing was P’s
business)
o As soon as D was bound not to put her endorsements elsewhere, P became
bound to place D’s endorsements on the market to the best of his ability  the
mutuality of obligation occurred at the moment of signing/ trading promises
 Omni Group, Inc. v. Seattle-First Nat’l Bank, Washington 1982
31
• D and P signed an earnest money agreement for P to purchase a property; the

agreement stated that P would purchase contingent upon obtaining the results of a
feasibility report that would be satisfactory to P; the agreement stated that if P did not
send notice of acceptance of D’s offer to purchase within 15 days of the report, the
contract to purchase could be considered cancelled; P sent notice of acceptance of D’s
offer; D refused to proceed with the sale
• D claims that the contract is not enforceable in the first place because P’s promise to
purchase was illusory in that it was conditional on P’s satisfaction with the feasibility
report
• Held: A promise to purchase conditional upon the purchaser’s good-faith approval
based on a “feasibility report” is not illusory.
o One party’s contractual power to cancel/ void the contract is a valid component
of a contract so long as the option to cancel can only be exercised according to
specified conditions  we rely on the good faith of P to cancel only on true
dissatisfaction with the report
o Output Contracts
 U.C.C. § 2-306. Output, Requirements and Exclusive Dealings.
(1) A term which measures the quantity by the output of the seller or the requirements of the
buyer means such actual output or requirements as may occur in good faith, except that no
quantity unreasonably disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or requirements may be tendered
or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller to use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale.
 Lima Locomotive & Mach. Co. v. National Steel Castings Co., 6th Cir. 1907
• The agreement stated that D would furnish all of P’s steel requirements as long as P
furnished D with P’s orders by the 15th of each month; D would fill the orders and
deliver the steel
• P claimed that the agreement was void for lack of mutuality because P was under no
obligation to buy anything
• Held: “A contract to buy all that one shall require for one’s own use in a particular
manufacturing business is a very different thing from a promise to buy all that one may
desire or all that one may order”  these kinds of supplier exclusivity contracts are
beneficial to both parties involved, and it makes sense that both the buyer and the
supplier are mutually invested in the agreement
 Feld v. Henry S. Levy & Sons, Inc., NY 1975
• D contracted with P to sell to P all of the breadcrumbs that D produced; D stopped
breadcrumb production, stating that it had become uneconomical, and that it would
continue production if P paid a higher price; P declined and brought suit against D for
breach
• Held: The seller under an output contract is under a good faith duty to continue
production for the full contract term “according to commercial standards of fair
dealing in the trade” (the contract doesn’t have to specify amounts to be considered
definite)
o Under U.C.C. §2-306, a “good faith cessation of production” must show that
either bankruptcy or imperilment of D’s business would have resulted from
continuing to produce  less profit than expected (or even no profit) is not
good faith grounds for cessation
o Power of Termination/ Cancellation
 Distribution of Goods Contracts
32
• Corenswet, Inc. .v. Amana Refrigeration, Inc., 5th Cir. 1979

o P and D had a distribution agreement that was of “indefinite duration” but was
“terminable by either party ‘at any time for any reason’ on ten days’ notice to
the other party”; D gave termination notice to P after 7 years because D wanted
to give distributorship to another company; P claimed that D’s termination
should be enjoined because it was “arbitrary and capricious”
o Held: The termination was permissible under the terms of the contract and
under the U.C.C. §2-309(2)
 Under §2-309(2), the contract had been valid for a reasonable time
 Under §2-309(3), reasonable notice of termination had been given 
the contract had specified reasonable notice as 10 days, and as there
was no “bad faith” on the part of D, the termination did not violate the
U.C.C.’s general “good faith” requirement
• U.C.C. § 2-309. Absence of Specific Time Provisions; Notice of Termination.
(2) Where the contract provides for successive performances but is indefinite in duration it
is valid for a reasonable time but unless otherwise agreed may be terminated at any
time by either party.
(3) Termination of a contract by one party except on the happening of an agreed event
requires that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.
 Employment Contracts
• Sheets v. Teddy’s Frosted Foods, Inc., Connecticut, 1980 – Retaliatory termination
of employment contract
o P, a quality control director for D, was discharged after pointing out to D that
D was in violation of the Food and Drug act; D claims that it had a right to
terminate P’s employment at will, without showing just cause, like in any
permanent employment situation
o Held: For public policy reasons, an employee should not be made to choose
whether to risk criminal sanctions (for not speaking up about violations) or to
keep his job
 The court is not saying that D must show just cause, but that
sometimes public policy considerations will allow a court to put limits
on an employer’s right to terminate at will
III. THE MAKING OF AGREEMENTS/ CONSENSUAL BASIS OF CONTRACT

• Mutual Assent
o Restatement, 2nd, §22: The first requirement of a contract is that the parties manifest to each other their
mutual assent to the same bargain, usually in the form of an offer and acceptance:
o Objective Theory of Intent in Contracts: Would a reasonable person in the shoes of the offeree feel
that, if he accepted the proposal, a contract would be complete, and that no further negotiations would
be necessary to bind both parties?  outward manifestations of contract
 The courts will consider the following factors in applying the “objective theory” test (no one
factor is conclusive):
• The words used
• Surrounding circumstances
• To whom the proposal is made (a proposal to the public is generally an invitation, not
an offer to contract)
• Definiteness and certainty of terms
• Written contract contemplated
 Embry v. Hargadine-McKittrick Dry Goods Co., Missouri 1907 – (Subjective Intent
Irrelevant)
33
• P’s employment contract with D ended, and P went to D several times demanding a
new year-long contract, or else P would leave; President of D responded to P after
much urging (when D was busy), “Go ahead, you’re alright”; P kept working, but was
dismissed 2 months later
• Held: D’s subjective intent was irrelevant; if a reasonable man would have believed
D’s words and actions – outward manifestations of assent – to mean that D assented to
a new contract , then a new contract was formed (regardless of whether D actually
intended to form one)
 Kabil Developments Corp. v. Mignot, Oregon 1977 - Testimony of P’s belief in D’s intent to
contract is permissible as evidence of objective intent to contract
• P alleged that he had contracted with D for D’s helicopter business to perform services
for P’s construction contract; D’s helicopters didn’t perform, and D claimed that it
hadn’t contracted
• At trial, an officer of P was permitted to testify that he felt his company was bound to
hire helicopter from D after a meeting with an officer from D  P testified that he did
feel that there was mutual obligation after that meeting
• Held: The jury may use P’s testimony of belief in D’s intent to contract as evidence of
the overall objective intent, based on the circumstances, of both parties to contract
with each other.
 Objective theory applied to employee handbooks (are they contracts?)

• McDonald v. Mobil Coal Producing, Inc., Wyoming 1991 – employee handbook
might be a contract
o P had an employment-at-will agreement with D; however, D gave P an
employee handbook that gave termination procedures to be followed in the
case of dismissal; the handbook contained a disclaimer stating that it wasn’t an
employment contract, but the disclaimer was not conspicuous; P was
dismissed after having been accused of sexual harassment; P sues for wrongful
termination according to the terms of the handbook, which P claims is a valid
contract; D claims it never intended to contract through the handbook
o Held: A trial court must determine whether the employee handbook, viewed
along with D’s dealings with P—i.e. D’s outward manifestations--constituted
assent to a modification of P’s terms of employment such that a new
employment contract was created between them
• Kari v. General Motors Corp, Michigan 1977 – conspicuous disclaimer = no
contract
o P wanted severance pay from D according to D’s employee handbook; D’s
handbook had a conspicuous disclaimer in red ink and italicized emphasizing
that the handbook was not a contract
o Held: As a matter of law, the handbook’s disclaimer was conspicuous enough
so as to have not created a contract
o Offer = includes intent to enter into a bargain, as well as definite terms
 Requirement of Definite and Certain Terms
• Restatement, 2nd §33. Certainty
(1) Even though a manifestation of intention is intended to be understood as an offer, it
cannot be accepted so as to form a contract unless the terms of the contract are
reasonably certain
(2) The terms of a contract are reasonably certain if they provide a basis for
determining the existence of a breach and for giving an appropriate remedy.
34
(3) The fact that one or more terms of a proposed bargain are left open or uncertain
may show that a manifestation of intention is not intended to be understood as an
offer or as an acceptance.
• U.C.C. § 2-204. Formation in General.
(1) A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such
a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though
the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a
reasonably certain basis for giving an appropriate remedy.
• Advertisements:
o Letter in the Nature of an Advertisement: Moulton v. Kershaw, Wisconsin
1884
 D sent P a letter listing salt prices and shipping arrangements, which
ended “shall be pleased to receive your order”; P sent an order, but D
withdrew their original letter
 Issue: Does this correspondence = offer and acceptance?
 Held: No – D’s letter was in the nature of an advertisement.
• No particular quantity offered in D’s letter  terms not certain
enough to constitute an offer
o Lefkowitz v. Great Minneapolis Surplus Store, Minnesota 1957 –
distinguished from Moulton because the ads here were “clear, definite, and
explicit, and left nothing open for negotiation”
 D advertised fur coats on successive Saturdays at $1 each to “first
come, first served”; P was first each Saturday, but D didn’t give him
the deal
 Issue: Was a contract created by this kind of ad?
 Held: Yes – the test is “whether the facts how that some performance
was promised in positive terms for something requested”  the ad was
aimed at a specific person (“first come”), and for a specific item at a
specific price (the terms were not left “open and uncertain”)
• Agreements to Agree/ open-price agreements
o Courts don’t like to fill in gaps in uncertain contracts
o Joseph Martin, Jr. Delicatessen v. Shumacher, NY 1981
 P leased store space from D on a renewable lease agreement that stated
that the rent for the renewal period was “to be agreed upon” by both
parties; D raised the rent by almost $300 at renewal, and P sued for
specific performance of the lower rent
 Held: “A mere agreement to agree, in which a material term is left for
future negotiations, is unenforceable.”
• The agreement must be more definite  it didn’t have to state
exactly what the renewal rent would be to achieve the requisite
definite-ness; it could have just provided a “methodology for
determining the rent”
o U.C.C. allows open-price arrangements/ “agreements to agree” to be
enforceable (in sales of goods)
 § 2-305. Open Price Term
35
(1) The parties if they so intend can conclude a contract for sale even though
the price is not settled. In such a case the price is a reasonable price at the
time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other
standard as set or recorded by a third person or agency and it is not so
set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix
in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties
fails to be fixed through fault of one party the other may at his option treat the
contract as cancelled or himself fix a reasonable price. (4) Where, however, the
parties intend not to be bound unless the price be fixed or agreed and it is
not fixed or agreed there is no contract. In such a case the buyer must return
any goods already received or if unable so to do must pay their reasonable
value at the time of delivery and the seller must return any portion of the price
paid on account.
• Letters of Intent
o Empro Mfg. Co. v. Ball-Co Mfg., Inc., 7th Cir. 1989
 D offers the assets of its valve-component business for sale on the
market; P sends a letter of intent to D setting out the terms on which it
would buy D’s assets; the letter of intent states that the terms of P’s
proposal is “subject to” both a “formal, definitive” agreement and P’s
“satisfaction of certain conditions”; D began negotiations with another
co. after P and D haggled over security interests; P seeks specific
performance
 Held: The letter of intent is not enforceable (even though some may
be, under certain conditions, this one was not):
• The “subject to” clauses “manifested an (objective) intent not
to be bound”
• Though P argued that subjective intent of the parties should be
considered, subjective intent can’t change a letter of intent
(which by most definitions is not a binding agreement) into a
binding contract
o Bilings v. Wilby, North Carolina, 1918
 P and D negotiated by correspondence over laying sewer lines; P sent a
final wire saying “will accept. Send contract signed at once”; no
written agreement was ever made
 Held: The actual binding agreement occurred before the request for a
written instrument, so it is the agreement itself (P’s acceptance of
D’s offer), not the writing, that binds  “the contract will not be
avoided because of their intent and purpose” to have the contract
drawn up formally in writing, even if it was never written
• Lack of Definite Terms ≠ Contract (but promissory estoppel may still apply)
o Wheeler v. White, Texas 1965
 D and P entered into a written “contract” whereby D would procure a
loan for P to be able to build on a property; the terms of the contract
left the amount of the monthly installments and interest on the loan
indefinite; in reliance on D’s promise to procure the loan, P knocked
down the existing building on the property and began to prepare the
land for building
36
 Held: The contract is too indefinite to be binding, but the elements of

inducement and reliance on a promise are present, and P can assert
promissory estoppel in order to recover “foreseeable, definite and
substantial reliance” damages
• D is estopped from using the indefiniteness of the contract as a
defense
o Bentzen v. H.N. Ranch, Inc., Wyoming 1958
 P wanted restitution of down payment after deal fell apart because P
claimed that the contract terms were too indefinite to be enforced; D
counterclaimed for losses it incurred in reliance on P’s offer to buy
 Held: P’s down payment achieved the goal of optioning D’s land (so
that D wouldn’t negotiate with others), and D lost money because of
this, so there was a quid-pro-quo, and P can’t recover restitution
• Even though the alleged contract was too indefinite to be
enforced, another “deal” was made by P benefiting from D’s
detriment, and therefore P can’t get back the down payment,
because P received D’s detriment in return
o Subjective Intent may Be Relevant when there is ambiguity in the contract:
 Restatement 2nd, §20, Effect of Misunderstanding
 2 types of ambiguities, latent and patent:
• Latent ambiguity: The offer/ acceptance appears unambiguous when it is made, but it
later turns out that a term is ambiguous (i.e. could have referred to more than one thing)
o Latent ambiguity = no mutual assent
 Raffles v. Wichelhaus, England 1864
• P and D agreed that P would sell to D a quantity of cotton
arriving from India on the ship “Peerless”; D didn’t accept the
cotton that P offered because D had meant that D would buy
cotton from P that arrived on a different ship Peerless, not the
one that P got the cotton from
• Holding: Judgment for D -- When there is latent ambiguity,
if D and P don’t agree on one meaning for the ambiguity, then
there was no contract to begin with
o If both parties are unaware of the ambiguity, and both parties’
interpretations of the ambiguous term are reasonable, then the contract can only
be binding if both parties’ subjective intent about the meaning of the
ambiguous term is the same
 Flower City Painting Contractors v. Gumina Constr. Co., 2nd Cir.
1969
• D Contractor is in the trade, but the subcontractor is a
newcomer to the trade is not aware of the trade meaning of
“paint the walls” – trade meaning is inside and outside;
newcomer thought that it meant just inside and demanded extra
payment to paint the outside; D took P’s demand as a
repudiation and removed P from the job
• Held: The contract is unenforceable because “No contract ever
came into existence for lack of a ‘meeting of the minds in the
first instance.’”
o Since both the trade interpretation and the ordinary
interpretation of “paint the walls” are reasonable, and
each party intended a different meaning, the contract
cannot stand (the trade interpretation doesn’t rule)
37
o Once one party learns of the ambiguity it is that party’s obligation to inform
the other party of the mix-up in interpretation, otherwise the contract isn’t
binding:
 Dickey v. Hurd, 1st Cir. 1929
• D wrote to P, “I will give you till 7/18 to accept this offer” of
price for land that D was selling; P telegraphed an acceptance,
and said that he would send money soon; D repudiated, saying
that the acceptance wasn’t effective because P didn’t pay by
7/18
• Held: When D realized that P thought that acceptance meant
saying “I accept” by 7/18 and not sending full payment by
7/18, D had a duty to inform P of D’s real meaning
• Patent ambiguity: the ambiguity is obvious when examining the words of the contract
• Control Over Contract Formation
o Offeror is “master of the offer”: offeror has power to determine substance of the offer, identity of the
offeree, and time, place, and mode of acceptance of the offer (but this “power” is subject to limitations,
as in Allied Steel, below); in general, any offer is revocable
o Prize/ Award Offers
 Offeror controls the method of acceptance, and must adhere to its offer when accepted as
such
• Cobaugh v. Klick-Lewis, Inc., Pennsylvania 1989 – Unilateral contract 
acceptance = performance of the offer as described by the offeror
o P hit a hole in one on the 9th tee, where D had advertised for a charity event that
D would give a car to whoever hit the hole in one; the charity event was over
and D hadn’t taken the sign down; the sign didn’t specify that the offer was
only for the charity event; P claims his prize
o Holding: The manifest intent of the offeror (D) was to give a car to whoever
hit a hole in one on the 9th tee. The hidden intent (that the prize was only for
the charity event) is irrelevant
o Mistake by the offeror in not revoking the offer will not void this contract
o This contract is also supported by consideration =D benefited from the
advertising gained by leaving its sign up
 Offeree must know that he is accepting an offer in order for it to be enforceable  if
someone fulfills an act for which an award is offered, he cannot claim the reward if “the
performance was rendered in total ignorance of the offer”
o Life Span of an Offer
 If no time for expiration of a power of acceptance is specified in the offer, the power terminates
at the end of a reasonable time (which is a case by case question of fact)
 Life span of a time-limited offer begins when it is received by the offeree
 An oral offer generally terminates at the end of the relevant conversation
o The offer must “clearly and definitely express an exclusive mode” of acceptance, in order for the
mode of acceptance to be deemed exclusive
 Allied Steel & Conveyors, Inc. v. Ford Motor Co., 6th Cir. 1960
• D contracted for P to assemble machinery in its plant; D’s contract included an
amendment that P would indemnify D against any negligence by employees of both P
and D in installing P’s machinery; D’s contract stated that “acceptance should be
executed on acknowledgment copy which should be returned to buyer”; P didn’t return
the acknowledgment copy until after P began work, by which time a P employee had
been injured by a D employee’s negligence.
38
• Holding: P’s acceptance of the contract was that P began to work, and therefore, P
is bound by its terms and must indemnify D
o Though D’s contract included a method of acceptance, it was not clearly and
definitely the only method of acceptance, and so P’s alternate method of
acceptance—beginning work—constituted the finalization of a binding
contract
 U.C.C. §2-206 – Offer and Acceptance in Formation of Contract
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any manner
and by any medium reasonable in the circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall be construed
as inviting acceptance either by a prompt promise to ship or by the prompt or current
shipment of conforming or non-conforming goods, but such a shipment of non-conforming
goods does not constitute an acceptance if the seller seasonably notifies the buyer that the
shipment is offered only as an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of acceptance an
offeror who is not notified of acceptance within a reasonable time may treat the offer as having
lapsed before acceptance.
• Similar to Restatement 2nd, §62 (below)
• Carlil v. Carbolic Smoke Ball:
o D advertised a one hundred pound reward for anyone who contracts influenza
after using its product for two weeks. The ad stated D had deposited the money
in a bank in good faith. P saw the ad, used the product and contracted D
refused it pay.
o Is the ad for reward an offer that can be accepted by doing what the ad says?
 Yes.
 D deposit shows good faith.
 Binding promise- offered reward to anyone who performed the

conditions
 By the nature of the transactions, the acceptance of the offer need not
be shown.
 Unilateral contract
o Acceptance in Unilateral Contracts v. Acceptance in Bilateral Contracts
 Bilateral Contracts: Acceptance is indicated by a promise
 Unilateral Contracts: Acceptance is indicated by performance; the contract is created once the
act has been performed
 Presumption of Bilateral Contract
• Restatement 2nd, §32: “In case of doubt an offer is interpreted as inviting the offeree to
accept either by promising to perform what the offer requests [offer of bilateral
contract] or by rendering the performance [offer of unilateral contract], as the offeree
chooses.”
o There is a presumption of offeror-indifference as to the mode of acceptance
when the form of acceptance (return promise or beginning of performance) is
not made clear.
39
o Davis v. Jacoby, California 1934

 D’s decedent promised to leave everything to Ps if Ps would come take
care of his sick wife (Ps aunt) until she died, and help him with his
business; Ps sent word of acceptance by letter [acceptance if the
contract was bilateral]; uncle committed suicide before Ps arrived, and
Ps came and took care of aunt until she died; uncle’s will left
everything to his nephews
 D claims that the contract was unilateral, and uncle’s death revoked the
offer before Ps performed
 Holding: According to Restatement §31 (now §32), when it is
doubtful whether the contract offer is uni or bilateral, it is presumed to
be bilateral, because that protects both parties  therefore, D must
honor the contract and allow Ps to inherit against the written will
 Acceptance of a unilateral contract:
• Brackenbury v. Hodgkin, Maine 1917
o D1 = Sarah Hodgkin: owned a farm in Maine, widow; D2 = Walter Hodgkin:
son of Sarah; Ps = daughter + son-in-law of Sarah, from MO
o D1 wrote to Ps that if they would come and take care of her and her farm until
her death, D1 would allow Ps to use and profit from the farm during D1’s life,
and to own the farm when D1 died; Ps came and began to run the farm and
care for D1; Troubles arose between D1 and Ps, and D1 ordered Ps to leave
and gave the deed to the property to D2
o Held: The contract between Ps and D1 is a valid unilateral contract – the
terms of the offer were clearly stated in the written instrument, and the offer
was accepted by Ps’ beginning of performance.
nd
 Restatement 2 , §62. Effect of Performance by Offeree Where Offer Invites Either
Performance or Promise (i.e. when the contract is either uni or bilateral)
(1) Where an offer invites an offeree to choose between acceptance by promise and
acceptance by performance, the tender or beginning of the invited performance or a
tender of a beginning of it is an acceptance by performance
(2) Such an acceptance operates as a promise to render complete performance
• Similar to U.C.C. §2-206
o Methods of Termination of the Offeree’s Power of Acceptance (listed in Restatement 2nd, §36)
 Death or incapacity of both offeror or offeree
• Jordan v. Dobbins, Massachusetts 1877
o D promised to be guarantor for Moore; D died; Moore bought goods on credit
from P after D’s death
o Held: Because D (offeror) died before the purchase on credit, D’s offer to be
guarantor died with him; D’s estate does not pay for Moore’s default
 Lapse of time
 Rejection or counteroffer by offeree
• Once the offeree makes a counteroffer, the original offer dies
 Express or implied revocation by the offeror:
• Traditional View of Retraction Once Performance Has Begun
o Petterson v. Pattberg, New York 1928
 D agreed to take money off of P’s total mortgage payment if P paid in
cash by a certain date; P was walking up to D’s door with the $ by the
date decided when D revoked the offer and said that that he had
already sold the mortgage to another
40
 Held: The completed act of payment—i.e. the acceptance of the

unilateral contract—can’t be completed “unless assented to by the
person to be paid”, i.e. D; D could revoke his offer at any time before
performance
 No option contract created  There is a very grey area between
when preparation for performance ends and the beginning of
performance starts; the majority felt that P’s actions did not
constitute the beginning of performance that is necessary to create
an option contract
• OPTION CONTRACTS - Modern View of Retraction Once Performance Has
Begun/
o “Option Contract” Replaces Unilateral Contract
 Options are now always irrevocable as a matter of law  the very act
of making an offer that can only be accepted by an act includes the
subsidiary promise to keep the offer open
o Restatement 2nd, §45: Option Contract Created by Part Performance or
Tender
(1) Where an offer invites an offeree to accept by rendering a performance
[unilateral contract] and does not invite a promissory acceptance [bilateral
contract], an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance with
the terms of the offer.
 “tendering” a payment = the formal act of giving over a payment
o Brooklyn Bridge Example: A offers B $100 to walk over the BK Bridge;
once B starts walking, A says that the offer has been revoked  the moment B
sets put on the bridge, A’s offer becomes irrevocable because B’s beginning
of performance constitutes an acceptance of the offer (since the contract
was unilateral – capable of being accepted only by performance or beginning
of performance)
 The obligation here is also unilateral  B has no obligation to
continue the walk once he has begun performance, since A hasn’t yet
paid, and B gave no return promise
• Pre-contractual Obligation
o Firm Offer = one that by its terms is to remain open until a fixed date
 General rule: a firm offer can be revoked prior to the end of its term, terminating the offeree’s
power of acceptance, since the promise to leave the offer open is not supported by
consideration  the offeror retains power of termination
• e.g. Dickinson v. Dodds, England 1876
o D (Dodds) sent word to P that D’s offer to sell land to P would be open until
Friday; P heard that D had sold the land to another on Thursday, but sent word
of his acceptance to D anyway before Friday; P requests specific performance
of the sale
o Holding: D’s offer was not binding, and could be revoked at “any moment
before a complete acceptance by P of the offer”
 U.C.C. § 2-205. Firm Offers.  are not revocable in sales of goods
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time, but in no event may such period of
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irrevocability exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror.
• The signed writing is necessary:
o E.A. Coronis Associates v. M. Gordon Constr. Co., New Jersey, 1966
 Though promissory estoppel (see Drennan, below) applied here to the
sub-contractor’s bid to supply structural steel for a project for the Port
Authority of NY (on which the general contractor relied in its bid to
the city), §2-205 doesn’t apply because the sub’s “offer” was just a
price sheet, not a signed offer
o Option Contract = a completed contract in which the offeror has bound himself not to revoke the
offer, which effectively destroys both his right and power to do so
 Traditional general rule: if the offeree has given any consideration (even nominal value) for
the offer, it becomes an option
• Marsh v. Lott, California 1908
o D’s writing of an option for P to buy land contained an acknowledgment that D
had received 25 cents from P; D revoked the option and withdrew the property
from sale
o Holding: P gets specific performance  Any amount of consideration—even
a tiny sum of $--in exchange for an option to purchase within a specified time
period constitutes adequate consideration to keep the option open during the
specified time period.
 Exceptions to the general rule (binding option without actual consideration):
• Option under seal = binding without consideration (in states where a seal still
operates at common law)
o Thomason v. Bescher, North Carolina, 1918
 D signed a writing under seal that stated: “in consideration of the sum
of one dollar to us in hand paid by C.E. Thomason, the receipt of
which is hereby acknowledged,” D would convey a tract of land to P if
P demanded a deed and tendered the $ on or before 8/18; P never
actually gave the 1$; D withdrew the option
 Held: P is entitled to specific performance  The option contract is
binding for the specified time period because it was made under seal
• A bilateral contract is formed when the offeree accepts the
offer by making a promise in turn to perform (i.e. pay) within
the designated option period (and demonstrates ability to
perform)
• Option with recital of consideration
o Smith v. Wheeler, Georgia, 1974: Even the recital of consideration is adequate
to keep the option open and binding on the offeror (even if the small
consideration is never paid)
• Oral promise to act = consideration for an option
o Matter of Estate of Jorstad, 1989: Even an oral promise by the offeree to do
something as consideration for the option constitutes consideration for the
option contract
• Promissory Estoppel
o General contractor/ subcontractor option situations:
 Old view: No liability when subcontractor withdraws offer
• James Baird Co. v. Gimbel Bros., 2nd Cir., 1933
o D (a subcontractor who provided linoleum) put out a
miscalculated offer, which D then had to revoke, to 30
42
contractors who were bidding on a city project, stating

that D would offer its bidding price guaranteed to the
general contractor who accepts; P used D’s erroneous
bid to the city, and won the general contract
o Held: Judgment for D  there was no contract
between them; the language of the offer indicates the
mode of acceptance, and P can only accept “after the
general contract has been awarded”; simply placing a
general bid is not acceptance
o promissory estoppel doesn’t apply either  “an
offer for an exchange is not meant to become a
promise until a consideration has been received, either
a counter-promise or whatever else is stipulated”; there
was nothing in D’s offer that indicated that P ought to
rely on it
 Modern view: subcontractor is liable for withdrawing a bid where
the general contractor’s reliance is foreseeable and reasonable
• Drennan v. Star Paving Co., California, 1958
o P’s general bid had to include the names of the
subcontractors that P would be using, and P also had to
provide a bidder’s bond as a guarantee that he would
enter the contract if awarded it; D’s bid for paving was
lowest, and P used it; D then realized that it had made
a mistake in its calculations, and doubled its price
o Holding: Judgment for P  P’s reliance makes D’s
offer irrevocable: “As between the subcontractor who
made the bid and the general contractor who
reasonably relied on it, the loss resulting from the
mistake should fall on the party who caused it.”
o reference to §90 (promissory estoppel) in comment
(b) to §45 shows that consideration isn’t always
necessary  substantial and foreseeable reliance
will bind the offeror
• no reciprocity in the general contractor/sub-contractor
relationship, according to the Drennan view:
o Southern California Acoustics Co. v. C.V. Holder,
Inc., California, 1969
 D won a general contract on a project for the
school district; P saw in a trade paper that it
was listed as a sub on the project; P took this
as D’s acceptance of P’s offer to sub-contract
for acoustic tiling; D asked the school district
if it could substitute another sub-contractor
instead of P, and the school district granted
permission
 Held: Judgment for D  no promissory
estoppel – listing P on its contract bid does not
constitute D’s acceptance of P’s offer
 a sub-contractor is considered bound to the
general contractor by promissory estoppel, but
43
a general contractor is not bound to the sub in

the same way
o Promissory estoppel can create an option even without a clear offer:
 Hoffman v. Red Owl Stores, Inc., Wisconsin, 1965
• P incurred many expenses in reliance on D’s promises that P
could be set up in one of D’s Red Owl stores for a start-up
price of $18K (P sold his bakery business, moved, rented a
house, bought and sold a new business in order to gain
grocery-business practice on the advice of D, etc.); D kept
raising the price from $18K
• Held: Promissory estoppel does apply here, and the test for
promissory estoppel are those elements set out in §90 –
foreseeability of promisee’s detrimental action in reliance on
promisor’s promise, and the necessity of avoiding injustice
by enforcing the promise
• Though D’s promises did not constitute a clear and definite
offer, under the theory of estoppel, D’s promise did not have to
fulfill the same elements of clear and definite terms as those
required of a binding offer to contract which is supported by
consideration
 Skycom Corp. v. Telstar Corp., 7th Circuit, 1987
• “even when a contract fails to become effective as a whole,
particular terms may bind under promissory estoppel…[A]
promise that is designed to induce commercially reasonable
detrimental reliance will be enforced to the extent necessary to
compensate the relying party for his injury in relying…”
 Modern View of Options (all of the above exceptions to the general rule, codified):
Restatement, 2nd, §87: Option Contract
(1) An offer if binding as an option contract if it
a. Is in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable
time; or
b. Is made irrevocable by statute
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance and which does induce
such action or forbearance is binding as an option contract to the extent necessary to avoid
injustice
• Conduct Concluding a Bargain
o Counteroffer
 An acceptance must be unqualified in order to be effective
• a qualified/deviant acceptance doesn’t necessarily = acceptance  it might operate as
a counteroffer, which works as an implied rejection of the original offer
o the question to ask about a deviant acceptance is whether it is a counter-offer
or just an inquiry
 if it’s a counter-offer, then the original offer has died
 if it’s just an inquiry that doesn’t insist on changing the terms of the
offer, then the original offer still stands
 General Rule: a counteroffer = a rejection (and therefore a termination) of the original
offer
• Livingstone v. Evans, Alberta, 1925
44
o D wrote to P offering to sell land for $1800; P then wired back saying, “send
lowest cash price, will give $1600 cash. Wire.”; D wired a reply saying,
“cannot reduce price.”; P then wrote accepting D’s offer; in the interim, D had
sold to someone else
o Holding: Specific performance for P:
 P’s counteroffer was a rejection of D’s original offer, and would not
require by itself a specific performance from D, however;
 D’s reply, “cannot reduce price,” implied that D’s original offer was
still open for P to accept, and therefore D was bound by that offer by
P’s subsequent acceptance of it
 U.C.C. §2-207 view of counteroffer: the offeree’s injection of different terms does not
necessarily constitute a rejection of the offer
o Battle of the Pre-Printed Forms
 Traditional Rule / the Mirror Image rule = the contracts must look the same, include the
same terms, etc. in order to be upheld
• When there is a battle of the forms, U.C.C. §2-207 has replaced the previous mirror-
image rule with a standard to apply on a case by case basis
o §2-207 turns a common law counter-offer (i.e. an “acceptance” that changes or
adds to terms of the agreement) into an acceptance  it gets rid of the mirror-
image rule
 U.C.C. § 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent
within a reasonable time operates as an acceptance even though it states terms additional to
or different from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
*acceptance by silence ≠ assent here
(2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract consist of those terms on which
the writings of the parties agree, together with any supplementary terms incorporated under
any other provisions of this Act.
o This is a “first shot” doctrine: consequent changes to the contract often don’t
carry weight
 the common law used to view successive revisions of contract as a
“last shot” doctrine (i.e. the last revision wins)
o The question that guides the application of §2-207(1) should be “whether the
offeror could reasonably believe that in the context of the commercial setting in
which the parties were acting, a contract had been formed”
 Idaho Power Co. v. Westinghouse Electric Corp., 9th Cir., 1979 – application of §2-207 to pre-
printed forms
• battle of the forms:
o D’s form: D responded to P’s request for a price for its 3-phase voltage
regulator with a price quotation form that stated that the prices were subject to
the terms and conditions printed on the back of the form, which limited D’s
liability
45
o P’s form: P responded to D’s price quotation/offer with a purchase order form
that didn’t state anything regarding D’s liability specifically, but stated that:
“acceptance of this order shall be deemed to constitute an agreement upon
the part of the seller to the conditions named hereon and supersedes all
previous agreements”
• P received the voltage regulator, which failed and caused a fire and damage; D paid for
the cost of repairing the regulator, but nothing more because of its limited liability
terms, which D claims that P assented to by sending in a purchase order
• Holding: P’s purchase order was an acceptance of D’s offer including D’s limit on its
own liability
o §2-207(1) does not apply because P’s purchase order did not “expressly”
indicate that its acceptance was “conditional on [D’s] assent to the additional or
different terms”
o §2-207(2) –the “knockout rule” – does not apply because P’s form did not
specifically contest D’s disclaimer of liability (it just purported to “supersede
all previous agreements”)  the “additional” terms in the acceptance must be
materially different from the terms in the offer and show a specific
contradiction to specific terms in order for §2-207(2) to kick in
 knockout rule (Comment 6 to §2-207(2)) = conflicting –“different”, as opposed to
“additional”—terms in pre-printed contract forms cancel each other out and the court will read
in a new term instead (if it appears that the parties had otherwise both assented to the contract)
o End-User Licenses
 ProCD, Inc. v. Zeidenberg, 7th Cir. 1996
• P created a CD-ROM database of phone #s, for which it charged more to commercial
users than general public users; P included a “shrink-wrap license” or “end user
license” in the package bought by D, stating that its use must be limited to non-
commercial purposes; D used the product for commercial purposes, but claims that
because D didn’t get to read or agree to the terms of the license until after the
conclusion of the sale—which was the conclusion of the contract, in D’s eyes—the
terms of the license don’t apply
• Holding: The end user license is enforceable  acceptance in this situation occurs not
when D makes the initial purchase, but when D uses the product, before which D has
the opportunity to read the terms of the license, after which D may return the product if
D does not assent to the terms of the agreement
• §2-204(1) applies: “A contract for sale of goods may be made in any manner sufficient
to show agreement, including conduct by both parties which recognizes the existence
of such a contract.”
o “a vendor, as master of the offeror may invite acceptance by conduct, and may
propose limitations on the kind of conduct that constitutes acceptance”
• §2-606(1)(b) applies as well
 §2-606: What Constitutes Acceptance of Goods
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that
the goods are conforming or that he will take or retain them in spite of their non-
conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but such
acceptance does not occur until the buyer has had a reasonable opportunity to inspect
them; or
(c) does any act inconsistent with the seller's ownership; but if such act is wrongful
as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
46
 Hill v. Gateway 2000, Inc., 7th Cir. 1997

• Ps bought a Gateway computer system by mail that contained an offer to return the
product within 30 days if unsatisfied with the product and its terms; the terms in the
package included a clause that any disputes must be submitted to arbitration; the
package also included a warranty for the product (limited for 30 days), and lifetime
service; Ps claim that they don’t have to submit the dispute to arbitration, because they
are not bound by the terms of the end user license that came in the computer package
• Holding: All of the terms contained in the box are binding for the reasons cited in the
ProCD case – just as the vendee holds the vendor to the warranty contained in the box,
the vendor holds the vendee to the license contained in the box  keeping the product
beyond 30 days was Ps’ assent to the terms contained in the box
• Ps also claimed that the arbitration clause was not conspicuous enough, but the court
explains that “a contract need not be read to be effective”
o Silence as Implied Consent
 Restatement, 2nd §69. Acceptance by Silence or Exercise of Dominion
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in
the following cases only:
• Where an offeree takes the benefit of offered services with reasonable opportunity to
reject them and reason to know that they were offered with the expectation of
compensation
• Where the offeror has stated or given the offeree reason to understand that assent may
be manifested by silence or inaction, and the offeree in remaining silent and inactive
intends to accept the offer
• Where because of previous dealings or otherwise, it is reasonable that the offeree
should notify the offeror if he does not intend to accept
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is
bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act
is wrongful as against the offeror it is an acceptance only if ratified by him.
 “silence will not constitute acceptance of an offer in the absence of a duty to speak”
 Silence = binding consent when part of a course of dealing
• Hobbs v. Massasoit Whip Co., Massachusetts, 1893
o P had sent eel skins to D 4 or 5 times and D accepted and paid for them; this
time, when P sent the skins D simply held onto the skins until they were
spoiled, but did not send notice to P that he was not accepting the skins; P
brings action for the price of the skins
o Holding: The relationship between P and D was in the nature of a standing
offer, and therefore, D’s silence, combined with D’s retention of the skins
without notifying P that he would not use them, constitute an acceptance based
on the circumstances of their business relationship and previous dealings 
this conforms to §69 as well as principles of mutual assent
 Unsolicited merchandise
• Austin v. Burge, Missouri, 1911
o D’s father-in-law signed him up for a 2-year newspaper subscription with P’s
paper; after 2 years, D paid the subscription price a few times, but sent
instructions to cancel the paper; P kept sending the paper, and D stopped
paying, but would take the paper home from the post office and read it
o Held: Even if D didn’t order the items, “if he continue to receive and use them,
under circumstances where he had no right to suppose they were a gratuity, he
will be held to have agreed by implication, to pay their value.”
• Subsequent to Austin, federal statutes have been passed regarding unsolicited
merchandise so that a recipient of unsolicited merchandise is not responsible to send
47
the merchandise back, or to even refrain from using it  a merchant sends unsolicited
merchandise at his own risk
 Marriage ≠ implied consent
• Morone v. Morone, NY 1980
o P (“wife”) and D (“husband”) lived together as a married couple for almost 30
years and had two children together, but were never formally married; P
performed “housewifely” duties for D and also helped with his business; D
forbad P from having a job of her own and promised to support her
o P claims that she can recover either on an implied contract between the two
that P performed these services for expected compensation, or on an express
contract (oral) between the parties in which D had promised to “support,
maintain and provide for P in accordance with his earning capacity and that D
further agreed to take care of P and do right by her”
o Holding: No implied contract between couples living together, however, an
express contract between such a couple = enforceable  “an express
agreement between unmarried persons living together is as enforceable as
though they were not living together”
o This is a case of not only silent acceptance, but a silent offer  the terms of
the contract must be figured out from behavior
o When Acceptance Takes Effect: Limits on Offeror’s Power of Revocation
 Restatement of Contracts, 2nd, §63. Time When Acceptance Takes Effect
Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by an offer is operative and
completes the manifestation of mutual assent as soon as put out of the offeree’s possession,
without regard to whether it ever reaches the offeror; but
(b) an acceptance under an option contract is not operative until received by the offeror
 Mailbox rule: acceptance of an offer for a bilateral contract is effective when properly
dispatched by an authorized means of communication
• Morrison v. Thoelke, Florida, 1963
o D mailed an offer to P for purchase of P’s land; P executed the contract and
mailed it back to D; before D had a chance to receive the contract, P
telephoned D’s lawyer to cancel the contract; when D received the deed to the
land with the contract in the mail, D recorded the deed; P brings action to quiet
title to the land, claiming that his repudiation of his mailed acceptance by
phone had invalidated the contract
o Holding: Acceptance is effective when the letter of acceptance is deposited
in the mail, and therefore repudiation after that point is ineffective and doesn’t
un-bind the offeree
o with mail acceptances, “concurrent knowledge of assents” is impossible, and
the choice of the point of assent is essentially arbitrary; the court had to just
choose some point
• Restatement, 2nd §40: “Rejection or counter-offer by mail or telegram does not
terminate the power of acceptance until received by the offeror, but limits the power so
that a letter or telegram of acceptance started after the sending of an otherwise effective
rejection or counter-offer is only a counter-offer unless the acceptance is received by
the offeror before he receives the rejection or counter-offer”
• Restatement 2nd §64: Applies to email – instantaneous communication that occurs
when he parties are not in each other’s presence is governed by the rules of acceptance
that apply when the parties are in each others’ presence
 point of acceptance in option contracts
• Kibler v. Caplis, Michigan, 1905
48
o D wrote a letter to P giving P an “option” (no seal or consideration) to buy

hides, and that the option would expire at noon on Tuesday; P telegrammed
acceptance by Monday, and sent a letter to confirm, but the telegram was never
sent, and the letter arrived after noon on Tuesday
o Held: “The parties had in mind that the offer to sell would be good only until
noon of the 8th. Unless actually notified by that time of its acceptance, we do
not think D could be held”
• The mailbox rule does not apply here because there was a specific point of
acceptance given in the offer; offers to which the mailbox rule applies generally are
missing an exact point of acceptance, which the mailbox rule supplies
• Effects of Adopting a Writing: Parol Evidence Rule (PER)/ doctrine of integration/merger

o The Parole Evidence Rule = when an agreement has been reduced to a writing that the parties intend
as the final and complete expression of their agreement—an integration—evidence of any earlier
expressions of the agreement (oral or written) is not admissible to vary the terms of the writing
 Such evidence = parol evidence
 The PER is both procedural and substantive:
• Procedure: it operates as a rule of evidence to exclude parol evidence at trial
• Substance: it sends bounds regarding what constitutes the action contract between the
parties
o Different views on what constitutes an integration:
 “4 Corners Rule”/ “Face of the Instrument” Test (the more traditional view):
• “when a contract is clear in and of itself, circumstances extrinsic to the document may
not be considered [and] where the intention of the parties may be gathered from the
four corners of the instrument, interpretation of the contract is a question of law and no
trial is necessary to determine the legal effect of the contract”
o It is sufficient if the written agreement appears to be a complete and final
expression of the parties’ agreement
o Unless there is alleged fraud or mistake, courts will not look beyond the face of
the instrument
• NY still uses a very strict “4 Corners Rule”
 Any Relevant Evidence Test (the growing minority rule)
• Evidence of the circumstances surrounding the execution of the writing may be
admitted in order to show if the parties intended for the document to be integrated
 Merger Clause
• If a writing contains a “merger clause” (e.g. “this is our entire agreement”; “no other
representations have been made”, etc.), the writing will be presumed to be integrated
unless fraud or mistake is alleged
• Comment e. of Restatement 2nd, §216: if the writing contains a “merger clause”
which states that the writing is completely integrated, this is usually evidence that no
other terms, even if consistent with the writing, were intended by the parties (though
the parties may still present evidence as to whether the parties did or didn’t assent to
the writing as an integrated agreement)
 Levels of Integration:
• Restatement 1st
o The Restatement 1st is an inquiry into whether the writing is integrated, or not,
as a whole (Mitchell v. Lath)
o The “4 corners rule” fits in with this approach
• Restatement 2nd
49
o Uses a much more “textured” inquiry into integration  there is the possibility
of a “partially integrated” document, as shown by the use of the terms
“integrated” v. “completely integrated”
o Written with U.C.C. §2-202 in mind
o §209. Integrated Agreements:
(1) An integrated agreement is a writing or writings constituting a final
expression of one or more terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court
as a question preliminary to determination of a question of interpretation or
to application of the parol evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its
completeness 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 agreement.
o §213. Effect of Integrated Agreement on Prior Agreements (Parol
Evidence Rule)
(1) A binding integrated agreement discharges prior agreements to the extent
that it is inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to
the extent that they are within its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided
does not discharge a prior agreement. But an integrated agreement, even
though not binding, may be effective to render inoperative a term which
would have been part of the agreement if it had not been integrated.
o §214. Evidence of Prior or Contemporaneous Agreements and
Negotiations
Agreements and negotiations prior to or contemporaneous with the adoption of
a writing are admissible in establish
(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 consideration, or other
invalidating cause;
(e) ground for granting or denying rescission, reformation, specific
performance, or other remedy.
o §216. Consistent Additional Terms
(1) Evidence of a consistent additional term is admissible to supplement an
integrated agreement unless the court finds that the agreement was
completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent
additional 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.
• U.C.C.
o Breaks the agreement down even further than Restatement 2nd, into its
individual terms:
 A court may decide whether each term is integrated or not, while
Restatement 2nd, §213 has categories of “agreements”: “binding
integrated”, “binding completely integrated”, and “integrated that is
not binding”
o § 2-202. Final Written Expression: Parol or Extrinsic Evidence.
50
Terms with respect to which the confirmatory memoranda of the parties agree
or which are otherwise set forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as are included
therein may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented
(a) by course of dealing or usage of trade (Section 1-205) or by
course of performance (Section 2-208); and
(b) by evidence of consistent additional terms unless the court finds
the writing to have been intended also as a complete and exclusive
statement of the terms of the agreement .
o Example of strict enforcement of the PER
 Hayden v. Hoadley, Vermont 1920
• D promised, as part of a written agreement to exchange properties, to make certain
repairs upon the house to be conveyed to P; P brought suit to recover damages for
nonperformance of those repairs; D claims that they had orally agreed that the repairs
didn’t need to be completed until a specific date, which hadn’t yet occurred
• Held: Evidence of parole agreement excluded  “the legal effect of the contract
before us—it being silent as to the time of performance—was to require the repairs
specified to be completed within a reasonable time”; as such, the contract was
considered fully integrated
o since D claims that the parol agreement specifies a date that is beyond a
reasonable time period, D’s oral agreement conflicts with the written
agreement and evidence of it may not be admitted
o Exceptions to the PER (Reasons for which extrinsic evidence may be admitted):
 To demonstrate the existence of a “collateral” oral agreement or terms
• Parol evidence is admissible to show a collateral (i.e. related, but not inextricably
connected) oral agreement only if:
o The agreement does not contradict express or implied provisions of the
written contract
o The agreement is one that the parties would not ordinarily be expected to
embody in the writing (it is the “natural subject of a separate agreement”); it
must not be so closely connected with the written agreement as to be
inextricably bound to it
• Mitchill v. Lath, New York, 1928 – Agreement too close to the writing to be
collateral
o P and D executed a written contract for the sale of D’s land to P; P claims that
the parties made an oral agreement pre-purchase—as an inducement for P to
purchase the land—for D to remove an unsightly ice-house from an adjoining
property within a year of the sale
o Held: “were such an agreement made it would seem most naturally that the
inquirer should find it in the contract. Collateral in form it is found to be, but it
is closely related to the subject dealt with in the written agreement—so closely
that we hold it may not be proved.”
 This is a “4 corners” approach, as it doesn’t consider the surrounding
circumstances
o Dissent: the parol agreement was made as an inducement for P to enter into
the written contract of sale, and P relied on that parole agreement when she
decided to enter into the written agreement; the agreements are separate, and
their only connection is that one induced the other
 “the limits of the integration are determined by the writing, read in the
light of the surrounding circumstances”
51
• Hatley v. Stafford, Oregon, 1978 – Writing only “partially integrated” (as in

Restatement, 2nd §216); evidence of existence of consistent additional terms allowed
o D rented P a farm for a year with an option that D could buy out the farm
before the lease was up (but not specifying the length of the buy-out option); D
entered the land 3 months before the lease was up; P claims that the agreement
between P and D also included an oral provision that D’s buy-out option only
applied for 2 months after the lease began, and that D no longer had the right to
exercise it
o Holding: Evidence of the parol agreement may be written as the parol
agreement satisfies the conditions of a collateral agreement:
 The oral time limitation is not inconsistent with the terms of the
writing since there was no time limit specified in the writing
 The oral agreement might naturally have been made as a separate oral
agreement based on the surrounding circumstances (i.e. that the
parties were not experienced businesspeople used to putting contracts
in writing, and that counsel did not advise either party)
 To prove existence of a condition precedent to the written agreement (when the condition is
not inconsistent with the integrated agreement)
• Long Island Trust Co. v. International Inst. For Packaging Educ., Ltd., NY, 1976
o Ds were guarantors on IIPE’s loan from P, but made their guarantee
conditional on P obtaining signatures of all 5 guarantors for all loans and
renewal loans (in an oral agreement); when the loan was renewed, only 4
guarantors signed; P sues the guarantors on the promissory note when IIPE
defaults; Ds claim that they are not the guarantors because the condition was
not fulfilled
o Held: “Among the conditions precedent which may be proved by parol
evidence is that the instrument was not to take effect until the payee had
procured other signatures… and, if proved, would make the note unenforceable
against the guarantors whose delivery was conditional upon the procurement
of all such endorsements”
o Dissent: According to the illustration to Restatement, §241, “the parol
evidence rule does not bar proof of every orally established condition
precedent but only of those which in a real sense contradict the terms of the
written agreement”
 Varying terms of the written agreement should also be banned (and
the alleged pre-conditions here are varying terms of the written
agreement)
• Luria Bros. & Co. v. Pielet Bros. Scrap Iron & Metal, Inc., 7th Cir., 1979
o P had ordered scrap metal from D; the companies exchanged forms; D’s
confirmation form included the statement, “this order constitutes the entire
agreement between the parties”; D didn’t perform; D claims that evidence of
his oral pre-contract statements—to the effect that D would only perform on
condition that he received a shipment of the scrap that P needed—should be
admitted
o Held: No admission of parol evidence – D claimed that his oral statements
“explained or supplemented” the written agreement, but according to §2-
202(b), D’s extra terms are not “consistent” with the “terms of the language
and respective obligations of the parties” because D’s own form contains a
merger clause
 “where writings intended by the parties to be final expression of their
agreement call for an unconditional sale of goods, parol evidence that
52
the seller’s obligations are conditioned upon receiving the goods from
a particular supplier is inconsistent and must be excluded”
 To show fraud
• Fraud, duress, or mistake may be asserted as a defense to enforcement of the written
instrument or in a separate action in equity to reform or rescind the written
agreement; parol evidence may be introduced to prove a parol promise made with
fraudulent intentions
o Seeking to enforce the contract admits the existence of it, which is the opposite
of what a party claiming fraud wants to do, since once a person admits that the
contract exists, he is bound by the terms of that contract, which may include a
merger clause or disclaimer; however, if one seeks only to rescind the
contract—claiming that it doesn’t exist in the first place because of the fraud
involved—then if one can prove that fraud, one successfully repudiates the
contract and isn’t bound by it
• Lipsit v. Leonard, NJ, 1974
o P claims that he was induced into employment (and then into continued
employment) with D under oral agreements (accompanying the written
employment contract) of eventually gaining an equity interest in the business
“in consideration of past and future services”
o Holding: NY allows parol evidence to be introduced “where the relief sought
is rescission [of the contract] or restitution [of any monies spent on enacting
the contract], i.e., repudiation or avoidance of the contract as distinct from
affirmation and enforcement of it”
 NY (unlike most courts) also allows tort damages (the “out of pocket
rule”) when fraud is alleged, however, expectancy/contract damages
are not allowed, since a ruling of fraud destroys the contract and any
expectancy damages that would flow from it
• Bank of America Nat. Trust & Sav. Ass’n v. Pendergrass, California, 1935
o P brings action on a promissory note; D claims that the promissory note was
only signed after fraudulent promises were made by the bank’s representative
o Held: parol evidence of the alleged fraudulent promises is barred because it
was meant to prove the existence of a promise “directly at variance” with the
promise of the written note
• existence of merger and disclaimer clauses may operate to bar claims of fraud:
o LaFazia v. Howe, Rhode Island, 1990
 Ps represented to Ds that the delicatessen that Ps were proposing to sell
to Ds was a profitable business, even though the tax returns suggested
otherwise; Ds, after looking into things, were convinced by P, and
agreed to buy the business; the Memorandum of Sale included merger
and disclaimer clauses:
• “the Buyers rely on their own judgment as to the past, present
or prospective volume of business or profits...and does not
rely on any representations of the Seller”
• “no Representations or warranties have been made by the
seller…”
• “this agreement constitutes the entire agreement between the
parties”
 Ds argue that they should be awarded rescission of the contract
because of the fraudulent representations that Ps made
 Holding: PER does operate to bar fraud claim  The merger and
disclaimer clauses are effective because of their specificity: the clauses
53
referred specifically to what was disclaimed, and the contract was

reviewed by counsel on both sides
• the right to rescind for fraud must be exercised with
“reasonable promptness”, which the Howes did not do: they
continued to act on the contract even after they realized that
they had been taken
o U.C.C. § 2-316. Exclusion or Modification of Warranties.
(1) Words or conduct relevant to the creation of an express warranty and words
or conduct tending to negate or limit warranty shall be construed wherever
reasonable as consistent with each other; but subject to the provisions of this
Article on parol or extrinsic evidence (§2-202) negation or limitation is
inoperative to the extent that such construction is unreasonable.
 To reform contracts in cases of Mutual Mistake
• General Rule: “a court of equity will reform a written instrument to make it conform to
the real intention of the parties, when the evidence is so clear, strong and convincing
as to leave no reasonable doubt that a mutual mistake was made in the instrument
contrary to their agreement”
• Hoffman (D) v. Chapman (P), MD, 1943
o D bought a part of Lot 4 from P, with full understanding that D was only
purchasing a part of Lot 4; the deed that D received mistakenly included the
whole of Lot 4: D refused to give back the unsold portion of Lot 4 from the
deed; P sues in equity to reform the deed so that it doesn’t include the whole of
Lot 4
• Holding: Where the mistake in drafting the contract is mutual (not unilateral), the court
of equity will fix the mistake so that the contract (here the deed of sale) reflects the
true intentions of the parties.
 To explain or interpret ambiguous terms of the written agreement
• Explicit theory of contract interpretation – the strict “4 corners rule”
o According to this theory, a judge can decide what the contract means as a
matter of law
o Judge Posner: we start with the presumption that contracts are “usually
enforced in accordance with the ordinary meaning of the language used in
them and without recourse to evidence, beyond the contract itself, as to what
the parties meant”; however, this presumption is rebuttable by two principles
of contract interpretation:
 Don’t interpret words literally if the literal interpretation would
produce absurd results
 Must look at the words in the context of the contract as a whole
• Implicit theory of contract interpretation: there are intended or trade meanings of
words that aren’t apparent when taken at face value
o According to this theory, meanings of words are a question of fact to be
decided by a jury
 A court must first determine the meaning of the words in order to
determine what evidence is prohibited by those words  if there is an
ambiguity in the meaning of words in the document, extrinsic
evidence may be brought in to show that several possible meanings
apply
o Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., California,
1968
 D contracted to perform work on P’s steam turbine; D agreed to
perform the work “at [its] own risk and expense” and to “indemnify” P
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“against all loss, damage, expense and liability resulting from …injury
to property, arising out of or in any way connected with the
performance of this contract”; P’s turbine was damaged in the course
of D’s work; D claims that the above indemnity clause was a standard
3rd party indemnity clause, not meant to cover injury to P’s property,
even though the literal meaning of the clause might lead one to
believe that P was covered
 Holding: “The intention of the parties as expressed in the contract is
the source of contractual rights and duties. A court must ascertain and
give effect to this intention by determining what the parties meant by
the words it used. Accordingly, the exclusion of relevant, extrinsic
evidence to explain the meaning of a written instrument could be
justified only if it were feasible to determine the meaning the parties
gave to the words from the instrument alone.”
• Here, there are two possible meanings of “indemnify”  the
“dictionary” meaning, and the meaning of standard 3rd party
indemnity clauses
nd
o Restatement 2 , §212. Interpretation of Integrated Agreement
(2) A question of interpretation of an integrated agreement is to be determined
by the trier of fact if it depends on the credibility of extrinsic evidence or on a
choice among reasonable inferences to be drawn from extrinsic evidence.
Otherwise a question of interpretation of an integrated agreement is to be
determined as a question of law.
• Assent to Standardized Forms

o Though standardized forms make the contracting process more efficient, they do present problems of
mutual assent and unconscionability when the parties to the agreement occupy unequal bargaining
positions
 Contract of adhesion = the weaker party must adhere to the stronger party’s terms or there will
be no agreement
 There is a tension between the common law “duty to read” a contract before signing, and the
contracts of adhesion inherent in monopoly-type situations
o Fine print/ obscure terms – a disclaimer must be prominent in order to be effective
 Weisz v. Parke-Bernet Galleries, Inc., NY, 1971
• Ps bought paintings at an art auction that later turned out to be forgeries; there was a
disclaimer in the auction catalogue in the “Conditions of Sale” section that the gallery
makes no warranties as to the authenticity of the objects at auction; one of the Ps knew
of the disclaimer, the other didn’t
• Holding: The disclaimer is effective because it was in a “leading and prominent place”,
and the auction situation is one in which Ps are required to act “with the caution of one
in circumstances abounding with signals of caveat emptor”
 Mundy v. Lumberman’s Mut. Cas. Co., 1st Circuit, 1986
• Ps’ silverware was stolen; D wouldn’t pay out for the loss beyond $1,000; Ps’ original
insurance contract with D covered the full value of the silver; the renewal contract
changed the terms so that only $1,000 was covered; Ps claim that the change in policy
was “buried in the fine print”; D’s renewal policy, however, has several notifications
of the change printed in various sections of the policy and a warning in large print of
the changes
• Holding: The terms of the renewal policy, including the change in coverage of the
silver, was clear and should have been known to P when he signed the renewal
contract
55
 Acceptance of tickets/ receipts

• Agricultural Ins. Co. v. Constantine, Ohio, 1944
o Bova had parked her car in the same public lot for years, and was given the
same parking ticket; the ticket had a release of liability on the back, which
Bova had never read; one day, Bova’s car was stolen
o Held: D could not be released from liability based on the “not-liable-for-loss”
provision printed on the ticket
 the parking ticket given to Bova was a “mere token for identification”
and not part of the bailor-bailee contract  there was no evidence of
Bova’s assent to the terms written on the back of the ticket; she only
assented to the bailment of her car by the lot
• this attempt by the bailee for hire to the public to relieve itself
of liability for its negligence is against “law and public
policy”
• NY General Obligations Law includes a statute specifically addressed to parking
garages which precludes parking garages from contracting themselves out of their own
negligence, because NY common law doesn’t have a policy against it, as OH does
o Implied Warranty of Merchantability
 Henningsen v. Bloomfield Motors, Inc., NJ, 1960
• Ps’ car was totaled soon after purchase when the steering wheel spun in Mrs.
Henningsen’s hands – Ps claim that this was a breach of the implied warranty of
merchantability inherent in every contract of sale of an automobile
• Ds had placed a disclaimer on liability for injury in fine print on the contract of sale
in the “warranty” area, stating that the warranty only covered parts replacement 
thus, what was supposed to have been a warranty had instead become a limit on
liability
• Holding: “The disclaimer of an implied warranty of merchantability by the dealer, as
well as the attempted elimination of all obligations other than replacement of defective
parts, are violative of public policy and void”
o The implied warranty of merchantability is inextricable from this contract
 Henningsen, though a landmark in NJ jurisprudence, does not sweep across jurisdictions as
such because the torts concept of strict liability covers this type of situation – there is strict
liability for negligence in the manufacture of cars, and so there is no need to go to the contract
or warranty
o Exculpatory Clauses
 Richards v. Richards, Wisconsin, 1994
• P was injured while riding as a passenger in a trunk belonging to Monkem Co., for
which her husband was a truck-driver; P had signed a contract entitled “Passenger
Authorization” which gave her permission to ride along with her husband on the
company truck, but also released the company from all liability for her injuries
• Held: this particular exculpatory contract void as a matter of public policy
o the fact that this is an exculpatory contract does not alone make it
unenforceable  it is void as against public policy because of the combination
of 3 factors (each of which alone wouldn’t necessarily make the contract
unenforceable):
 the contract serves 2 purposes—authorization and release from
liability—that are not clearly identified or distinguished
 the release is unreasonably favorable to the drafter
 the contract is a standardized contract adhesion
56
Exculpatory contracts are generally disfavored because they “tend to allow conduct below the
acceptable standard of care applicable to the activity”  courts will therefore closely examine
these contracts strictly against the party seeking to enforce it as a matter of public policy
o “Reasonable Expectations” approach to contracts of adhesion
 Restatement, 2nd, §211. Standardized Agreements
(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests
assent to a writing and has reason to believe that like writings are regularly used to embody
terms of agreements of the same type, he adopts the writing as an integrated agreement with
respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated,
without regard to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not
do so if he knew that the writing contained a particular term, the term is not part of the
agreement
 Broemmer v. Abortion Services of Phoenix, Arizona, 1992
• P went to get an abortion and had to fill out 3 documents before receiving treatment,
including an agreement to arbitrate any disputes arising from the procedure under an
Ob/Gyn arbitrator; P did not have higher education, was inexperienced in commercial
matters, didn’t know what arbitration was, and didn’t receive any explanation of the
documents or counseling
• Holding: According to the facts of this case, “the contract fell outside plaintiff’s
reasonable expectations and is, therefore, unenforceable.”
o Though contracts of adhesion like this one are not, in and of themselves,
unenforceable, a court can refuse to enforce a contract of adhesion if it does not
conform with the reasonable expectations of the adhering party or is
unconscionable
IV. POLICING THE BARGAIN: DEFENSES TO ENFORCEMENT AND DISCHARGE OF CONTRACTUAL

DUTIES
• Competency to Contract
o 2 types of incompetence
 Statutory incompetence – below legal age
• Doctrine of necessities = exception to lack of statutory competence
o If someone is too young to contract, but needs to in order to obtain food,
shelter, etc. because the minor has no other means, then the doctrine of
necessities intervenes
 Mental incompetence
o Contracts made with a party who is not competent to contract cannot be upheld
• Revisions of Contractual Duty
o U.C.C. § 2-209. Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be
otherwise modified or rescinded, but except as between merchants such a requirement on a form
supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if
the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection
(2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the
waiver by reasonable notification received by the other party that strict performance will be
57
required of any term waived, unless the retraction would be unjust in view of a material change of
position in reliance on the waiver.
o Restatement 2nd, §89:
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the
parties when the contract was made; or
(b) to the extent provided by statute; or  this refers to U.C.C. §2-209
(c) to the extent that justice requires enforcement in view of material change of position in
reliance on the promise
o Modification because of unforeseen circumstances
 Brian Constr. & Dev. Co. v. Brighenti, CT, 1978
• P subcontracted with D to do excavation and grading work as well as “everything
requisite and necessary to finish the entire work properly” in preparation for P’s
contract to build a post office; during excavation, D discovered underground conditions
that neither P nor D was aware of before they entered into the subcontract; removal of
this unanticipated rubble was necessary to completing the building and excavation
work; P and D made an oral agreement, which P confirmed in writing, bur D never
signed, to remove the rubble for D’s costs + 10%
• Holding: “Under these circumstances, the subsequent oral agreement…was binding as
a new, distinct contract, supported by valid consideration…D’s failure to comply with
this agreement constitutes a breach of contract”
o when the “modification” to the agreement is beyond the scope of the original
contract, it becomes a separate, binding contract when supported by new
consideration
o Waiver because of changed circumstances
 The problem with following a strict rule of “no oral modification of contracts without
consideration” is that it is over-inclusive – there are many legitimate situations in which a
contract needs to be changed as the parties work with one another to fulfill it, and new
consideration shouldn’t be required for every change that takes place as the circumstances call
for
• Waiver helps to get around the general “no oral modification of written contracts” rule,
because a waiver ≠ a modification:
o a modification permanently changes the contract
o a waiver of a contractual provision can be rescinded with notice
 Universal Builders, Inc. v. Moon Motor Lodge, Inc., PA, 1968
• P’s sub made a minor error, which D magnified into a material breach, by way of
which D induced P to sign a new contract under terms less beneficial to P, including
liquidated damages for delay and a “no modification unless in writing” clause; as P was
working on the job, D’s agent requested additional work, was told that it would cost
extra by P, and D promised orally to pay the extra money and saw that P did the work;
D claims that it doesn’t have to pay because doing extra work with the expectation of
payment was a modification that had to have been in writing
• Holding: “When an owner requests a builder to do extra work, promises to pay for it
and watches it performed knowing that it is not authorized in writing, he cannot refuse
to pay on the ground that there was no written change order…performance of the
condition requiring change orders to be in writing was excused by implication”
o Waiver  D has waived the contract provision that all extras must be
approved in writing by allowing extras to be performed without requiring a
writing first
58
 According to §2-209(4) and (5), once the waiver is given—implied

though it may be—the waiving party must give the other party
reasonable notification before retracting that waiver
o Modification in cases of duress:
 Economic Duress
• Austin Instrument, Inc. v. Loral Corp., NY, 1971
o D had a contract with the Navy to produce radars; D subcontracted with P to
buy some of the gear needed to manufacture the radar equipment, which P
would deliver monthly; P changed the terms of the agreement after part
performance  P demanded that D pay more for the gear AND sign a 2nd
contract for delivery of future gear for the higher price, or P would stop
delivery (breach) on the 1st contract; P sues D for the $ left to be paid on the 2nd
contract; D sues for the extra money that it paid on the 1st contract as a result of
economic duress
o Holding: This is a “classic case” of economic duress as a matter of law: “the
record before us demonstrates that D agreed to the price increases in
consequence of the economic duress employed by P.
o Requirements to void a contract under duress:
 “it is established that the party making the claim was forced to agree to
it by means of a wrongful threat precluding the exercise of his free
will”
 There is “proof that one party to a contract has threatened to
breach the agreement by withholding goods unless the other party
agrees to some further demand”
 “the threatened party could not obtain the goods from another
source of supply and that the ordinary remedy of an action for
breach of contract would not be adequate”
• Smithwick v. Whitley, North Carolina, 1910
o P contracted in writing to buy land from D for 35$ an acre, but went into
possession before getting the deed; P worked the land for 3 years, at which
time D refused to convey the deed unless P would pay $50/acre; P paid it,
fearing to lose the land he had worked hard preparing to farm, and then sued
for the overpayment
o Held: “duress exists only where the unlawful act of another has deprived
one of free will”  P voluntarily paid the extra money; there was no
economic duress because P could have sued D for specific performance of the
written contract when D demanded the higher price
• Wolf v. Marlton Corp., NJ, 1959
o Ps wanted to back out of their deal to buy a house from D; P threatened that if
D didn’t return a substantial amount of their down payment, P would go
through with the purchase deal and then resell to an undesired-able tenant; D
then resold the house to other purchasers; P sues for recovery of the down
payment
o Held: D can’t be held in default of contract for refusing to go forward with the
sale contract with Ps in the face of Ps’ threat
 “duress is tested, not by the nature of the threats, but rather by the
state of mind induced thereby in the victim”
 Economic Duress Leading to Settlement of Claims
• Hackley (D) v. Headley (P), Michigan, 1881 – the harsher perspective
o P did log cutting, hauling, and delivery work for D; according to the scale in
customary industry use at the time that the contract was formed, D owed P
59
$2,000 more than D claimed to owe P according to a different scale; D got P to

sign a receipt for payment of less than D owed, which was offered as a full and
complete settlement of claims; P would have been financially ruined if he had
not accepted the settlement money; P sues for payment, claiming that he
signed under financial duress
o Held: (Judge Cooley) No economic duress – D’s actions constitute only
“failure to meet promptly their pecuniary obligation”; if P had not been in
financial straits at the time, D’s actions would not have constituted duress
• Capps v. Georgia Pacific Corp., Oregon, 1969
o D owed P a commission in return for P’s efforts in finding a lessee for D; D
knew of P’s adverse financial situation and threatened P that even though P
was entitled to the commission, P would receive nothing unless P signed a
release of claims and accepted a lesser amount, and that P could never succeed
in court against D anyway because D was such a strong and powerful
corporation; P alleged that he was deprived of his free will in this situation =
duress
o Held: Duress based on financial straits is now a valid cause of action or
defense
 Also, there is lack of consideration for the settlement agreement,
since the $ that D paid P for the “release” was $ that D undisputedly
owed P anyway (i.e. there was no valid lawsuit for P to refrain from)
• The general view today is still that “financial difficulty by itself will not justify
setting aside a settlement”  generally a lack of consideration argument, i.e. the
settlement money was already owed (legal duty rule/ a lesser sum cannot satisfy a
greater sum), needs to be coupled with the economic duress argument
o Legal Duty Rule
 Duty Apart from Contract
• Denney v. Reppert, Kentucky, 1968 – official duty
o Bank employees (including Ps) gave information that lead to the apprehension
and arrest of bank robbers; 2 policemen from the bank’s jurisdiction assisted in
the arrest, as did D, a policeman from another jurisdiction; the policemen from
the bank’s jurisdiction don’t claim the award, because it is their job and duty to
arrest criminals
o Held: “To the general rule that, when a reward is offered to the general public
for the performance of some specified act, such reward may be claimed by any
person who performs such act, is the exception of agents, employees and public
officials who are acting within the scope of their employment or official
duties”
 Ps may not claim the award because they were performing their duties
as bank employees, but D may claim it because he was acting out of
jurisdiction, which was not his official duty
• Spousal duty
o RE Estate of Lord v. Lord, New Mexico, 1979 –
 Husband (D) entered into an oral agreement with now-dead wife in
which she promised to leave him her whole estate if he would marry
her and “be a loyal, faithful husband” and “take care of her like a
husband would” until her death; after they were married, the wife made
a will leaving the bulk of her estate to her sister, P; D claims that he
fulfilled his part of the oral agreement and should inherit the whole
estate as promised
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 Held: the oral agreement is void as against public policy  “a

contract whereby one spouse agrees to pay the other spouse for his or
her care, which is part of the other’s duties as a spouse, is against
public policy and void” because it is the state’s policy “to protect the
marriage institution” by discouraging people from marrying for money
o Generally, nuptial contracts that change the legal relationship of parties already
obligated to do certain things—such as remain faithful, etc.—as a result of
legal marriage are considered void for want of consideration
 Schwartzreich v. Bauman-Basch, NY, 1921
• Parties may mutually rescind one contract, and then enter into a new binding
agreement where only one party’s terms/obligations have changed, and the legal duty
rule is no obstacle, since mutual rescission of the old contract relieves the parties of
what they would otherwise have been legally obligated to do as a result of the first
contract
• Holding: “the parties to a contract can rescind it by mutual consent. They can then
proceed to make a new contract in which their mutual promises are consideration
for each other.”
 Alaska Packers’ Ass’n (D) v. Domenico (P), 9th Circuit, 1902
• Ps signed a contract to crew and sail from San Francisco up to Alaska on D’s ship and
catch and can fish for D for an agreed upon seasonal wage; once Ps got up to Alaska,
they refused to work unless they were given a new contract with higher pay; the
superintendent signed the new contract under duress in order that Ps would go back to
works
• Holding: “When a party merely does what he has already obligated himself to do,
he cannot demand an additional compensation therefore; and although, by taking
advantage of the necessities of his adversary, he obtains a promise for more, the law
will regard it as nudum pactum, and will not lend its process to aid in the wrong”
o Both the legal duty rule and bad faith operate to nullify the later contract
o Discharge of Debt by Accord and Satisfaction
 Definitions:
• Accord = when a different performance or goods (i.e. consideration) is substituted for
that which was included in the original agreement
• Satisfaction = the performance of the accord agreement
o Performance of accord + satisfaction = discharge of the prior contractual duty
as well
• An accord executed = “accord + satisfaction”
• an executory accord (not yet executed/ a pending accord) ≠ “accord + satisfaction”
• effect of an accord/ accord + satisfaction on the existing contract: unless it is shown
that the parties intended immediately to discharge the existing duty, the accord merely
suspends the promisee’s right to enforce that duty
 checks rendered as “payment in full”: If A owes B $, and A gives B a check for less than that
amount marked “payment in full” (with notice to B that this it is A’s intention to discharge his
debt in this way), and B cashes the check, has there been an accord and satisfaction such that
B will no longer be able to recover the balance from A?
• Liquidated debts (i.e. undisputed debt that is due): there is no accord + satisfaction
(legal duty rule)
o E.g. School Lines, Inc. v. Barcomb Motor Sales, Vermont, 1985
 Held: when there is no “bona fide dispute” over the price owed, then
the debt is considered “liquidated”, and acceptance of a lesser sum
than is due does not constitute an accord and satisfaction because
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there has been no consideration for the “accord”  at this point the
creditor may still maintain a suit for the balance owed
• Un-liquidated debts (i.e. there is a bona fide dispute as to the amount due): there is
an accord and satisfaction – A’s tender of the lesser sum is valid consideration for
B’s promise to forgive A’s debt
o Even if B crosses out the words “payment in full”, or tells A that he is
accepting the check “under protest” or “in part payment”, and then cashes the
check, B’s retaining of A’s $ = assent to B’s terms anyway
o E.g. Marton Remodeling v. Jensen, Utah, 1985
 P did remodeling work for D on a “time and materials” contract; D
claimed that P’s bill was excessive and offered to pay only $5K, which
P said it could not accept; D sent a check for $5K anyway with the
following endorsement condition on it: “endorsement hereof
constitutes full and final satisfaction of any and all claims payee
may have against Mark Jensen”; P wrote a letter saying that it would
not accept the check as full payment and filed a mechanic’s lien on D’s
property, and then P cashed the check after writing “not full payment”
underneath the condition
 Holding: Cashing the check with the “release of claims” condition did
constitute an accord and satisfaction  “when a bona fide dispute
arises (the existence of which P admits) and a check is tendered in full
payment of an un-liquidated claim as we have here,…the creditor
may not disregard the condition attached.”
o U.C.C. §1-207 view: the U.C.C. does allow B to cash the check in defiance of
A’s conditions as long as B notifies A that the $ was accepted “under protest”
or “without prejudice”, etc.
 Most states have adopted provisions stating that §1-207 doesn’t apply
to checks  the common law accord and satisfaction is still fulfilled
by cashing a check, even “under protest”
 NY and SC are the only states that haven’t adopted this provision
• Mistake
o constructive fraud = “a breach of legal or equitable duty which…the law declares fraudulent
because of its tendency to deceive others, to violate public or private confidence, or to injure public
interests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of
constructive fraud…constructive fraud may be interred from the intrinsic nature and subject of the
bargain itself”
 Jackson v. Seymour, VA, 1952 – grossly inadequate consideration
• P (sister) sold D (brother) land for $275 when she was in financial straits, and D then
cut timber from the land worth almost $5,000; P claims that D fraudulently
misrepresented the value of the land when she consulted D about selling it to him; D
denies fraud, claiming that he didn’t know of the existence of the timber on the land at
the time that he agreed to purchase the land from P; when P found out about the timber,
she asked D if she could refund the purchase price, and he refused
• Neither party had been on the land before the sale, or knew of its character – there was
truly a mutual mistake as to the existence of the timber, however, P based her
complaint on fraud only
• Held: P is entitled to relief (rescission + an accounting of the timber that was sold) on
grounds of constructive fraud + inadequacy of consideration
o the relationship of the parties—they were brother and sister, and he was a
successful businessman who she relied on for advice—was such that equity
should dictate the result
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 “Courts, though they have long arms, cannot relieve one of the
consequences of a contract merely because it was unwise…but where
inadequacy of price is such as to shock their conscience equity is
alert to seize upon the slightest circumstance indicative of fraud,
either actual or constructive”
o Mutual Mistake
 Restatement 2nd, §152 - WHEN MISTAKE OF BOTH PARTIES MAKES A CONTRACT
VOIDABLE
(1) Where a mistake of both parties at the time a contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the adversely affected party
unless he bears the risk of the mistake under the rule stated in s 154.
(2) In determining whether the mistake has a material effect on the agreed exchange of
performances, account is taken of any relief by way of reformation, restitution, or
otherwise.
 Aluminum Co. of America (ALCOA) v. Essex Group, PA, 1980
• ALCOA and Essex had a long-term contract for refining aluminum, and they tried to
set the price in the contract in an escalation clause according to a price index that
turned out to have been completely inadequate in terms of contemplating for the
unexpected inflation that occurred; the seller stood to loose over 60$ million as a result
of the parties’ mistaken dependence on this price index during the remaining term of
the long term contract
• Held: When there is mutual mistake in the contract, and the consequences are
material, the remedy is rescission or reformation of the contract
o Here the judge ordered reformation of the contract  ALCOA still had to
perform, but at a changed price index
o Even though there was some calculable risk involved in relying on a price
index, the escalation in price that actually happened is beyond the scope of the
contemplated risk
 Sherwood v. Walker – “Rose 2d of Aberlone”, Michigan, 1887
• P chose the cow “Rose 2d of Aberlone” from among cows that D was selling because
D believed them to be barren; barren cows were worth only their meat value, which
was the price at which D agreed to sell Rose to P (D would never have intended to sell
Rose at that rate if Rose were not barren); D telegraphed P the day before P came to
pick up Rose to say that Rose was found to be pregnant and that D would now not sell;
P brought over $80 (the agreed-upon beef price) and demanded the cow; D would not
take the $ nor deliver Rose
• D claims mutual mistake of fact – both parties believed that Rose was barren at the
time that the sale agreement was made; the contract was made on the assumption that
Rose was being bought for her beef value, not for her value as a breeding cow
• Held: “The mistake affected the substance of the whole consideration, and it must be
considered that there was no contract to sell or sale of the cow as she actually was”
o A difference in substance—as we have here—is distinguished from a mere
difference “in some quality or accident”:
 difference in quality – no rescission (usually)
 difference in substance – rescission
• Dissent: no mistake because from what P was told by D, D believed that the cow was
barren, but was aware of the possibility—as was P—that perhaps Rose could be made
to breed  both parties took their chances here, and D lost out
 Smith v. Zimbalist, California, 1934
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• D—an internationally prominent violinist—visited P’s home (P was an 86 year old

collector of rare violins) and asked to see P’s collection; D asked P how much money
he would take for “this Stradivarius” and “this Guarnerius”; D and P agreed upon a
price, and D paid part of the price, after signing a bill of sale, and left; it turned out that
both violins were imitations and worth much less than the agreed-upon price
• Held: Judgment for D  there was no fraud; an honest mistake as to the “identity of
the subject matter” of the sale contract was made by both parties, and it should be
rescinded so that P cannot sue for the contract price
o Unilateral Mistake
 Restatement 2nd, §153. WHEN MISTAKE OF ONE PARTY MAKES A CONTRACT
VOIDABLE
Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect on the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in s 154, and
(a) the effect of the mistake is such that enforcement of the contract would be
unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the mistake.
 Elsinore Union Elementary School Dist. V. Kastorff, CA, 1960
• D mistakenly calculated its construction bid by leaving out the plumbing estimate while
tabulating its final bid in haste (since subs submit their bids at the last moment); D’s
bid for the contract was then several thousand dollars less than it should have been; D
(of course) won the bidding, and when P asked D if a mistake had been made right after
the bidding ended, D said “no”, though D did not have its worksheets at the time; as
soon as D got home, D realized its mistake and quickly asked P if it could be released
from the bid  P said no and awarded D the contract anyway
• Holding: “Because of an honest clerical error in the bid and D’s subsequent prompt
rescission he was not obligated to execute the contract”
o when an offer is “too good to be true” because of unilateral mistake of the
offeror, reliance on that offer by accepting it is not reasonable
o Allocation of Risk of Mistake
 Restatement, 2nd, §154. WHEN A PARTY BEARS THE RISK OF A MISTAKE
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge
with respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.
• Misrepresentation + Warranty (more below in unconscionability)
o Express Warranty
 Tribe v. Peterson, Wyoming, 1998
• D owned the horse “Moccasin Badger”, who had always been gentle, had never
bucked, and was certified by a vet as gentle and kind; Ps were inexperienced riders and
wanted to buy a gentle horse; Ds described Badger as a gentle horse in the sale listing,
and told Ps that Badger was gentle and had never bucked yet; P bought Badger, and
Badger threw both Mrs. and Mr. P from the saddle soon after purchase
• P claims that D breached an express warranty of “no bucking”
• D claims that there was no guarantee because it would be impossible for anyone to
make any guarantee’s about an animal’s future behavior; what D said was merely
descriptive of Badger’s behavior as he, others, and the vet knew it
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• Holding: There was no express “no-buck” warranty made in this situation, and
therefore, no breach; also, no negligent misrepresentation claim, as the evidence
shows that D’s representations about Badger’s character were true
o A representation of “opinion, belief, judgment, or estimate” ≠ an express
warranty
 Johnson v. Healy, CT, 1978 – express warranty of habitability
• When P asked D about the quality of construction of the house that D was building for
P, D made representations as to its quality on which P relied; after P moved in the
house settled and became damaged as a result of improper fill below the lot on which
the house was built that was put there before D bought the lot to build on;
• P claims breach of express warranty of habitability; D claims innocent
misrepresentation (mistake)
• Held: D did make an express warranty to P, on which P reasonably relied, and
therefore P should be awarded contract damages as a result of the breach
o if the court had ruled mistake, then P could not have recovered contract
damages (the remedy would have been rescission – see below)
 U.C.C. § 2-313. Express Warranties by Affirmation, Promise, Description, Sample.
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates
to the goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or model.
(2) It is not necessary to the creation of an express warranty that the seller use formal words
such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an
affirmation merely of the value of the goods or a statement purporting to be merely the seller's
opinion or commendation of the goods does not create a warranty.
o Implied Warranty
 § 2-314. Implied Warranty: Merchantability; Usage of Trade.
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with respect
to goods of that kind. Under this section the serving for value of food or drink to be consumed
either on the premises or elsewhere is a sale.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from
course of dealing or usage of trade.
• New York: Even in the absence of knowledge by the seller, and the absence of
capacity to have the knowledge, NY merchants are held to the implied warranty of
merchantability
• The merchant takes on the “risk of mistake”, if we choose to look at the warranty
problem through the Restatement lens of mistake
 § 2-315. Implied Warranty: Fitness for Particular Purpose.
Where the seller at the time of contracting has reason to know any particular purpose for which
the goods are required and that the buyer is relying on the seller's skill or judgment to select or
furnish suitable goods, there is unless excluded or modified under the next section an implied
warranty that the goods shall be fit for such purpose.
 The advent of implied warranties has led the old doctrine of caveat emptor to fall out of favor
with the courts
 Implied warranty of habitability
• Hinson v. Jefferson, North Carolina, 1975
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o P bought land from D that was restricted by deed to residential use; P planned
to construct a house on the land; there was no covenant or warranty written in
the deed that guaranteed that the land would be suitable for construction of a
residence; P would need to install a septic system for her home, but because of
land conditions of which neither party knew (mutual mistake) at the time of
sale, P found out that it would be impossible to install a septic system, and
therefore impossible to build a functional residence
o Held: there is an implied warranty of habitability in this deed  “where a
grantor conveys land subject to restrictive covenants that limit its use to the
construction of a single-family dwelling, and…the property cannot be used
by the grantee…for the specific purpose to which its use is limited by the
restrictive covenant, the grantor breaches an implied warranty arising out
of said restrictive covenants”
o Generally courts are reluctant to imply a warranty of habitability in the sale of
raw land; the court here made an exception because:
 the land—with its restrictive covenants—was rendered valueless to P
 P is a consumer, not a developer like D, and can’t judge land as well as
D can
o Difference in remedy for mistake and warranty:
 Mistake: remedy = only rescission
 Breach of warranty: remedy =
• consequential damages + rescission; or
• consequential damages + difference in value
o Partial Disclosure/ Non-Disclosure
 Cushman v. Kirby, VT, 1987
• When Ps were looking at D’s home in anticipation of buying it, P inquired about the
quality of the water; Mrs. D said that it was only “hard water” that could easily be
taken care of by putting Clorox into the water treatment system; Mr. D remained silent;
after Ps moved in, they discovered that the water was actually sulfur water from a well,
was not suitable for drinking, and smelled awful
• Ds claim that they cannot be liable for fraud because they didn’t make intentional
affirmative misrepresentations
• Holding:
o Mrs. D’s partial disclosure = fraud
 “Where one has full information and…discloses a part of this
information only, and by words or conduct leads the one with whom he
contracts to believe that he has made a full disclosure and does this
with intent to deceive and overreach and to prevent investigation, he is
guilty of fraud…if his words and conduct in consequence of reliance
upon them bring about the result which he desires”
o Mr. D’s silence/ non-disclosure = fraud
 Silence ≠ fraud unless there is a duty to speak
 Duty to speak standard: “where material facts are accessible to the
vendor only, and he knows them not to be within the reach of the
diligent attention, observation and judgment of the purchaser, the
vendor [of real estate] is bound to disclose such facts and make them
known to the purchaser”
• Justified Nonperformance
o Impossibility
66
 Objective Impossibility = the performance cannot now be done by anyone; only an objective
impossibility will excuse the promisor’s performance
• Many “impossibility” cases fail because they are not truly, objectively, impossible
• Subject matter of the contract is destroyed
o Taylor v. Caldwell, England, 1863
 P and D made a contract for D to rent the Surrey Gardens and Music
Hall to P on 4 nights for a series of “grand concerts”; essential for the
fulfillment of the contract was that the Music Hall be in a state fit for a
concert; before the performance, the Hall burnt down through no fault
of either party
 Held: “In contracts in which the performance depends on the
continued existence of a given person or thing, a condition is
implied that the impossibility of performance arising from the
perishing of the person or things shall excuse performance.”
o Even though courts will imply risk allocation schemes into a contract if the
situation justifies it (as in Taylor), parties are certainly allowed to guarantee a
performance, and thereby claim all the risk, if they choose to write this
guarantee into the contract
• American repair doctrine: if the contract is for repairs to an existing building, and the
building is then destroyed, the contract dissolves, because the subject is gone (see
Carroll v. Bowersock, below)
 Subjective Impossibility = the performance cannot be done by the promisor (perhaps because
of an intervening “Act of God”), but could be done by someone
• General rule: the promisor is not excused from performing, as he assumed the risk of
liability when he contracted to perform (and had the option to allocate the risk
differently within the contract)
• Tompkins v. Dudley, NY, 1862
o Ps, trustees of a school district, sue Ds, who guaranteed the builders
performance of a schoolhouse; the schoolhouse was not fully completed on
time according to the contract, and it burned down before D offered it as
completed to P
o Holding: “The defense [of Act of God] interposed by the Ds constitutes no
justification to…the builder, for the non-performance of his contract with Ps
and that, having guaranteed for an adequate consideration, expressed
therein, its performance, they are liable to respond to Ps for the damages which
they have sustained by reason of such non-performance”
 the contract was to build a schoolhouse from scratch, and D could
presumably still have done that after the fire  the subject of the
contract—building a schoolhouse—was not destroyed
• Kel Kim Corp. v. Central Markets, Inc., NY, 1987
o P rented a property from D for use as a roller skating rink; part of the lease
contract was that P had to at all times maintain a million dollar insurance
policy; for 6 years P complied with the contract and operated the roller rink
without incident; there was a liability insurance crisis, and P’s insurance policy
was cancelled; P tried to get the requisite coverage, but was only able to find an
insurer for $500K; D sues for breach of the insurance maintenance clause
o The contract contained a force majeure clause that did not specifically list this
incident as an excuse for avoiding a contractual provision during the period of
delayed performance, but included the phrase “or other similar causes beyond
the control of such party”
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o Holding: No impossibility  the parties must perform, even in the case of

unforeseen circumstances; performance must be “objectively impossible” (i.e.
the subject matter of the contract must have been destroyed, or the “unforeseen
circumstance” must have been impossible to foresee or guard against in the
contract) in order to excuse contract obligation
 in this case, the parties could have guarded against this situation by
specifically allocating the risk for it in the contract (perhaps by drafting
a more specific force majeure clause)
• Bunge Corp. v. Recker, 8th Circuit, 1975
P and D entered into a written contract under which D was to sell a specified quantity of soybeans to P; nothing in the
contract required D to grow the beans on his own land, or to grow them himself—they only needed to be
grown in the U.S. to satisfy the contract; severe winter weather made it impossible for D to harvest most of his
beans for the January contracted delivery, and D never delivered; P visited D’s farm, saw that the beans were
indeed un-harvestable, and extended D’s delivery time until the end of March; D did not deliver then, either;
the market price of beans rose dramatically from the end of Jan. to the end of March; P sues for the difference
between the contract price for beans and the market price for beans at the end of March
Holding: The act of God defense is not allowed because the goods were not identified in the contract as those which
were destroyed in the field, according to U.C.C. §2-613; D could have found beans elsewhere with which to
fulfill the contract.
The court did remand on the issue of damages, because it was possible to say that P showed bad faith in extending
delivery time in order to increase his damages (since the bean prices rose so much)
o U.C.C. §2-615 (below) does not help D either because D did not try to
“allocate production and deliveries among his customers” (§2-615(b))  D
didn’t deliver any beans at all to P (and it appears that some beans were
harvestable after the severe weather)
o U.C.C. § 2-613. Casualty to Identified Goods.
Where the contract requires for its performance goods identified when the
contract is made, and the goods suffer casualty without fault of either party
before the risk of loss passes to the buyer, or in a proper case under a "no
arrival, no sale" term (Section 2-324) then
(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to
conform to the contract the buyer may nevertheless demand inspection and at
his option either treat the contract as avoided or accept the goods with due
allowance from the contract price for the deterioration or the deficiency in
quantity but without further right against the seller.
• Whitman v. Anglum, Connecticut, 1918
o P and D made an expressly unconditional contract for milk delivery, with a
cover clause; D couldn’t supply milk to P as contracted for because the
government first quarantined D’s cows and then ordered them killed to prevent
spread of “hoof and mouth disease”
o Held: Judgment for P because this contract was an “absolute and
unconditional” agreement for D to deliver milk daily; D could have gotten
milk elsewhere despite the quarantine and fulfilled his obligation to P
 as long as performance is still possible and legal (though difficult), the
parties must perform their obligations
• Minority View (promisor is excused for subjective impossibility): Snipes Mountain
Co. v. Benz Bros. & Co., Washington, 1932
o Similar facts as in Bunge, but with opposite result  the trial court reformed
the contract to add the clause that P would only deliver potatoes grown on his
own land after P couldn’t deliver 36 of the 100 tons promised to D under the
contract because the crop was prevented by bad weather
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o Held: because of mutual mistake, reformation of the contract was proper  it

was clear that both parties intended that it was a contract for sale of potatoes
grown by P on his land, and no other
 “the contract, in the absence of an express provision controlling the
mater, being considered as subject to an implied condition in this
regard”
o Amount of Recovery in cases of impossibility
 Carroll v. Bowersock, Kansas, 1917
• P contracted to construct a reinforced concrete floor in D’s warehouse; after P had
completed partial performance, the warehouse was destroyed by fire
• Holding: If D has benefited from any of P’s labor before the fire, then D must pay for
the benefit received  “the liability of the owner in a case like this should be measured
by the amount of the contract work done which, at the time of the destruction of
the structure, had become so far identified with it as that but for the destruction it
would have inured to him as contemplated by the contract”
• D was in fact benefited by P’s work to the extent that the warehouse had become
improved by P’s labor before the fire, and D should pay for this benefit; P cannot be
compensated for supplies or temporary devices that were destroyed by the fire,
however
 Olsson v. Moore, Indiana, 1992
• Ps answered D’s advertisement for sale of house; before they had signed a contract for
sale, Ds gave Ps permission to work improvements on the house; Ps worked on the
house, all the while still negotiating the price with Ds; the house was destroyed by
accidental fire before the contract of sale was completed; Ds collected on the insurance;
Ps then gave Ds a bill for labor and materials spent on improving the house; D refused
to pay
• Held: Ds must pay for Ps’ work  “the fact remains that D was the legal and equitable
owner on the day of the fire…Ps’ work increased the value of the home…the
conclusion that Ds benefited from the improvements is inescapable”
o Prevention by Government Regulation or Order
 Restatement, 2nd, of Contracts §264. Prevention by Government Regulation or Order
If the performance of a duty is made impracticable by having to comply with a domestic or
foreign governmental regulation or order, that regulation or order is an event the non-
occurrence of which was a basic assumption on which the contract was made.
• Therefore, the contract disappears when governmental order makes its performance
impossible
 Louisville & Nashville R.R. Co. v. Crowe, Kentucky 1913
• P gave D a strip of land through his farm for use as a railroad right of way, in return for
a promise by P to issue D a lifetime annual pass on the railroad between Kentucky and
Tennessee; in 1911, D recalled P’s pass in reliance on a federal statute that forbid
issuance of these passes under interstate commerce; D offered to issue P a pass until
the Tennessee border, but no more
• Held: When “a contract which is lawful when made is terminated by a later
governmental regulation or order which renders its performance unlawful…a party who
has received a performance under such an agreement should not be permitted to retain
it without payment”
o the contract itself is rescinded as a result of the government order, but because
P is keeping the right of way, P must pay D for the value of the right of way
(not for the value of the nullified pass) minus the monetary benefit that D has
already received by using the pass
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o The court writes a new contract for the parties in this situation, because there is
no other solution
 The Isle of Mull, 4th Circuit, 1921
• D, a British corporation, chartered the steamship “Isle of Mull” to P, a NY corporation;
because of WWI, the ship was commandeered by the British government for the
remainder of the charter period, and the government gave D, as compensation, more $
than D had been charging P for use of the ship; P claims that D should not be the one to
profit from this situation, because D is being unjustly enriched by keeping the excess
paid by the British government
• Held: The contract was discharged as a result of the government order, and therefore D
is not required to account to P for the profit it received.
o Doctrine of Impracticability (impracticability = “subjective” impossibility): if a contract is turning out
much different than the parties contemplated, involving unforeseen extreme difficulty or expense, a
court may still discharge the contract even though there is no objective impossibility
 This is the minority view, but is gaining authority
 American Trading & Prod. Corp. v. Shell Int’l Marine, Ltd.
• D chartered P’s ship to bring cargo from Texas to India, and the parties agreed on a
shipping rate, which D paid; the price included a toll for the Suez Canal, but did not
specify that the ship had to travel through the Canal; because of war in the Middle East,
the Suez Canal shut down, and the ship is forced to take the longer route around the
Cape of Good Hope
• P claims that because the contracted route though the Suez Canal was made impossible
because of the war, the contract had dissolved and P is now claiming compensation for
use of its ship around the Cape in quantum meruit (more $ than specified in the
contract)
• Holding: No impracticability – the contract was not formed with the condition that
the ship had to travel through the Suez Canal (it was expected, but not a condition of
performance), and therefore, using the well-understood alternative route around the
Cape was not an “extreme difficulty” that would warrant dissolution of the contract (as
in Restatement §454)
 Mishara Constr. Co. v. Transit-Mixed Concrete Corp., Massachusetts 1974
• P contracted with D to supply concrete for a housing project; a labor dispute broke out
at the worksite and a picket line remained until the end of the project; D was only able
to deliver some of the concrete as a result of the strike
• Held: the doctrine of “strict impossibility” should not apply here, but rather, the
“commercial impracticability” test of U.C.C. §2-615, which takes “circumstances
drastically increasing the difficulty and expense of the contemplated performance” into
account as “within the compass of ‘impossibility’”
 U.C.C. § 2-615. Excuse by Failure of Presupposed Conditions.
Except so far as a seller may have assumed a greater obligation and subject to the preceding
section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a
contingency the non-occurrence of which was a basic assumption on which the contract
was made or by compliance in good faith with any applicable foreign or domestic
governmental regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity
to perform, he must allocate production and deliveries among his customers but
may at his option include regular customers not then under contract as well as his own
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requirements for further manufacture. He may so allocate in any manner which is fair
and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery
and, when allocation is required under paragraph (b), of the estimated quota thus made
available for the buyer.
o Doctrine of Frustration
 Restatement 2nd §265 – definition of frustration of purpose: “where, after a contract is made, a
party’s principal purpose is substantially frustrated without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language or the
circumstances indicate the contrary”
 Krell v. Henry, England, 1903 – foundation of frustration doctrine
• D had agreed to rent a flat from P for 2 days at the price of ₤75 in order to view the
coronation ceremony of Edward VII; D put down a ₤25 deposit; Edward got sick and
the coronation procession didn’t take place, and D didn’t use the rooms
• Holding: the contract fails for frustration of circumstances – the foundation on
which the contract was made was that the coronation procession would take place on
those days along the route that passed by this particular flat; when the foundation of
the contract disappears, the contract disappears (following from the rule of Taylor v.
Caldwell, above)
• If the following 3 questions are answered in the affirmative, then the contract is
discharged for frustration:
o With regard to all of the circumstances, what was the foundation of the
contract? Is it now missing?
o Was performance of the contract thereby prevented?
o Was the event which prevented the performance of the contract of such a
character that it cannot reasonably be said to have been in the
contemplation of the parties at the date of contract?
 Chase Precast Corp. v. John J. Paonessa Co., Massachusetts, 1991
• The city entered into contracts with D to resurface and improve certain stretches of
highway; D contracted for P to provide the concrete median barriers; D’s contract with
the city contained a standard provision that the city could eliminate items or portion of
the work that it later found unnecessary; D’s contract with P had no such provision,
though P knew of the provision because it was a standard industry contract; residents
of the city protested the concrete barriers (they preferred grass median strips) that P
was to supply, and then the residents filed a lawsuit against the city; D notified P to
stop producing barriers in anticipation that the city would yield to the residents’
demands; D paid P for what P had produced and delivered up until that point, so P lost
nothing; P sues for its anticipated profit on the contract
• Holding: judgment for D  there was frustration of purpose because “even if the
parties were aware generally of the department’s power to eliminate contract items…
they did not contemplate the cancellation for a major portion of the project of such
a widely used item as concrete median barriers, and did not allocate risk of such
cancellation”
o This fits in with the Restatement 2nd §265 approach – look at each case of
alleged frustration in the light of its surrounding circumstances
 Relief in situations of frustrated contract:
• Use a compromise: reliance losses of one party can be deducted from the restitution
claims of another (this is similar to the “benefit” test/ incorporation into the structure
test for frustrated building contracts)
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 Commercial frustration = “performance remains possible but the expected value of

performance to the party seeking to be excused has been destroyed by a fortuitous event, which
supervenes to cause an actual but not literal failure of consideration”
• Lloyd v. Murphy, CA, 1944
o D rented the premises from P under a conditional lease that stated that the
premises were to be used “for the sole purpose of conducting thereon the
business of displaying and selling new automobiles”; the government
prohibited the sale of new cars because WWII broke out; as a result, P waived
the lease restrictions; D breached anyway by vacating the premises, though D
still operated car businesses at two other locations during this time; D simply
claimed that he wasn’t making a go of the business at that location
• Held: Commercial frustration not applicable here  D has not met his burden of proof
as to showing the requirements for application of the frustration doctrine:
unforseeability, or destruction of the value of the lease
o Acts of the government, like acts of God, don’t automatically discharge
contractual duty
• Unconscionability
o U.C.C. § 2-302. Unconscionable contract or Clause.
(1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it
may enforce the remainder of the contract without the unconscionable clause, or it may so
limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to
its commercial setting, purpose and effect to aid the court in making the determination.
o Restatement 2nd, §205. Duty of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement.
o Unconscionability is generally considered a matter of law for the judge to decide (and not a matter for
juries) because unconscionability cases started out in equity, which doesn’t use juries
o Two major strands for dissolving or not enforcing a contract for unconscionability (as explained in
Brower, below):
 Procedural – problems with the procedure through which the contract was made, e.g.:
• Setting of the transaction
• Experience and education of the party claiming unconscionability
• Fine print involved?
• High-pressured tactics used?
• Disparity in the parties’ bargaining power
 Substantive – generally, when there is gross disparity in value, the substance of the contract
is found to be unconscionable
• Mere inadequacy of consideration won’t cancel a contract
o Woollums v. Horsley, Kentucky, 1892
 D = Woollums, uneducated farmer; P = Horsley, man of business who was buying up mineral
rights to land in D’s vicinity; P bought mineral rights to D’s land through P’s agent for
$.40/acre; P did not pay the purchase price as stipulated because D refused to survey the land; P
then sues for specific performance, demanding the deed to D’s mineral rights; D’s land is really
worth 15$/acre because of its mineral content, of which D knew nothing; P did know that it was
worth much more than he had offered to pay, as he was in the business of buying up mineral
rights in the area
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Holding: “The contract was not equitable or reasonable, or grounded upon sufficient
consideration, and no interest has arisen in any third party. A court of equity should, therefore,
refuse its specific enforcement.”
• “courts of equity will not proceed to decree a specific performance where the contract
is founded in fraud, imposition, mistake, undue advantage, or gross misapprehension;
or where, from a change of circumstances or otherwise, it would be unconscientious to
enforce it”
o Clean-up principle/ principle of completeness
 Courts will often deny specific performance of a contract because of unconscionability when
sitting in equity, while the contract may still be upheld at law, i.e. damages may still be
awarded (denial of equitable relief does not necessarily defeat a claim at law)
 The clean-up principle allows a judge sitting in equity to tie up all of the legal issues as well
by assessing damages after refusal of specific performance for unconscionability
• Federal courts use this sparingly, though, because, assessing damages in equity takes
away a party’s jury rights
o Williams v. Walker-Thomas Furniture Co., D.C. Cir. 1965
 “unconscionability has generally been recognized to include an absence of meaningful choice
on the part of one of the parties together with contract terms which are unreasonably favorable
to the other party.”
o Arbitration clauses:
 Companies like to use them to avoid class action suits
 A solution to the Brower problem is to require, for smaller disputes, that the arbitration take
place in small claims court in the city in which the consumer lives  this is a reasonable
arbitration clause for situations when the parties will be, necessarily, in unequal bargaining
positions (big company v. little consumer)
o Adhesion contracts:
 Adhesion contracts are not necessarily unconscionable; but the existence of an adhesion
contract is generally evidence of inequality of bargaining power
o Brower v. Gateway 2000, Inc., NY 1998
 Consumers bring a class action suit against Gateway involving its (lack of) advertised tech
support; Gateway moves to dismiss because of the arbitration clause included in its Terms and
Conditions
 Ps claim that D’s arbitration clause is invalid because according to §2-302, it is
unconscionable in both:
o Procedure-- it was obscure, hidden in fine print, etc., and
o Substance – the arbitration clause chose the I.C.C. as the forum for arbitration,
which was so costly a forum as to be prohibitive (the cost of arbitration under
the I.C.C. is more than most Gateway products cost)
 Holding: The case should be dismissed because the arbitration clause is not unconscionable
procedurally, however, the substance of the arbitration clause is unconscionable, and
should be modified (according to §2-302)
• Because under NY law a contract must be both procedurally and substantively
unconscionable in order to invalidate the contract for unconscionability, and this
contract is not procedurally unconscionable, the contract as a whole cannot be
declared void for unconscionability
o Gianni Sport Ltd. V. Gantos, Inc., Michigan, 1986
 P and D contracted in the summer that D would buy an order of women’s holiday clothing for
the Christmas season, to be delivered in mid-October; D cancelled the order in late September,
and subsequently agreed to accept the goods anyway if P would agree to sell the goods at a
50% price reduction; the cancellation clause on D’s purchase order form read as follows:
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“Buyer reserves the right to terminate by notice to Seller all or any part of this Purchase Order
with respect to Goods that have not actually been shipped by Seller…”
 P claims that the cancellation clause is unconscionable; D claims that the clause merely
allocated the risk (a common clause among fashion industry big buyers)
 Held: the cancellation clause is unconscionable because the parties were in unequal
bargaining positions and the clause is unreasonable
• Under the U.C.C., the basic test of unconscionability is “whether, in the light of the
general commercial background and commercial needs of the particular trade, the
clauses involved are so one-sided as to be unconscionable under the circumstances
existing at the time of the making of the contract”
o purpose of this principle of unconscionability = “prevention of oppression and
unfair surprise and not of disturbance of allocation of risks because of superior
bargaining power”
 bad faith: if not for D’s “agreeing” to buy the goods at a 50% price reduction right after
cancelling the order, the court might not have been so ready to see this cancellation clause as
unconscionable – it might have agreed that it was simply an allocation of risk upon the
manufacturer
V. THE MATURING AND BREACH OF CONTRACT DUTIES

• The effects of Express Conditions
o Promise v. Condition
 Restatement §261. Interpretation of Doubtful Words as Promise or Condition
Where it is doubtful whether words create a promise or an express condition, they are
interpreted as creating a promise; but the same words may sometimes mean that one party
promises a performance and that the other party’s promise is conditional on that performance”
• Sometimes, even when a contract uses the word “condition”, a court will interpret it as
a promise, and not a condition
 Howard v. Federal Crop Ins. Corp., 4th Circuit, 1976
• P sues D—P’s insurance company—to cover rain damage that occurred to P’s tobacco
crop; P tried to mitigate damages, but in doing so destroyed the evidence of the
depleted tobacco crop that was needed by the insurance adjuster and required by
paragraph 5(f) of the contract
• “5(f) The tobacco stalks on any acreage of tobacco of types 11a, 11b, 12, 12, or 14
with respect to which a loss is claimed shall not be destroyed until the Corporation
makes an inspection.”
• D denies coverage to P, claiming that by spoliating the evidence, P violated the
contractual condition that was precedent to recovery under the contract
• Holding: The clause at issue, because it was not clearly specified as a condition
precedent, is considered a promise, and the contract has therefore not been forfeited
by P’s violation of this clause.
o Because the term “condition precedent” was used in another paragraph of the
contract, but not in 5(f), there is evidence that 5(f) was not intended to be a
condition precedent
o Conditions “subsequent” and “precedent”
 The terms “condition subsequent” and “condition precedent” are not actually useful, as a
contractual condition may be called either “subsequent” or “precedent” depending on how one
interprets the facts  what is more useful to ask in cases of condition, is “who has the burden
of proof in demonstrating that the condition has or has not been fulfilled?”
 Restatement, 2nd, §224: “A condition is an event, not certain to occur, which must occur,
unless its nonoccurrence is excused, before performance under a contract becomes due.”
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• The Restatement deals with the “subsequent”/ “precedent” problem by getting rid of
the terms
 Gray v. Gardner, Massachusetts, 1821 – condition subsequent
• D had paid P for a certain quantity of sperm oil; D gave P a note that promised to pay P
$5K additional “on the condition” that if a greater quantity of sperm oil arrived in
Nantucket “on or between the 1st day of April and the 1st day of October” than had
arrived the year before, D would not pay P the extra $5K
• The problem: It was unclear whether or not the Lady Adams arrived in Nantucket on
the 1st day of October before midnight, so as to have fulfilled the condition subsequent
to D’s note
• Holding: Because D’s promise to pay P depended on a condition subsequent, the
occurrence of which stood to benefit D, D bears the burden of proof to show that
the condition did indeed occur
o Doctrine of conditions/ doctrine of prevention: one is not to benefit legally from an act aimed at
defeating the other’s contractual rights; “an express promise to perform on the happening of an event
warrants implication of a promise to refrain from activity impeding its happening, and breach of the
implied promise is legally as serious as the breach of the express”
 Parsons v. Bristol Dev. Co., California, 1965
• P was the architect for an office building that D was building; P was paid 25% for his
design work, but payment for P’s work on Phase 2 of the project was conditioned on
D’s being able to obtain construction loans to fund the project; the contract specified
that P would be paid for Phase 2 “provided…that this payment shall be made only
from construction loan funds”; D made a good faith effort to obtain the loans, but
was prevented, and gave P notice; P claims that because he worked on 95% of Phase 2,
D must pay
• Holding: “When payment of money is to be made from a specific fund, and not
otherwise, the failure of such fund will defeat the right of recovery.”
o D did not violate the general rule that “a party who prevents fulfillment of a
condition of his own obligation…cannot rely on such condition to defeat his
liability”  D did try to make the condition happen, and the risk that D
wouldn’t be able to make the condition happen was foreseeable (and therefore
assumed) by P
o “Pay-when-paid” clauses: Is this clause a condition of payment, or just a set time for payment?
 General rule: “If there is no express language to the contrary in the written document (and
no extrinsic evidence),…where payment is stipulated to occur on an event, the occurrence of
the event fixes only a time for payment; it is not…a substantive condition of the legal
responsibility to pay”
 Restatement 2nd, §227. Standards of Preference with Regard to Conditions
(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as
to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of
forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he
has assumed the risk
 Mascioni v. I.B. Miler, Inc., NY, 1933 – goes against the general rule because P has assumed
the risk
• D (general contractor) contracted with P (subcontractor) to build the concrete walls for
a housing project for the Owner; the promise to pay contained the words “payments to
be made as received from the Owner”; the Owner never paid D, and D never paid P
• Held: Though P contends that, following the general rule, this “pay when paid” clause
only sets a time for payment, and is not a condition precedent to payment, on its face,
the contract could reasonably be interpreted as containing a condition precedent, which
has not occurred.
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o in this case, P knew of the condition and chose to assume the risk by signing
to it after investigating the situation; P’s work did not benefit D – it was done
solely for the benefit of the Owner, and P knew that if the Owner didn’t pay, D
wouldn’t pay
o Ct. says that it doesn’t matter whether the K said they’d get paid “if” they got
paid or “when” they got paid.
o Condition of notice to insurance companies within a certain time period
 Possibility of forfeiture of the insurance policy’s coverage generally will not bar the operation
of the condition (unless P has a good estoppel claim)
 Royal-Globe Ins. Co. v. Craven, Massachusetts, 1992
• P was in a car accident with a hit-and-run driver; P’s non-insured driver coverage
required that P notify both the police and D within 24 hours of the accident; P was in
the ICU during the 24 hours after the accident, and back to functional life by
approximately 3 months after the accident; P didn’t notify the insurance company until
4 months after the accident; D denies coverage because notice was not prompt, as per
the notice clause
• Holding: Though the notice clause is lifted during P’s period of disability, and even the
24 hour notice requirement is not re-instated, there is still time pressure on P, once she
has recovered, to notify the insurance company promptly  because P did not do so, P
did not fulfill the condition that was precedent to her recovery under the policy, and D
is not liable to P
 Civil War Cases – all agree that the war is a valid excuse for not fulfilling contractual
obligations
• Semmes v. Hartford Ins. Co., SCUS, 1871
o P lost property to fire several months before the Civil War began; P did not
bring suit on the insurance policy until several months after the war ended; P’s
fire insurance policy with D contained the clause “no suit…should be
sustainable in any court unless such suit should be commenced within the term
of twelve months next after any loss or damages should occur”
o Holding: “the disability to sue imposed on the P by the war relieves him from
the consequences of failing to bring suit within 12 months after the loss,
because it rendered a compliance with that condition impossible and removes
the presumption which that contract says shall be conclusive against the
validity of P’s claim. That part of the contract, therefore, presents no bar to P’s
right to recover”
 The court substitutes a reasonable time limit (found in the statute of
limitations) for the time limit imposed by the contract in this situation,
even though the 12 months had cumulatively accrued (before and after
the war) by the time P brought suit
• New York Life Ins. Co. v. Statham, SCUS, 1876
o The war prevented Ps from paying the premiums on their life insurance policy,
but they seek to recover on the policy after the war; because of Semmes, it is
assumed that Ps were not liable to D for not paying the premiums – but must D
pay Ps on their policies?
o Holding: The insurance contract was excused by the war—because of an act
of government, with no fault on either party—so both parties are excused from
their contractual obligations  P doesn’t have to pay the premiums, and D
doesn’t have to pay out on the policy
 However, Ps are entitled to restitution of the “equitable values” of
their policies, as measured by the premiums already paid minus
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whatever was the “value of the assurance enjoyed by Ps” during the
time that the policy was in existence
 Gilbert v. Globe & Rutgers Fire Ins. Co., Oregon, 1919
• P’s fire insurance policy with D contained the clause that “no suit or action on this
policy for the recovery of any claim shall be sustainable in any court…unless
commenced within twelve months next after the fire”; P notified D of the loss within a
week of the fire, and D came out to inspect, but before 12 months had passed, D gave
notice to P that it intended to deny liability
• Holding: An insurance policy’s time limitation for making a claim or bringing suit will
be upheld if it is reasonable, and 12 months is a reasonable time period  P’s action
was not commenced within a “reasonable time” after D notified P that it would contest
his claim and deny liability
• Waiver v. estoppel
o P claims that D—by its conduct—waived the time condition of the policy, and
that because a condition, once waived, cannot be reinstated without the
consent of the other party, and since P did not consent to this condition’s
reinstatement, it is permanently removed from the contract
o The court explains that D did not waive this condition, but was merely
estopped from asserting its rights under the condition until D gave notice that
it intended to deny the claim; with estoppel, the other party does not need to
consent to D’s resumption of its rights  the bar of estoppel is simply lifted
once D has given notice to P of its intent to assert its rights under the contract
 Note on waiver v. estoppel: many courts define these terms
interchangeably, and define the consequences of waiver and estoppel
situations differently  therefore, it is important to define these terms
and their consequences when using them, since the terms themselves
are open to many interpretations
 Aetna Casualty & Surety Co. v. Murphy, Connecticut, 1988
• D terminated his lease in 1982, but in moving out of the space D damaged the property,
and the property owner’s insurance company—P—sued D for damages in 1983; D
didn’t notify his own insurance company—Chubb—of the suit until Jan. 1986; D
moved to implead Chubb in May 1986; Chubb claims that it should get summary
judgment because D failed to notify Chubb promptly as a condition precedent to
recovery required by D’s policy; D claims that absent a showing of prejudice to Chubb
resulting from the lat notice, D should not be expected to forfeit coverage
• Held: The insured, i.e. the one who seeks to be excused from the reasonable timely
notice provision, bears the burden of establishing lack of prejudice on the part of the
insurer in order to avoid a forfeiture (here D did not establish Chubb’s lack of
prejudice)
o Modern approach to forfeiture as a result of failure to fulfill a conditional
provision in contracts of adhesion = the condition may sometimes be excused
in order to avoid disproportionate forfeiture, as determined by a balancing
test that considers:
 Purpose to be served by the condition
 the desire to be gratified
 the excuse for the deviation from the condition
 the relative cruelty of enforced adherence
o where the insurer was not materially prejudiced by the insured’s delay in
giving notice, the insured should be excused from fulfillment of the condition
rather than allowing forfeiture
o Waiver of Conditions
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 Use of waiver to prevent forfeiture:

• Though courts do not like to make decisions in contract cases that will result in
forfeiture, if a condition is clear and shows the express intention of the parties, a court
will enforce the condition even if it will result in forfeiture to the party who did not
fulfill the condition
o Doctroman v. Schroeder, NJ, 1921 (p.748)
 P and D contracted for P to buy land, on condition that P would pay
the balance on a certain date, and stating expressly that “time was of
the essence” to the contract; D agreed to extend the time period on a
new condition that P pay the balance at an exact date and time; P was
½ hour late with the payment, and D refused to sell
 Held: P was in default by arriving late—and “time was of the essence”,
a condition clearly expressed in the contract—and D then had no duty
to perform by delivering the land
 Porter v. Harrington, Massachusetts, 1928
• P and D contracted for D to sell land to P on condition that P pay in installments on
time, and that the contract would be void if P was late in payments; D accepted a
succession of late payments from P without objection or warning that future late
payments would not be accepted; when P tried to make another late payment, D said
that it had closed its account with P because P had defaulted on payment; P claims
specific performance because D waived the time condition by accepting late payments
consistently and without objection
• Held: D has waived the time condition by accepting overdue payments without
insistence on rigid adherence to the contract  the waiver is implied from D’s actions
o Even though “time was of the essence” in this contract, such conditions may be
waived by words or actions
 Clark v. West, NY, 1908
• P contracted to write a law treatise for D, and was to be paid 2$/page as an advance,
and 4$/page later on condition of sales, etc., including a condition that P abstain
completely from drinking alcohol; P didn’t fully abstain, but P did fulfill all other
requirements of the contract, and claims that his drinking didn’t affect his work, and
that D waived the drinking condition anyway; D claims that P’s not drinking was
consideration for the extra 4$/page, and that since P didn’t fulfill the no-drinking
obligation, D doesn’t owe P the extra $
• Holding: The no-drinking stipulation was a condition precedent to P’s being paid the
total 6$/page, which could be waived  it was not the subject matter of or separate
consideration for the contract (which cannot be waived, of course)
o The court here requires D to have made an express waiver of the no-drinking
condition for P to be owed the extra $, which the court finds D could have
made by saying to the P that he was entitles to the $4.
 Schultz v. Los Angeles Dons, Inc., California, 1951
• P’s contract to play pro football for D stated that if P were injured during play, D would
pay P’s full contract salary on condition that P give written notice of the injury to D
within a certain time period; P was injured and gave notice orally to D; D had P
checked out by the team doctor, trainer, etc., and the doctor notified D’s insurance;
because P never gave formal written notice to D, D claims that it does not owe P the
full year salary
• Held: Because the purpose of the written notice condition—that D would be promptly
and fully informed of any injury to P—was fulfilled, and D indicated that it was
fulfilled by acting on the written reports of the doctor, trainer, etc., D has waived the
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condition of written notice by P personally (which would have been a silly formality at
that point anyway)
o Conditions adverse to public policy
 general rule: when an expressed condition is clearly a violation of public policy, the courts
will not enforce it
 Inman v. Clyde Hall Drilling Co., Alaska, 1962
• P had an employment contract with D; the written contract stated that as a condition
precedent to bringing suit against D, P had to give D 30 days notice of any claim
arising under the contract, and to wait 6 months before filing suit; D fired P and P sued
for breach of contract without first giving notice of suit
• Held: Employment contract provisions making notice a condition precedent to bringing
suit are not unenforceable as against public policy, as long as the purpose of the
contract provision is reasonable and disclosed to P
o The provision here was reasonable because the purpose was to allow D time to
investigate the merits of any claims brought against it
• Conditions of Satisfaction and Timeliness
o General Rule: when performance is conditional on the satisfaction of a 3rd party, the condition of
satisfaction is met only when the 3rd party is personally satisfied, so long as the 3rd party’s opinion is
rendered honestly and in good faith
 The condition of 3rd party satisfaction cannot be excused merely by a showing that a reasonable
person would have been satisfied, so long as the 3rd party is shown to have exercised her honest
judgment
 Subjective v. objective satisfaction:
• When the parties have specified that satisfaction refers to “subjective personal
satisfaction” (i.e. personal satisfaction, whether reasonable or unreasonable), the courts
will uphold the condition regardless of how unreasonable the dissatisfaction seems
• If the parties have not specified whether satisfaction should be objective or subjective:
o Subject matter not personal: condition of satisfaction will be interpreted to
mean “performance that would satisfy a reasonable person”
o Subject matter personal (i.e. contract involves personal taste or judgment):
condition of satisfaction is fulfilled only if there is personal satisfaction,
whether reasonable or unreasonable
o Grenier v. Compratt Construction Co., Connecticut 1983
 Ps—subcontractors—were to have completed subdivision roads for D by June 30;
“completion” in the contract meant obtaining a certificate of occupancy from the City Engineer
for the subdivision lots that the roads serviced; after completing the roads, Ps could not get a
certificate by June 30 because the Engineer claimed to not write such letters; only by Sep. 7 did
the Engineer swear that the roads were approved for certificates
 Held: A condition of satisfaction may be excused in the event of impracticability so long as
the condition—in this case the certificate—was not the material part of the exchange, and P has
fully performed.
• Here, the material part of the exchange was what the certificate represented—lots that
were certified for occupancy based on satisfactory completion of the roads that serviced
them—and not the certificate itself, and so the condition of obtaining the certificate
could be excused
o Nolan v. Whitney, NY, 1882
 P contracted to do masonry work on D’s buildings, payment in installments as the work
progressed; the final payment was to be made 30 days after the work was complete and
accepted—conditioned upon the satisfaction and certificate of the architect; P fully performed,
with a few trivial defects, but the architect didn’t issue the certification
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 Held: Substantial performance will excuse the condition of satisfaction when P

substantially performs in good faith
• The architect was unreasonable in his refusal to issue the certificate, as the defects were
trivial and P had substantially performed – therefore the condition of the architect’s
satisfaction is no longer necessary
• P should be paid in full, with deductions for the trivial defects
• Constructive/ “Implied-in-Law” Conditions: The Order of Performance
o Restatement, 2d:
 §234. Order of Performance
(1) Where all or part of the performances to be exchanged under an exchange of promises can
be rendered simultaneously, they are to that extent due simultaneously, unless the language or
the circumstances indicate the contrary
• Comment b. 5 categories in which simultaneous performance is possible:
o Where the same time is fixed for the performance of each party
o Where a time is fixed for the performance of one of the parties and no time is
fixed for the other
o Where no time is fixed for the performance of either party
o Where the same period is fixed within which each party is to perform
o Where different periods are fixed within which each party is to perform
 This is the only category in which simultaneous performance is not
required; it is required in the first 4
 §238. Effect on Other Party’s Duties of a Failure to Offer Performance
Where all or part of the performances to be exchanged under an exchange of promises are due
simultaneously, it is a condition of each party’s duties to render such performance that the
other party either render or, with manifested present ability to do so, offer performance of his
part of the simultaneous exchange.
o Independent v. dependent covenants, conditions precedent
 Nichols v. Raynbred, England, 1615
• This case established the (now seemingly ridiculous) idea that each promise in a
bargain was independent of the other, and could be sued upon separately  if P
promised to sell D a cow, P could sue for the $ promised by D even if P hadn’t yet
delivered the cow because the promises—one to give $ and one to deliver a cow—were
considered independent
 Kingston v. Preston, England 1773
• P and D had an agreement that if P worked for D for a year and a quarter, D would sell
P D’s business, so long as P –before delivery of the deed for D’s business was
delivered – would obtain good security for the loan that D would give to P to buy the
business; P worked for the time period, but didn’t get the security for the loan, and
demands that D deliver the business because the promises were independent; D
refuses to sell the business because P didn’t get the loan security
• Holding: Judgment for D  “The essence of the agreement was, that the D should not
trust to the personal security of the P, but, before he delivered up his stock and
business, should have good security for the payment of the $. The giving such security,
therefore, must necessarily be a condition precedent.”
• 3 categories of covenants – the order of the time of performance intended by the
words of the transaction will determine which category a particular transaction falls
into:
o Mutual and independent – either party may recover damages from the other
by breach of covenant, whether or not the suing party himself breached
80
o conditions and dependent – the performance of one depends on the prior

performance of another; until the prior condition is performed, the other party
isn’t liable to action on his covenant
o mutual conditions to be performed at the same time – if one party was
ready to perform and the other party is not, the ready party may sue
 Price v. Van Lint, New Mexico, 1941
• D agreed to deposit a sum of loan $ into P’s account by 2/1/1940; P agreed to give D
the mortgage deed to the property as security for the loan; both parties knew that the
mortgage deed would not arrive in P’s possession until after 2/1/1940; D notifies P that
D won’t be able to deposit the loan $ by 2/1, but P won’t excuse D from the contract,
and begins construction work in assumption that he will receive the loan; D claims that
P getting the deed was a condition precedent to D giving the loan $
• Held: the contract clearly states that the loan $ was to be deposited in P’s account by a
certain date, and both parties knew that the date would arrive before P had the deed 
therefore, these promises were mutual independent covenants (the 1st Kingston
category), and D is liable for consequential damages
o like Hadley – D is liable for the foreseeable damages that P would incur based
on the special circumstances—needing the loan to begin building—that D had
knowledge of (since breach of contract to loan $ doesn’t usually incur liability
for damages)
 Conley v. Pitney Bowes, 8th Circuit, 1994
• The employment contract, which the court reads as bilateral, required both that: P
exhaust all administrative procedures after being denied his disability benefits before
going to court, and that D send to P a written explanation of the administrative appeals
procedure when it sends a denial of benefits; P did not exhaust all administrative
procedures before going to court, but D did not send the required written explanation
• Holding: The necessary order of performance in this process created a constructive
condition precedent in this bilateral contract; in order for P to be responsible for
exhausting all administrative procedures, D must have first sent the written notice,
which D did not do
o Determining who breached/ when payment is due
 Ziehen v. Smith, NY, 1896
• P contracted to buy land from D; P put a down payment on the purchase; D discovered
that there was a mortgage on the land that he did not know of; D does not continue to
go through with the purchase process, and sues to recover the down payment, claiming
that D breached because there was a mortgage on the land that had not previously been
revealed to P (P assumed that D couldn’t pay it, and therefore wouldn’t have been able
to sell)
• Held: Judgment for D  there was no evidence that D was in default (i.e. that D would
not have been able to deliver the deed), and therefore P breached by not attempting to
perform his part of the contract (i.e. offering payment), nor demanding D’s
performance
• General Rule: “In cases where by the terms of the K, the acts of the parties are to be
concurrent, it is the duty of him who seeks to maintain an action for a breach of the
contract…not only to be ready and willing to perform on his part, but he must
demand performance from the other party”
o If the other party is clearly unable to perform at the time of performance
provided by the contract (i.e. is clearly in default), a formal tender is then not
necessary in order to enable to party seeking to maintain an action for breach to
maintain that action for damages
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• Minority view for real estate purchases: “the existence, at the date fixed for
performance, of liens or encumbrances upon the property is sufficient to sustain an
action by the vendee to recover the part of the purchase $ paid upon the contract”
 Stewart v. Newbury, NY, 1917
• D and P contracted for P to build a concrete mill building for D’s pipe-fitting business;
P’s offer included two price alternatives; D’s reply neither specified which price
alternative to use, and neither piece of writing included times of payment; the parties
are in dispute as to whether times of payment were orally agreed upon or not; P sent a
bill to D after completing some performance; D refused to pay until all work was
completed; P left the project, claiming that D breached
• Holding: “Where a contract is made to perform work and no agreement is made as to
payment, the work must be substantially performed before payment can be
demanded”
o P breached, because payment by D was not yet owed since P had not yet
substantially performed
 Kelly Constr. Co. v. Hackensack Brick Co., NJ, 1918
• P was the contractor to build Englewood School; P contracted with D to furnish and
deliver brick as required by the plans for the school, “brick to be delivered as required
by P and sufficient brick to be kept on the job so that P will always have [a certain
amount] until completion”; the agreement was silent as to the time for payment; D
refused to proceed when P did not pay for several deliveries of bricks
• Held: Judgment for P  “Where the sale is of a specified quantity of goods, the
contract is entire, and a failure to pay when a part delivery has been made does not
excuse the seller from completing delivery, no time for payment being stated in the
contract.”
o This holding seems at odds with U.C.C. §2-307 and Tipton (below), however,
the court explains that payment with each delivery is not required where
“deliveries are pursuant to an ‘entire contract,’ which, because of the large
quantity involved, must necessarily be performed in installments. Being
‘entire,’ the contract by its terms does not require any payment until D’s
performance is completed in full.”
 Remedy for seller when buyer breaches
• Generally, when the seller breaches, the remedy for the buyer is specific performance;
when the buyer breaches, however, the traditional remedy required the seller to find
another purchaser, with damages limited to the difference (if any) in the new purchase
price
• Osborne v. Bullins, Mississippi, 1989 – modern approach = mutuality of remedy
for seller and buyer
o The seller performed all of his pre-sale obligations, but the buyer refused to
close, claiming that he couldn’t obtain financing (however the buyer had
assumed the risk of being unable to obtain financing in the contract)
o Holding: the remedy should be “a judgment for the seller in the amount of the
purchase price, secured by a vendor’s lien, all of which leaves buyer with the
burden of marketing the property to a possible third party purchaser”
o Separate deliveries of goods purchased under one contract
 U.C.C. §2-307. Delivery in Single Lot or Several Lots.
Unless otherwise agreed all goods called for by a contract for sale must be tendered in
a single delivery and payment is due only on such tender but where the
circumstances give either party the right to make or demand delivery in lots the price if
it can be apportioned may be demanded for each lot.
 Restatement §233:
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(1) Where performances are to be exchanged under an exchange of promises, and the
whole of one party’s performance can be rendered at one time, it is due at one time,
unless the language or the circumstances indicate the contrary.
(2) Where only a part of one party’s performance is due at one time under Subsection
(1), if the other party’s performance can be so apportioned that there is a
comparable part than can also be rendered at that time, it is due at that time, unless
the language or the circumstances indicate the contrary.
 Tipton v. Feitner, NY, 1859
• P and D contracted for P to sell D an order of slaughtered hogs at one price, and an
order of live hogs—to be delivered at a later date, when they arrived in NY—at another
price; P delivered the slaughtered hogs, but not the live hogs (P slaughtered them and
sold them to another); D refuses to pay for the hogs that P did deliver, claiming that
payment for the whole lot was conditional on P’s delivery of the live hogs (condition
precedent)
• Holding: though “it would not be unreasonable for the parties to have agreed that
payment for those first delivered should be postponed until the others came to hand, so
that there should be one settlement for the whole…it would be a more probable mode
of adjustment for the purchaser to agree to pay for the parcel which he was to receive at
once, and for the other when he should receive it”
• Protecting the Exchange on Breach
o When performance doesn’t conform to the contract on delivery:
 U.C.C. §2-601/ “Rule of Perfect Tender” + U.C.C. §2-508/ “cure” section
• §2-601 must be read in conjunction with §2-508 – §2-508 modifies the rule of perfect
tender
• § 2-601. Buyer's Rights on Improper Delivery.
Subject to the provisions of this Article on breach in installment contracts (Section 2-
612) and unless otherwise agreed under the sections on contractual limitations of
remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any
respect to conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
• § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.
(1) Where any tender or delivery by the seller is rejected because non-conforming and
the time for performance has not yet expired, the seller may seasonably notify the
buyer of his intention to cure and may then within the contract time make a
conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable
grounds to believe would be acceptable with or without money allowance the seller
may if he seasonably notifies the buyer have a further reasonable time to substitute a
conforming tender.
• § 2-602. Manner and Effect of Rightful Rejection.
(1) Rejection of goods must be within a reasonable time after their delivery or tender.
It is ineffective unless the buyer seasonably notifies the seller.
 Non - U.C.C. cases:
• Jacob & Young v. Kent, NY, 1921 – performance substantially conforms
o P constructed a house for D; a year later, D refused to pay the balance of the
contract price because D discovered that P used a different brand of pipe than
D had specified in the contract; D demanded that the walls be torn out so that
the right brand could be installed; the pipe that P had used was substantially the
same as the pipe that D requested
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o Held: Since P’s default was “unintentional and trivial”, and the rest of P’s
performance was “substantially what D had bargained for”, P was entitled to
recover the unpaid contract price less D’s damages, measured by the difference
in value of the house with the other pipe brand (if any)
 “an omission, both trivial and innocent, will sometimes be atoned for
by allowance of the resulting damage, and will not always be the
breach of a condition to be followed by forfeiture”  considerations of
justice and “presumable intention” will help decide in these cases
• Although the contract had an explicit provision that would
have indicated forfeiture in this situation, the court allows
justice to decide that the pipe provision was an “independent
promise” as opposed to a “condition”
• Reynolds v. Armstead, Colorado, 1968 – performance fails to substantially conform
o P contracted to apply a brick veneer to D’s house that was meant to match the
color of the old brick on D’s house as closely as possible; P used bricks of
sound construction, but they did not match
o Held: P’s breach was material because the result failed to substantially
conform to the contract, and therefore P couldn’t recover the contract price
(however, P recovered half of the contract price under quantum meruit)
 Damages:
• With acceptance of non-conforming goods, buyer pays the contract price less any
difference in value caused by nonconformity
• With revocation of acceptance because of substantial nonconformity, buyer owes
nothing
o The Stages of Inspection, Acceptance, and Revocation of Acceptance
 Inspection  Acceptance:
• § 2-605. Waiver of Buyer's Objections by Failure to Particularize.
(1) The buyer's failure to state in connection with rejection a particular defect which is
ascertainable by reasonable inspection precludes him from relying on the unstated
defect to justify rejection or to establish breach
(a) where the seller could have cured it if stated seasonably; or
(b) between merchants when the seller has after rejection made a request in
writing for a full and final written statement of all defects on which the buyer
proposes to rely.
• § 2-606. What Constitutes Acceptance of Goods.
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller
that the goods are conforming or that he will take or retain them in spite of
their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but
such acceptance does not occur until the buyer has had a reasonable
opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is
wrongful as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
 § 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After
Acceptance
(1) The buyer must pay at the contract rate for any goods accepted.
(2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made
with knowledge of a non-conformity cannot be revoked because of it unless the acceptance
was on the reasonable assumption that the non-conformity would be seasonably cured but
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acceptance does not of itself impair any other remedy provided by this Article for non-
conformity.
(3) Where a tender has been accepted
(a) the buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any remedy…
(4) The burden is on the buyer to establish any breach with respect to the goods
accepted.
 § 2-714. Buyer's Damages for Breach in Regard to Accepted Goods.
(1) Where the buyer has accepted goods and given notification (subsection (3) of
Section 2-607) he may recover as damages for any non-conformity of tender the loss
resulting in the ordinary course of events from the seller's breach as determined in any
manner which is reasonable.
(2) The measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the goods accepted and the value they would
have had if they had been as warranted, unless special circumstances show proximate
damages of a different amount.
(3) In a proper case any incidental and consequential damages under the next section
may also be recovered.
 Overlap between inspection stage and acceptance stage – Plateq Corp. of North Haven v.
Machlett Labs., Inc., Connecticut, 1983
• D (buyer) contracted to buy steel tanks for testing x-ray tubes that had to be constructed
by P according to D’s specifications and government radiation standards; P undertook
in the contract the responsibility of correcting any deficiencies after delivery to and
testing by D; P’s performance was late (P and D kept needing to make changes, etc.),
but substantially complete when D indicated that the tanks were acceptable and that D
would send trucks to pick them up; D then cancelled, claiming that P breached by not
finishing on time
• Held: Judgment for P according to the relevant U.C.C. provisions  D, by signifying
its willingness to accept the goods despite their nonconformities, which D had
discovered by inspection (§2-606(1)), and by failing to make an effective rejection (§2-
606(2)) within a reasonable time (§2-602), had effectively accepted the goods, and
could only rightfully reject them by showing substantial impairment of their value (§2-
608), though D may even be precluded from rejecting the goods in this case if D did
not give P a chance to cure the defects by specifying what they were (§2-605)
o the post-installation testing provision was meant to give D opportunity to
discover defects and to allow P to fix them, as does §2-508 (the “cure”
provision), since P was ready to make tender
 Revocation:
• § 2-608. Revocation of Acceptance in Whole or in Part.
(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its non-conformity would be cured
and it has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance
or by the seller's assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial change
in condition of the goods which is not caused by their own defects. It is not effective
until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods
involved as if he had rejected them.
85
• Fortin v. Ox-Bow Marina, Inc., Massachusetts, 1990

o Ps revoked acceptance of a boat from D 4 months after delivery when they had
had many problems with the boats engine and weren’t able to sufficiently fix
them; Ps sue for a refund
o Held: None of the defects were minor or cosmetic, or could be considered
insubstantial  and when there is a “substantial impairment of value (§2-608)
according to an objective, totality of the circumstances test, the buyer may
revoke acceptance
 The “reasonable time” for revocation is also a question of fact, and
when the buyer is in constant communication with the seller about the
defects, the buyer doesn’t “use up” the reasonable time period
o “Willful” Breach – Does a party’s own nonperformance preclude a restitution remedy?
 Massachusetts (minority) view:
• When D is the willful defaulter: “The plaintiff is entitled to be made whole and no
more”; if D had performed substantially before willfully abandoning performance, P is
not entitled to restitution of the $ that P had paid D for work that D actually performed
(Ficara v. Belleau, Massachusetts, 1954)
• When P is the willful defaulter: P might be barred from any recovery by the rule
denying both contract and quasi-contract remedies to the willful defaulter
o However, if P substantially performs in good faith, but still doesn’t completely
perform, P can recover in quantum meruit
o Willfulnes = evidence of bad faith (good faith = absence of intentional
departures from the contract)
 New York (general common law) view: “If the party in default has substantially performed, the
other party’s performance is not excused”; this view does not condone the defaulting action,
nor does it disregard the fact that the breach was willful  willfulness is simply treated as “one
of several factors to be considered in determining whether [the breaching party’s] performance
is substantial” enough to prevent the non-breaching party from being excused from its duties
(Hadden v. Consolidated Edison Co. of New York, NY, 1974)
o Anticipatory Breach
 Restatement, 2nd §251. When a Failure to Give Assurance May be Treated as a
Repudiation
(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-
performance that would of itself give the oblige a claim for damages for total breach…, the
obligee may demand adequate assurance of due performance and may, if reasonable, suspend
any performance for which he has not already received the agreed exchange until he receives
such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time
such assurance of due performance as is adequate in the circumstances of the particular case.
• Comment b: If an obligee believes that the obligor won’t or can’t perform without
breach, the obligee is free to act on that belief if he can prove that his belief would
have been confirmed; however, if the obligee is wrong in his belief, his own failure to
perform on the basis of that belief may subject him to a claim for damages for total
breach
 Restatement, 2nd §240. Part Performances as Agreed Equivalents
If the performances to be exchanged under an exchange of promises can be apportioned into
corresponding pairs of part performances so that the parts of each pair are properly regarded
as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the
other’s duties to render performance of the agreed equivalent as it would have if only that pair
of performances had been promised.
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• Comment b. Separate Contracts Distinguished – the pairs of corresponding parts are

not to be treated as separate contracts
 Restatement, 2nd §253 – Effects of Anticipatory Breach
(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and
before he has received all of the agreed exchange for it, his repudiation alone gives rise to a
claim for damages for total breach. [unilateral contract]
(2) Where performances are to be exchanged under an exchange of promises, one party’s
repudiation of a duty to render performance discharges the other’s remaining duties to render
performance. [bilateral contract]
• Repudiation may also excuse non-occurrence of a condition
 § 2-611. Retraction of Anticipatory Repudiation. (see also §2-610 – Anticipatory
Repudiation)
(1) Until the repudiating party's next performance is due he can retract his repudiation unless
the aggrieved party has since the repudiation cancelled or materially changed his position or
otherwise indicated that he considers the repudiation final.
(2) Retraction may be by any method which clearly indicates to the aggrieved party that the
repudiating party intends to perform, but must include any assurance justifiably demanded
under the provisions of this Article (Section 2-609).
(3) Retraction reinstates the repudiating party's rights under the contract with due excuse and
allowance to the aggrieved party for any delay occasioned by the repudiation.
 Standard rule of breach: a breach occurs when it is reasonably certain that a party is not going
to meet its obligations under the contract
 Greguhn v. Mutual of Omaha Ins. Co., Utah, 1969
• P, a bricklayer, became disabled on the job and Ds (P’s insurers) paid P only as long as
his disability kept him “confined”, even though P would never again be able to work at
his job because of the permanence of the disability; when Ds informed P that they
would no longer make payments, P sued for the lump sum of what his future payments
would be under the policy, claiming anticipatory breach by repudiation
• Held: Ds must make the payments, but P’s remedy cannot be a lump sum of the future
payments; D must keep paying in installments as it is obligated to under the contract,
and if D doesn’t do this, P can bring another suit
o “the doctrine of anticipatory breach has not ordinarily been extended to
unilateral contracts”  Restatement 1st, §318: “In a unilateral contract for the
payment of money in installments after default of one or more, o repudiation
can amount to an anticipatory breach of the rest of the installments not yet due”
• Dissent: “where there is a failure to pay one installment, coupled with an
announcement by the insurer that no future payments will be made, then damages for
the partly anticipatory breach should be allowed.”
 Acceleration clause = a clause stating that “the money debt shall fully and automatically (or at
the creditor’s option) become due in the event of the obligor’s default
• this is a good solution to the problem of having to wait until the actual date by which an
anticipated breach will have officially occurred (i.e. having D make payments in
installments, as Greguhn decided)
o Preserving the Exchange in the Face of Breach
 Reigart v. Fisher, MD, 1925
• D saw P’s property, liked it, and contracted to purchase it; P represented that the
property was 7 acres, but it turned out that it was actually 4.75 acres; D then demanded
his down payment back, and refused to proceed with the sale; P sued for specific
performance
• general rule: “a vendee in an unexecuted contract is entitled to have that for which he
contracts before he can be compelled to part with the consideration he agreed to pay”
87
but that “where there is a substantial defect with respect to the nature, character,
situation, extent, or quality of the estate, which is unknown to the vendee, and in regard
to which he is not put upon inquiry, specific performance will not be decreed”
• Held: the defect was not substantial, and therefore D must go through with the sale,
with a deduction for the amount of property that wasn’t actually included in the sale
VI. THE RIGHTS AND DUTIES OF NONPARTIES

• Third Party Beneficiaries
o Third party beneficiary contract = where a 3rd party’s rights spring from the original contract
o Common law/ traditional rule = in order to maintain an action on a contract, the moving party must
have been in privity of contract with the party against whom he is seeking to enforce the contract
 Under this rule (still used in England), a 3rd party beneficiary can’t enforce the promise made
for his benefit
• Exceptions:
o The 3rd party is the beneficiary of a trust, and is suing the trustee
o The 3rd party is an agent of one of the contracting parties
o Modern rule = 3 party beneficiary contracts are enforceable by the 3rd party, subject to certain rules:
rd
 The 3rd party beneficiary must be more than an incidental beneficiary; he must be either a
creditor beneficiary or a donee beneficiary (i.e. have standing to enforce the promise)
• Creditor beneficiary = if the promisee’s primary intent was to discharge a duty he
owed to the 3rd party, then the 3rd party is a creditor beneficiary
o Lawrence v. Fox, NY, 1859
 Holly loaned $ to D and stated at the same time that he owed the same
amount of $ to P; In exchange for Holly’s loan, D promised to repay P
the amount that Holly loaned D; P sues to enforce D’s promise
 Held: The consideration of D’s promise to pay P was Holly’s loan to
D. Once a promise is made to one party for the benefit of another, that
3rd party may bring action for breach
 Dissent: Insisted on the privity requirement
o If the promisor agrees to pay a sum of money to a 3rd party, to whom the
promisee says that he is indebted, it is immaterial whether the promisee is
actually indebted to that amount or at all  the 3rd party may still enforce the
promise
• Donee beneficiary = if the promisee’s primary intent in contracting was to confer a gift
upon a 3rd party (i.e. to confer some performance or $ neither due to nor asserted to be
due by the 3rd party), the 3rd party is a donee beneficiary
o Seaver v. Ransom, NY, 1918
 The Judge’s wife was dying, and the wife had wanted her house to go
to P—her niece by marriage; the judge drafted her will providing that
her home would go to him; the wife signed her will in exchange for the
judge’s promise that he would leave $ for P in his own will amounting
to the value of the house; the judge died before adding this into his
will; P sues the administrator of the judge’s will to enforce the judge’s
promise as a 3rd party donee beneficiary
 Held: although there was no privity between P and D, because P was a
family member (even though not an immediate family member) of the
judge and his wife, an exception to privity will be made
o The modern tendency is that there is no family relationship requirement for
donee beneficiaries
• Public beneficiaries (class of beneficiaries)
88
o E.g. when a company contracts to build or install something for a city, which
will benefit its citizens
o Rule: individuals (e.g. citizens of the city) cannot bring suit as 3rd party
beneficiaries unless an intention appears that the contracting parties are
answerable to individual members of the public
 The contract must be “primarily” for the benefit of the 3rd party
• The promisee’s intent is determinative of whether the contract was made “primarily”
for the benefit of the 3rd party
o E.g. with Lawrence v. Fox, D promised Holly that he would pay P
 D = promisor; Holly = promisee; P = 3rd party beneficiary
 It is Holly’s (promisee’s) intent that the $ should go to P that is
determinative
 Restatement, 2nd §302. Intended and Incidental Beneficiaries (encompasses the above 3rd
party beneficiary requirements)
(1) Unless otherwise agreed between the promisor and promisee, a beneficiary of a promise is an
intended beneficiary if recognition of a right to performance is appropriate to effectuate the
intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to
pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary
the benefit of the promised performance
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary
o Variation of Duties to the Beneficiary by a Contracting Party
 Restatement 2nd, §311. Variation of a Duty to a Beneficiary
(1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by
subsequent agreement between promisor and promisee is ineffective if a term of the promise
creating the duty so provides.
(2) In the absence of such a term, the promisor and promisee retain power to discharge or modify
the duty by subsequent agreement.
(3) Such a power terminates when the beneficiary, before he receives notification of the discharge
or modification, materially changes his position in justifiable reliance on the promise or
brings suit on it or manifests assent to it at the request of the promisor or promisee.
(4) If the promisee receives consideration for an attempted discharge or modification of the
promisor’s duty which is ineffective against the beneficiary, the beneficiary can assert a right to
the consideration so received. The promisor’s duty is discharged to the extent of the amount
received by the beneficiary.
o Promisor’s Defenses to Claims by a 3rd Party
 Rouse (D) v. United States (P), D.C. Circuit, 1954
• D bought his home from Winston, and in the deed of sale agreed to take on the
payments that Winston owed for installment of a heating plant in the house; Winston
had given a promissory note to the installment company, however, on which she
defaulted; P (the government) had guaranteed Winston’s note, so P paid the note, took
it, and now sues D for payment as a 3rd party beneficiary of the contract between D and
Winston for D to pay Winston’s debt; D raises as a defense that Winston
misrepresented the condition of the heating tank, that it was improperly installed, and
that Winston did not tell D of the promissory note
• Held: “One who promises to make a payment to the promisee’s creditor can assert
against the creditor any defense that the promisor could assert against the promisee”
o Since D was liable on his promise to pay Winston’s creditor only to the extent
that he was liable to Winston, D may assert against P that he is no longer liable
to Winston because Winston was fraudulent
89
THE END
90

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CONTRACTS OUTLINE, 2005-2006

SOURCES OF BLACK-LETTER LAW IN CONTRACTS

I. REMEDIES FOR BREACH OF CONTRACT/ PROMISE

o Types of Damages Recoverable: Expectation, Reliance, Restitution (Restatement §344)

value of the property as it would have been had there been a

• LIMITATIONS ON EXPECTATION DAMAGES

 Builder’s Duty to Mitigate – Construction Contracts

1) the party’s reasonable expenditures toward performance, not including fixed

 Wrongfully Discharged Employee’s Duty to Mitigate

• § 2-723. Proof of Market Price: Time and Place.

• Buyer’s Remedies in U.C.C., §§2-711, 12, 13

o § 2-711. Buyer's Remedies in General; Buyer's Security Interest in

o § 2-713. Buyer's Damages for Non-delivery or Repudiation.

• Seller’s Remedies in U.C.C., §§2-708, 2-709, and 2-710

o § 2-710. Seller's Incidental Damages.

Neri’s breach  Even though D was able to resell the boat, D

o Consequential Damages/ Damages Arising from Special Circumstances

o No Mental Distress Damages in Contracts

o Anticipated Profits Damages

• RELIANCE AND RESTITUTION (ALTERNATIVE INTERESTS)

• CONTRACTUAL CONTROLS ON DAMAGE REMEDY – Liquidated Damages, Down Payments, and

 Enforcement must operate equitably – no specific performance if enforcement will cause

o Also, as in Manchester Dairy below, enforcement of specific performance such

 P sued D for breaching the anticompetitive covenant in their

II. GROUNDS FOR ENFORCING PROMISES – CONSIDERATION & RELIANCE

• EXCHANGE THROUGH BARGAIN – What constitutes consideration?

• PROMISES GROUNDED IN THE PAST/ MORAL OBLIGATIONS

• RELIANCE ON A PROMISE/ PROMISSORY ESTOPPEL

 Applications of Promissory Estoppel Doctrine

o Allegheny College v. National Chautauqua County Bank (above)

o Stearns v. Emery-Waterhouse Co., Maine 1991

• PROMISES OF LIMITED COMMITMENT: Conditional and Illusory Promises

paid therefore, are matters resting solely in our discretion”; P sent in

 Mutuality of obligation not required in unilateral contracts = an exchange of action for a

o Conditional Promises = promises contingent on a specific event or occurrence  these types of

• D and P signed an earnest money agreement for P to purchase a property; the

• Corenswet, Inc. .v. Amana Refrigeration, Inc., 5th Cir. 1979

III. THE MAKING OF AGREEMENTS/ CONSENSUAL BASIS OF CONTRACT

 Objective theory applied to employee handbooks (are they contracts?)

 Held: The contract is too indefinite to be binding, but the elements of

 D deposit shows good faith.

 Binding promise- offered reward to anyone who performed the

o Davis v. Jacoby, California 1934

 Held: The completed act of payment—i.e. the acceptance of the

contractors who were bidding on a city project, stating

a general contractor is not bound to the sub in

 Hill v. Gateway 2000, Inc., 7th Cir. 1997

o D wrote a letter to P giving P an “option” (no seal or consideration) to buy

• Effects of Adopting a Writing: Parol Evidence Rule (PER)/ doctrine of integration/merger

• Hatley v. Stafford, Oregon, 1978 – Writing only “partially integrated” (as in

referred specifically to what was disclaimed, and the contract was

• Assent to Standardized Forms

 Acceptance of tickets/ receipts

IV. POLICING THE BARGAIN: DEFENSES TO ENFORCEMENT AND DISCHARGE OF CONTRACTUAL

 According to §2-209(4) and (5), once the waiver is given—implied

$2,000 more than D claimed to owe P according to a different scale; D got P to

 Held: the oral agreement is void as against public policy  “a

• D—an internationally prominent violinist—visited P’s home (P was an 86 year old

o Holding: No impossibility  the parties must perform, even in the case of

o Held: because of mutual mistake, reformation of the contract was proper  it

 Commercial frustration = “performance remains possible but the expected value of

V. THE MATURING AND BREACH OF CONTRACT DUTIES