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I.
INTODUCTORY MATERIAL
A. Approaching a Contract Fact Pattern
Is there a proper contract?
What are the terms?
Are the terms enforceable?
What was the nature of the breach?
What are the nature of the damages?
What is the most appropriate remedy?
Contract: An exchange relationship between two or more parties created by written or oral agreement,
containing at least one promise, and recognized by law as enforceable.
B. Fundamental Policies and Values of Contract Law
1. Individual Autonomy
a. Contracting is an exercise of personal liberty and no person may be bound in the absence of the
persons assent
b. Ideological basis of contract freedom stems from the notion that market relationships/exchanges are
most efficient when its participants desire them and a free to bargain and reach mutually desirable
terms
c. Contract liberty is important however it is subject to limitations justified by the need to protect the
rights of others or the demands of public interest
2. Imbalance of Bargaining Power and Adhesion
a. In many instances, one of the parties has greater sophistication and bargaining power than the other
b. When one part dictates the terms and presents it on a take it or leave it basis, they are considered
contracts of adhesion (the weaker party has no choice but to adhere to the desires of the other)
c. General policy is not to interfere with contracts because there is an element of adhesion HOWEVER
there are safe guards to prevent abuse
d. Judicial intervention is possible when a partys conduct becomes unfair or improper
3. The Morality of Promise Pacta Sunt Servanda
a. Pacta sunt servanda agreements must be kept reflects the inherent moral dimension of contracts
b. Although the roles morals play is subtle, courts tend to react unfavorably to deliberate breaches,
especially if motivated by bad faith
4. Accountability for Conduct and Reliance
a. Volition is not (and cannot be for practical reasons) measured by the true and actual state of mind of
a party, but rather by their actions (their state of mind as made apparent to the outside world)
b. Reasonable reliance (trust in the other partys intentions and actions) is key
c. The sense of reliance called security of contracts or security of transactions provides an incentive
to make and fulfill contracts
5. Commercial and Social Values
a. One role of contract law is to facilitate transactions within the context of a free market economy
b. ON THE OTHER HAND another important function of contract law is to regulate free market forces
and promote important social values such as fairness in dealings and protection of weaker parties
C. Measuring Compensation/Damages
1. Restitution Interest
The interest of a party in recovering values conferred on the other party through efforts to
perform a contract; party is entitled to recover money/services given to the other
2. Reliance Interest
The interest of a party in recovering losses suffered by virtue of reliance on the contract, whether
or not there was a corresponding gain to the opposite party; restoring the party to where they
were before the contract
3. Expectation Interest

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The interest of a party in realizing the value of the expectancy that was created by the others
promise; putting the party in the place where they should have been had the contract been
fulfilled
1. Figure out what the position of the non-breaching party would have been if the
promise had not been breached;
2. Figure out the position that the non-breacher is presently in as a result of the breach
3. Figure how much he or she needs to get from the present position to the position he
or she would have been in if the contract had been performed.
D. Determining Remedies for Breach of Contract
1. Determine the nature and extent of Ps compensable loss including harm suffered and the availability
of remedies.
2. If more than one remedy is available, decide which most efficiently and comprehensively
compensates for it
3. Take into account any policies or principles that may limit the defendants liability for loss
E. Basic Considerations
1. Damages for breach of contract are awarded to compensate for injury caused by the breach that is
foreseeable and reasonably within the contemplation of the parties at the time the contract was formed.
2. To recover damages the plaintiff need only show a stable foundation for a reasonable estimate of
royalties he would have earned had defendant not breached.
3. The law awards damages for breach of contract to compensate for injury caused by breach. Such an
injury must be foreseeable and reasonably within the contemplation of the parties at the time the
contract was entered into.
4. The injured party should not recover more from the breach than he would have gained had the contract
been fully performed.
II.

CONTRACT REMEDIES (Damages or Specific Performance)

A. DAMAGES
1) Goals
1. The aggrieved party receives gains prevented (expectancy interest) plus losses
sustained (reliance and restitutionary interests), subject to limitation imposed by
(1) Foreseeability (UCC 351)
(2) Certainty (UCC 352)
(3) Mitigation (UCC 350)
2. Place aggrieved party in the economic position they would have been in had the contract
been performed; benefit of the bargain
III.
LIMITATIONS
A. FORESEEABILITY
1. Contract damages cannot be recovered unless they are foreseeable to the parties at the time
of contracting
Prutch v. Ford Motor Co.: Ford is liable for crop damages from
defective equipment, the damages were "foreseeable."
a)

General Damages: arise naturally, in the ordinary course that should be obvious to the
breacher without any special or particular knowledge of the other partys circumstances
or affairs
b) Incidental Damages: costs and expenses incurred by the victim of breach in attempting to
deal with it and in attempting to deal with it and taking action to seek a substitute
transaction or to curtail losses
c) Consequential Damages: losses or injuries suffered by the victim of a breach going
beyond the mere loss in value of the promised performance (direct damages) and
resulting from the impact of the breach on other rights, transactions, or endeavors
affected by the contract

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Victoria Laundry: Laundry owner ordered boiler delivered five months
later than promised. D is liable for lost profits except a few lucrative
deals defendant could not have known about.
Hadley v. Baxendale: Mill needed crank delivered, no damages from
lost profits from the new shaft being delivered days late, because the
damages did not naturally flow from a late delivery in general and the
special circumstances were not communicated to the other party.
Martinez v. Southern Pacific: Shipping company late in delivering a
dragline for strip mining was liable for the fair rental value for the
period of delay. Unlike Hadley, the dragline was valuable in itself, and
that it could have been rented "should have been foreseen."
Lamkins v. International Harvester Co: Farmer ordered tractor with
lights for running at night but did not receive the lights for about a year;
could not collect for not being able to harvest a crop because of not
running at night because it is unlikely the dealer was aware
Avoiding Economic Waste
If the performance would be disproportionately costly, the proper measure of damages is the
diminution in value measure
Groves v. Wunder: The defendant owes plaintiff, not the difference
between the value of the land if defendant had performed (value of land
with level grade), but the value of the actual performance lacking by
breach of the contract.
Peevyhouse v. Garland Coal: D refuses to restore the farm after strip
mining as specified in contract. The performance would be
disproportionately costly, the proper measure of damages is the
diminution in value measure.
Dissent: Restoration was an essential part of this agreement and it was
a condition. If the value of the performance should be considered in
determining damages, the value of the benefits received should also be
considered. The law cannot make a better contract for the parties than
they have made for themselves and should not alter it for the benefit of
one party and to the detriment of the other.
When diminution may be inappropriate or inadequate measurement
Laurin v. DeCarlois: P bought a tract of land from the D. Before the
transaction was closed, D took gravel from the property without
permission. The P sued for breach of contract and were awarded the
market value of the gravel. The profit on the gravel was theres to make
Sale of Goods (2-712, 2-713, 2-706, 2-708)
a) Sellers Non-Delivery
Buyer recovers as general damages
1. difference btw market price and contract price or
2. difference btw reasonable cover and contract price
Acme Mills & Elevator Co. v. Johnson: D sells wheat to another buyer;
Johnson covers. In contracts for the delivery of personal property at a fixed
time and at a designated place, the measure of damages is the difference
between the contract price and the market price of the property at the time
and place of delivery.
Missouri Furnace Co. v. Cochran: P contracted with D to deliver a year's
worth of coal at specified delivery dates, and when D breached P purchased
the remainder from another individual. P is entitled only to the difference of

2.

3.

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the original contract price and the market price on each of the breached
delivery dates
Reliance Cooperage Corp. v. Treat: For a breach in Sep. for staves due in
Dec., "there is no duty to mitigate damages until there are damages to
mitigate," difference between contract price and the price when the contract
was due was awarded.
Illinois v. Crail: D failed to deliver entire amount of coal contracted for.
Whether P is entitled to compensation calculated using the retail (small
amount of replacement coal) or the wholesale price (more coal than
necessary)? Given that there was coal available at wholesale price and that
this is the manner in which P purchased more coal, he is only entitled to
compensation at that price.
b) Sellers Breach of Warranty
Buyer recovers as general damages difference btw value the goods as warranted and
their actual value. Value is determined at time and place of acceptance. (Difference in
Value)
Hawkins v. McGee: The measure of damages is the difference between the
value of a good and perfect hand and the hand actually received.
c) Buyers Breach
1. Seller may recover difference in contract price and the market or resale price
2. Volume Sellers: may recover instead profit including reasonable overhead which
seller would have made had buyer performed 2-708
Neri v. Retail Marine: Buyer breaching contract for boat, seller is awarded
repayment of down payment minus the profit seller would have made as
well as seller's incidental expenses (Policy: a volume seller, even if he finds
a replacement buyer, is only making one profit when he could have had
two)
d) Consequential and Incidental Damages in Sales
CD and ID are available to a buyer if foreseeable.
Sellers cannot claim CD but frequently get ID.
4.

Employment Contracts
a) Employers Breach
1. Employees discharged in breach of contract may recover the income payable during
the contract term less the income they have earned by properly mitigating
2. The employees rejection of or failure to seek a different or inferior kind of
employment may not be considered; employer must show that the
other employment was comparable or substantially similar to that employment of
which the employee was deprived. The employees rejection of or failure to seek a
different or inferior kind of employment may not be considered.
Parker v. 20th Cent. Fox: actress rejects replacement film offered; employer
must show that the other employment was comparable or substantially
similar to that employment of which the employee was deprived.
Billeter v. Posell: D was awarded full wages for employer hiring someone
else (for "floor lady and designer") and offering d a lower wage. The
amount owed does not subtract unemployment compensation, nor does it
subtract the lower salary offered to the employee.
b) Employees Breach
If an employee quits in breach, employer recovers difference in market value of services
and contract price

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5.

Construction Contracts
a) Contractors Delay
Damages measured by the rental value of the completed premises for the period of the
delay
b) Failure to Complete
Compensated by additional cost of completion plus delay damages
Nursing Home Case: A construction company that did not finish
construction on time is only liable for the amount it would cost to finish
construction minus amount not paid. In this case, the amount not paid was
more than it would cost to finish construction, so nothing was owed p.
c) Defect in Construction
Cost of correcting the defect, unless this would constitute unreasonable economic waste,
then diminution in value with the defect
Pinches v. Swedish Evangelical Lutheran Church: P contracted to construct
a building for D, but the ceilings were lower, the windows narrower, and the
seats narrower than the specifications require. Cost to address issues would
be great. P should be awarded the contract price minus the diminution in
value from the deviation.
d) Owners Breach
1. If no work has been done, contractor recovers the anticipated profit (contract price
cost of performance)
2. If the work has been started, contractor recovers anticipated profit + cost of labor
supplies actually expended
3. If the contract was unprofitable, the contractor would likely sue for restitution rather
than damages
e) Consequential Damages
If foreseeability is shown, CD are available against a breaching contractor but if an
owner breaches by failure to pay or by repudiating, consequential damages are never
available to the contractor.

B. CERTAINTY
1. The fact of loss and its amount must be proved with substantial certainty
2. Lost profits which cannot be proven, such as those from a new business, are generally not
recoverable, New Business Rule
Mind Games: P cannot recover lost profits for Ds alleged breach of its duty
to promote a new board game because the profits are too uncertain.
a) Alternatives
1. Protection of Reliance Interest
Where aggrieved party cannot establish the lost expectancy interest with sufficient
certainty, may recover expenses for preparation and part performance as well as other
foreseeable expenses incurred in reliance
Chicago Coliseum Club v. Dempsey: P contracted with D for a boxing
match, and D breached. Lost profits weren't awarded, too speculative.
Expenses made before the contract not awarded (compare with Anglia T.V)
Expenses made trying to force the defendant to comply were made at the P's
risk.
Security Stove: P hired D to transport a burner for a trade show. D delivered
one crucial box late. P sued for reliance damages because expectation
damages were too uncertain.
Watt v. Nevada: The ds locomotive set fire to the ps hay stack and hay
press. P sued for the market value of the hay destroyed, even though he only
needed the hay for cattle feed in case of a severe winter since the hay had

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no use as feed, it was unsure whether or not it had any future
use. Therefore, theres no way to calculate the damages due for that hay. It
is deemed important that the plaintiff did not avail himself of the
opportunity to purchase hay in Austin, Nevada to replace the hay destroyed.
If D can show that the contract was a losing proposition for P, an
appropriate deduction will be made for the loss not incurred.
2.

3.

Rental Value of Profit-Making Property

If breach disables the aggrieved party from using profit-making property, the aggrieved
party may recover rental vale of the property (if profits cannot be shown, alternative to
expectation)
Value of an Opportunity
A mutual agreement between two parties in which the performance of the contractual
obligations of one or both parties depends upon a fortuitous event, and the breach makes
it uncertain whether the event would have occurred, the aggrieved party may recover the
value of the chance that the event would have occurred. (Applies only to aleatory
contracts)

C. Mitigation
Damages that could have been avoided by reasonable efforts cannot be recovered
Aggrieved party may recover reasonable costs incurred in an effort to mitigate
a) Exceptions
One is not required to enter into another contract with the breaching arty even if offered
contract would reduce damages
Parker v. 20th Century Fox (Shirley MacLaine)
Luten Bridge: City breaches contract to build a bridge but Luten doesnt
stop work then demands the full contract price, should have properly
mitigate.
b) Non-exclusive contracts
Mitigation is not applicable when relationship is non-exclusive, if the aggrieved party is free
to enter into other similar contracts, entry into one after breach does not reduce damages
Kearsarge v. Acme: D breached a service contract with P in which P was to
perform. P recovers full contract price, even though P serviced other clients
after the breach, because it wasn't shown that it would have been impossible
to service the other clients but for Ds breach.
D. Present Worth Doctrine
Where damages include payments that were required to be made in the future, the value of the
payments must be calculated in such a way that adequately compensates P but does not enrich
(awarding a lump sum which could be invested would do that; could be awarded a judgment for an
annuity that would, over the period, yield the same amount the contract would have)
E. Liquidated Damages
A liquidated damages clause is an alternative performance, not a penalty;
enforceable only
when
1. Actual damages from a breach would have been difficult to determine accurately at the
time of contracting AND
2. The amount of damages specified in the clause (jurisdictional split)
a. Must be a reasonable estimate of damages at the time of contracting; OR
b. Reasonably proportional to the actual damages as determined at the time of
the trial.
3. Cannot recover liquidated damages in addition to other damages; one or the other
4. May theoretically recover attorneys fees if expressed in the clause

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Muldon v. Lynch: P agreed in writing to create for defendant in a San
Francisco cemetery a marble monument, to be completed within 12 months
for $18,788. The contract stipulated a "forfeiture" of $10/day for every day
it was late. The marble waited for over two years in Italy, and Dtried to
withold $7820 because of lateness. D had not suffered any damages that
could be monetarily compensated, and the payment was therefore a penalty
which cannot be recovered. (Contract also used "forfeiture", which is
equivalent to "penalty".)
Yockey v. Horn: P and D parted ways with an agreement not to participate
in a suit against the other, with breach bringing damages of $50,000. D later
voluntarily testified in suit against P by a third party. D's testimony could
have hurt P in several hard-to-determine ways, such as in the business
community, and was thus "difficult to evaluate"exactly the purpose.
Salmon Sales v. Honeywell: P contracted with D to have a burglar alarm
system installed. A burglary took place and D claimed that its liability was
limited to liquidated damages of $50 as per the terms of the contract. Held:
Amount paid by P over the contract term and the protection it received from
D in the event of Ds failure to perform the contract was grossly
disproportionate. A clause in the contract limiting liability to a reasonable
amount may have been deemed valid.
F. Enforcement in Equity (specific performance)
Manchester Dairy System v. Hayward: D failed to deliver milk from his cows. Specific
performance is appropriate, because of the difficulty in assessing damages and to keep
others from breaching. (Instead of affirmative specific performance, negative specific
performance, in which the farmer cannot sell to others rather than being forced to sell to
plaintiff, might be more manageable to the court.)
Curtice v. Catts: Canning plant sued farmer for not delivering his entire crop of tomatoes.
Delivery of the tomatoes might not be able to be replaced monetarily, and this would
directly affect the economic viability of the factory.
G. Other Limitations on Damages
Parties may agree to limit damages
a) Punitive damages (UCC 2-355)
Not available without independent tort
b) Metal Distress (UCC 2- 353)
Recovery is excluded unless
1. the breach also caused bodily harm or the contract OR
2. the breach is such that serious emotional disturbance was a particularly likely result

Hancock v. Northcut: A contract for building a house is not sufficiently

concerned with emotional well-being that a breach could bring about
emotional disturbance damages.
Valentine: Valentine was not awarded damages from breach of employment
contract for mental anguish because an employment contract is primarily
about economic issues.

c)

Nominal Damages
Every breach creates a COA and nominal damages may be awarded w/out actual damages or
economic harm
d) Efficient Breach Theory
Pareto Superior: the breach does not make either partys position worse; the party who stands to
benefit should breach
e) Anticipatory Repudiation (2-610)

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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
a. For a commercially reasonable time await performance by the repudiating party; or
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
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).
B. RESTITUTION
1) Goals
Put party in same economic position they were in before entering into the contract; requires D to
restore P what D had received however, D is not responsible for costs that did not benefit them
(reliance). Recovery not based on contract (quasi contractual); substantial breach (voiding contract),
or unenforceable contract.
2) Determining Damages
Courts have great discretionary power in evaluating damages they could use,
1. Market Value of the benefit conveyed or
2. Value of the benefit to the recipient
3. Less any benefit received
3) Determining Substantial Breach to void contract
1. Was the breach "willful" (i.e., particularly reprehensible)?
2. To what extent did the breacher perform his or her contractual duties?
3. To what extent would awarding expectation damages adequately compensate the NONBREACHER; the more adequate the expectation award, the more that counts against
finding a substantial breach (equivalently, in favor of finding substantial performance).
4. Would it under-compensate THE BREACHER to force the breacher to sue in restitution?
If so, that weighs AGAINST finding a substantial breach.
United States v. Algernon Blair, Inc.: A subcontractor, Coastal, starting doing
work for a primary contractor, Blair. Blair refused to make certain payments
and Coastal stopped work. Coastal is entitled to damages for services rendered
because Blair has benefited from Coastals loss. The damages should be
measured by the replacement value of the labor and equipment provided by
Coastal.
Britton v. Turner: P and D made a one-year employment contract for 120. The
plaintiff stopped working after 9.5 months and is seeking compensation under
quantum meruit. A hired laborer is entitled to compensation for work actually
performed unless there is an express stipulation to the contrary in the contract.
4) No restitution after complete performance
Restitution not available if a debt has been created
Oliver v. Campbell: A lawyer, was terminated after a divorce proceeding but before the
signing of the judgment was complete. Given that P had already performed he was
entitled to the contract price of his performance not any other value of the work he had
done. A party should not benefit by getting more for their performed services than what
was contracted in the first place.
5) Election of remedies
In absence of statute, P cannot recover both restitution and damages
6) Specific Restitution
a) Specific restitution may be awarded when money damages seem inadequate ex. A unique sale, real
property or if damages are conjectural but definite, or a restraining order
b) Affirmative rule of mutuality, available to either party
c) Not applicable to personal service contracts or situations requiring supervision

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IV.

CONSIDERATION AND EQUIVALENTS

A promise that is not supported by consideration or its equivalent is not
enforceable.
Gratuitous promises are not so supported, and are only enforceable
if the meet the requisites of
promissory estoppel, or in certain limited instances, arise from a moral obligation.

A. THEORIES: LEGALLY ENFORCEABLE PROMISES

1. 71 Consideration Theory: Requirement of Exchange (pg. 144)
a. Performance or return promise must be bargained for
b. bargained for if it is sought by the promisor in exchange for his promise and is given by the
promise in exchange for his promise and is given by the promise in exchange for that promise
(reciprocal inducement)
c. Performance may consist of
1) An act other than a promise OR
2) A forbearance OR
3) The creation, modification, or destruction of a legal relation
2. 90 Promise Reasonably Inducing Action or Forbearance (pg. 147)
a. A promise which the promisor would reasonably expect to induce action or forebearance on the
part of the promise
3. 86 Promise for Benefit Received (pg. 147)
a. Promise made in recognition of a benefit previously received by the promisor from the
promise is binding to the extent necessary to prevent injustice
b. Promise is not binding under subsection 1 if the promise conferred the benefit as a gift or for
other reasons the promisor has not been unjustly enriched
B. CONSIDERATION (SEC. 71)
1. Promisee must incur a legal detriment (do what he is not legally obligated to do or refrain from
doing what he is privileged to do; legal detriment to the promise or legal benefit to the promisor;
someone other than the promisee may incur the detriment
2. Promisor must have bargained for the detriment given in exchange for the promise.
MOTIVE AND PAST CONSIDERATION
Past consideration and motive are not consideration; from a practical standpoint, parties
cannot bargain for an exchange of something that has already happened
ADEQUACY
Any detriment, no matter how economically inadequate, will support a promise provided
that the detriment is in fact bargained for. Any amount of consideration will do- there is
no issue deciding how much is necessary. (all or nothing)
Limited exceptions, for example,
a. inadequacy of consideration may be an indication that the detriment was not truly
bargained for, or fraud etc.
b. when equitable relief such as specific performance is sought, detriments adequacy
will be considered
c. court can always review fairness of legal fees
d. court can review under the doctrine of unconscionability
Hamer v. Sidway: Uncle promised nephew that, if the nephew would not
drink, use tobacco, swear, or play cards until his 21st birthday, the uncle
would give him $5,000. A suspension of a legal right is consideration,
whether there was a benefit to the nephew is irrelevant. What benefit did
the Uncle get? Doesnt matter, he was the promisor seeking a performance
which was rendered. Enforceable.
Allegheny College v. National Chautauqua County Bank: A woman
promised a $5,000 donation to the college after her death if they would set

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up a fund in her name. She gave them $1,000, the P accepted, and then P
sued for the rest after her death. Held: The condition of the fund in her
name was sufficient consideration, and the P accepted those terms, so
there is a valid contract with no need to consider promisory estoppel.
CONTRACTS UNDER SEAL
Thomason v. Bescher: D signed a contract under seal to sell a tract of land
to P in consideration of the sum of one dollar to [them] in hand paid by
C.E. Thomason, the receipt of which is hereby acknowledged. The
contract stated that it would go into effect as long as Thomason asked for
the deed and paid $6,000 by a certain date. A few days later, well before
the expiration of the option, Thomason promised to pay the $6,000 the
following week, but the Beschers told him that the option given to him
had been withdrawn. Rule: Instruments under seal are binding at common
law even without consideration. When the offer is accepted, it becomes a
bilateral contract enforceable at equity.

C. NO CONSIDERATION
1. PROMISES TO MAKE GRATUTIOUS GIFTS
No consideration, not enforceable
Congregation v. DeLeo: A dying man makes a promise to give money to a
synagogue, put the expected money into their budget, and promised to
convert a storage room into a library and name it after him. Should the
estate be held to the man's oral statement? Held No, there was no
consideration, as the synagogue declared their intention of what to do with
the money independent of the man's promise. (Putting the money in the
budget does not constitute reliance, but merely a record of the synagogue
to itself that it expected the money.)
2. SHAM AND NOMINAL CONSIDERATION
a. Sham Consideration: a lie, when a purported contract says that a consideration has been
given when it hasnt.
b. Nominal or token Consideration: when parties know that a promise will be unenforceable
for lack of consideration, they attempt to make it so by exchanging a small token sum to
create the form of a bargain.
Fischer v. Union Trust Co: A father gave his daughter a deed to his land,
on which there were several mortgages, and in return the daughter gave
him a dollar. After his death, the mortgages were not paid. Was there
enough consideration to make this a valid contract? No.
Restatement on offers with questionable consideration: an offer is binding as an option
contract if it 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.
3. INVALID CLAIMS
A promise to surrender a valid claim constitutes a detriment and, if bargained for,
constitutes consideration. However, it is uncertain whether surrendering an
invalid claim is a
detriment.
Restatement: either good faith or objective uncertainty as to the validity of a
claim is sufficient
4. PRE-EXSISTING DUTY RULE
Performing a legal duty is not a detriment; no legal right is surrendered.
5. AGREEMENT TO ACCEPT PART PAYMENT TO SATISFY DEBT
Part payment of a debt indisputably owed is not detriment to support a promise by
the
creditor to discharge the entire amount; the same is true even if there is
purported discharge.

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(think about this as being in accordance with the legal duty
rule; some jurisdictions make
exceptions, for example, if unforeseen hardships make full payment more burdensome than
anticipated)
6. MORAL OBLIGATION
A promise made in recognition of a prior moral or legal obligation is not
enforceable
Mills v. Wyman (1825): Ds son returned from a voyage at sea and fell sick
among strangers. P gave the son shelter and comfort, D wrote to P and told him
he would pay all of the expenses for the care of his son. D later refused to pay. If
the boy had been a minor, then the father would have had he duty to care for
him, and in doing this, P would have conferred and economic benefit to D and in
that case, it would fall under 86. However, the father had no obligation to care
for his emancipated son, and no benefit was incurred unto him by P.
7. INVALID/UNENFORCEABLE
Duncan v. Black: Black contracted to sell Duncan 359 acres of farm land, with a
65 acre cotton allotment. The cotton allotment system was set up by the
Secretary of Agriculture. Land under the Act was only allotted every year, so
there is no way to know what land will be allotted the next year. Trying to sell
an allotment is like the "purchase of the green cheese monopoly on the moon."
(Besides, selling an allotment would therefore be illegal) Consideration needs
good faith claim and the claim must have some legal validity.
D. RELIANCE: PROMISSORY ESTOPPEL (SEC 90)
1. A promise that foreseeably induces substantial and definite acts of injurious reliance by the
promisee or a third party is foreseeable
1. Promise is required
2. Reliance must be of a kind that the promisor could have reasonably foreseen
3. Reliance must be substantial and injurious rather than simply detrimental
4. Promise will not be enforced unless injustice can be avoided by doing so, and only to the
extent which justice requires
Normally the offeree must accept the offer before relying and the reliance must be
reasonable, reliance on an estimate or on a mistaken bid so low as to indicate a
would not be justifiable.

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Bank of Logansport v. Logan: Bank promises to loan Ps $100,000 if they will open a
business in the town. After a few loans not equal to the $100,000, and loan commitment
papers, the bank refused further loans. There was a promise, even though there was not a
contract. Ps relied on this promise to their detriment, Bank should have put in clause that
getting loan was subject to their best effort.
Hoffman v. Red Owl: Man relies on promise to get his own grocery store, chain does not
follow through. P relied to his detriment on promises which D failed to keep. When
damages are awarded in promissory estoppel, they should be only such as are necessary
to prevent injustice. Justice does not require that the damages awarded should exceed any
actual loss sustained.
Stearns v. Emery-Waterhouse Co.: D extended P an oral contract for five years (void
under statute of frauds) if he would quit his current job and move to Maine to take a new
job. P did, and D fired him after 2 years. Promissory Estoppel does not apply; there
was no reliance by moving because an employment offer is going to cause you to quit
your old job and move (potentially). Compare the decision in this case Hoffman who was
able to successful because there was more definite reliance?
Boone v. Coe: D made an oral contract with the plaintiffs to move to Texas and work on
his farm for a year. When they got there, the defendant repudiated and the plaintiffs had

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to go back to Kentucky. The plaintiffs sued for the cost of making the trip. The
defendants demurred and won dismissal of the case. The plaintiffs appealed.
Damages cannot be recovered when a contract is held to be unenforceable under the
statute of frauds unless the defendant receives benefit from part performance of a service
contract, in which case the plaintiff may obtain restitution for services rendered. D
received no benefit, he has no obligation to pay, since the contract was unenforceable in
the first place.
Kirksey v. Kirksey (1845): D, upon hearing that his brother had died, told his brother's
wife and children to come live on some of his land. They abandoned their house, seventy
miles away. Two years later he told them to move off his land. Does reliance make the
promise enforceable? No, defendant's promise was "a mere gratuity"
Ricketts v. Scothorn (1898): Katie's grandfather promised to pay her $2000 if she were to
quit her job. Does quitting her job, relying on his promise, equitably estop the need for
consideration? Held: Yes; P altered her position for the worse on the faith that the note
would be paid. The court manipulated the rules of equitable estoppel; they ruled that D
was estopped from alleging that the contract was lacking an essential element
(consideration) to protect Katie.
Red Owl v. Hoffman
James Baird Co. v. Gimbel Bros.: 1) Can promissory estoppel be used to enforce an offer
that is not meant to become binding until consideration has been received? 2) Does
promissory estoppel render a subcontractors bid irrevocable? Holding and Rule (Learned
Hand): 1) No. Promissory estoppel cannot be asserted to compel an offeror to perform
where the offer is not meant to become a binding contract until consideration has been
received. 2) No. Promissory estoppel does not render a subcontractors offer irrevocable
even if the contractor has relied upon it in submitting a bid for a general contract.
Drennan v. Star Paving Co: Can reasonable, justifiable, and foreseeable reliance render
an offer binding? Star Pavings subcontractor bid constituted a promise to perform under
conditions both express and implied, according to the circumstances. Restatement (2d) of
Contracts 45; merely acting in justifiable reliance on a unilateral offer is sufficient to
make that offer irrevocable for a reasonable period of time to complete performance.
Promissory estoppel must only be used if there is no consideration. Drennan effectively
overruled Baird v. Gimbel and is the seminal case for the modern approach to
applying promissory estoppel in the context of subcontractor bidding disputes based on
mistake. Was there a reason to know that the offer was a mistake? No. The offer was not
unreasonable, and reliance was justifiable.
E. BENEFIT PREVIOUSLY RECEIVED (SEC. 86)
Promise made in recognition of a benefit previously received by the promisor from the promise is binding to
the extent necessary to prevent injustice
Webb v. McGowin: (a precursor to sec. 90) P saved Ds life leaving him permanently
disabled. D promised to pay P $15 every two weeks for the rest of Ps life. P received the
payments until D died, P sued the executors of McGowins estate when the payments
stopped. Upon receiving this benefit, D became morally bound to compensate P and as
such expressly agreed to compensate P. It is sufficient consideration for the subsequent
agreement to pay for the service because of the material benefit received directly by the
party. Once P saved D from death or grievous bodily harm and P subsequently agreed to
pay him for the service rendered it became an enforceable contract. (stretched
consideration to protect P).
V.

MUTUAL ASSENT: OFFER AND ACCEPTANCE

A. MUTUAL ASSENT

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1.

Agreement may be manifested wholly or partly by words, written or spoken, by acts, or even
failure to act
2. Subjective (what did each party actually perceive) v. Objective (what would a reasonable person
have perceived) approach
3. Objective: places greater emphasis on one partys right to rely on the reasonable expectations
created by the apparent agreement of the other (allows for expectation damages, not merely
reliance)
Raffles v. Wichelhaus 1864 (later a Sec. 20 A, no mutual assent, no meeting of the minds,
no fault by either) P and D agreed to a sale of cotton to be arriving on a particular ship
Peerless with a common name. There was a misunderstanding over which ship was
carrying the cotton, and the buyer refused to accept the goods when they game. The
market price had gone down at that point and to the buyers mind the cotton was months
late
B. MANIFESTATION OF ASSENT (SEC 20)
1. There is no manifestation of mutual assent to an exchange if the parties attach materially different
meanings to their manifestations and
2. Neither party knows nor has reason to know the meaning attached by the other party or
3. Each party knows or each party has reason to know the meaning attached by the other
Flower City Painting v. Gumina: Misunderstanding results on a contract between a
contractor and subcontractor. No contract under Peerless (Raffles v. W) using the
subjective and objective view. Each party held a different and reasonable view of the
undertaking.
Dickey v. Hurd:Dickey is considering purchasing land from Hurd, Dickey thinks he
needs to accept the offer by July 18, Hurd wants the payment in full by July 18 but has
reason to know that Dickey, through multiple letters, does not think that. the party who
knows that there is not a true meeting of the minds has the responsibility to correct the
mistake
Embry v. Hargadine-McKittrick Dry Goods Co.(Contract law is not concerned with
subjective intent, only objective) P was an employee of D. D mistakenly extended Ps
employment, but P was reasonable in his interpretation of Ds words. A contract may be
formed without reference to the subjective intentions of either party.
Wheeler v. White: (Terms which are not definite enough for specific performance will not
bar recovery under reliance theory) D encouraged P to make preparations for construction
indicating that he would secure a loan but never did; P relied to his detriment on Ds
promise, the terms were not definite enough for specific enforcement but enough to
support an action for damages. Promissory estoppel is defensive and prevents D from
claiming that the promise was unenforceable. All that is necessary to achieve justice is to
put the promisee in a position he would have been in had he not acted in reliance upon
the promise
C. OBJECTIVE INTENT POLICY
1. Protects those who reasonably rely on that other people say or do can seek recovery and Ds
cannot escape liability by claiming a different subjective intention
2. Encourages parties to be careful
3. Simplifies litigation (forget subjective intentions which are too hard to prove)
VI.
OFFER AND ACCEPTANCE
A. Unilateral Contracts
Wormser Conception of Unilateral Contracts Traditionally, offer can be revoked before
performance is complete
Brooklyn bridge hypo: A says he will give B $100 to walk across the bridge; to accept this offer, B
must perform the entire act; A can revoke at any time before B has completed performance
B. Time When Acceptance Takes Effect (SEC 63)

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Unless the offer provides otherwise,
1. An acceptance made in a manner and by a medium invited by an offer is operative and complete
the manifestations of mutual assent as soon as put out of the offerees possession without regard to
whether it ever reaches the offeror; but
2. An acceptance under an option contract is not operative until revised by the offeror
C. Mailbox Rule
Mailbox rule applies only to acceptance, not revocation; acceptance is valid one that acceptance
is in possession of the post office; revocations are only valid upon receipt
Morrison v. Thoelke: Offer and acceptance to purchase property done through the mail, one
party accepts and sends out the signed acceptance but calls to repudiate before the mail gets to
the offeror but an offer of acceptance made through the mail is binding as soon as that notice
of acceptance is placed into the hands of the post office NOT when it is actually received
D. Mailbox Rule Policy
1. If the rule was that it was not accepted until received, then the party would be bound to notify
the other of their receival of the acceptance and this could go on ad invinitum. This rule
protects the acceptors and allow them to act on the premise that they have accepted once that
notice has been properly dispatched
2. Protects the acceptor and allows for them to act on the contract as soon as they put their
acceptance into the mail
3. Provides a clear rule
E. Advertisements
Advertisements GENERALLY are NOT offers merely solicitations
Moulton v. Kershaw: (Compare with Carbolic Smoke Ball) D by letter offers to contract to
sell salt, setting the terms thereof. P the day of receiving the letter telegrams to place an order.
The following day, D withdraws their offer. Held: the letter was a notice to P from D of Ds
ability to contract, there is nothing to indicate it was a firm offer to sell a definite amount of
property
Carlill v. Carbolic Smoke Ball: D ells smoke balls and claims that if used correctly, they will
pay out 100 for anyone who still gets influenza. To provide proof of their intentions they
alleged to have placed 1000 into a bank for the purpose of paying out. P used the ball
correctly, contracted influenza, and D refused to pay out. There was an offer and
consideration, the offer invited performance which P carried out. Whether D intended to pay
or not is irrelevant, given their advertisement, a reasonable person would assume they did,
objective intent outweighs subjective intent.
Cobaugh v. Kilck-Lewis: P while golfing sees an advertisement offering a car to any golfer
who makes a hole in one on the 9th hole. P does and D says that that offer had expired, but
they hadnt moved the signs etc., and refuse to pay out to P. Offerors failure to use due care
does not void a unilateral contract once performance has been completed.
F.

Offers Requiring Performance

May be revoked before performance is complete (Brooklyn Bridge Hypo)
Peterson v. Pattberg: P came to Ds home to pay a sum in lieu of a debt owed. D refused to
accept the money and informed P that the bond and mortgage had been sold to a third party. If
an act is requested in a contract, no other must be given, an offer requiring an act to be
performed can be revoked at any time until the act has been performed ; an offering party has
the right to name the precise act performance of which would convert the offer into a binding
promise. Dissent: D made Ps performance impossible.
D. TERMINATION OF REVOCABLE OFFERS (SEC 36)
1. Lapse of time
2. Death or lack of capacity
3. Revocation

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4.
5.
6.
VII.

Death or Destruction
Supervening Illegality
Rejection of counter-offer by Offeree

IRREVOCABLE OFFERS: OPTION CONTRACTS

A. OPTION CONTRACT (SEC 87)
1. An offer is binding as an option contract if it
a. Is in writing and signed by the offeror, recites a purported consideration for the making of the
offer, and proposes an exchange on fair terms within a reasonable time; or
b. Is made irrevocable by statute
2. Induces action (reasonably foreseeable) of a substantial character becomes binding to the extent
necessary to avoid injustice.
B. OPTION CONTRACT created by part performance of tender (SEC 45)
1. Where an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the invited
performance or tenders a beginning of it.
2. The offerors duty of performance under any option contract so reated is conditional on
contemplation or tender of the invited performance in accordance with the terms of the offer
C. Preparations for performance
Beginning preparations, though they may be essential to carrying out the contract or to accepting the
offer, is not enough. Preparations to perform may constitute justifiable reliance sufficient to make the
offerors promise binding under Sec. 87
D. OFFERS OF REWARDS AND UNKNOWN OFFERS
1. At least so far as private rewards are concerned, there can be no contract unless the claimant when
giving the desired information knew of the offer of the reward and acted with the intention of
accepting such offer.
2. A contract of reward, like any contract, must be supported by consideration, something of value.
The consideration that supports the promise of reward is the trouble or inconvenience resulting to
the person who has acted on the faith of the promise.
3. Because an unaccepted offer of reward grants no contractual rights, the offer can be revoked or
canceled at any time prior to its acceptance by performance. Once a person has performed or
partially performed the requested action, an offer of reward cannot be revoked to deprive a person
of compensation. An offer must be revoked either in the way in which it was made or in a manner
that gives the revocation the same publicity as the offer. A later offer, in different terms from the
first, does not revoke the first offer.
4. Generally an offer of reward that has no time limit is considered to have been withdrawn after a
reasonable time.
E. MASTER OF THE OFFER
1. Offeror is master of the offer (bilateral or unilateral) and invites acceptance; they may set the specific
terms of acceptance so long as they are reasonable
Allied Steel & Conveyors, Inc. Ford Motor: Allied employee performing installation on
Fords premises was injured due to the negligence of Ford employees. Allied had executed a
purchase order that contained and indemnity form making Allied liable for Fords negligence
in connection with Allieds work. The work commenced and the injury occurred months
before the indemnity provision was acknowledged. Allied accepted by commencing work and
could not claim that it had not accepted the terms in contradiction of that act of acceptance.
For means of acceptance to be limited, offeror needs to articulate expressly
F. Unilateral or Bilateral?
An ambiguous offer is presumed to be bilateral because it protects the interests of both parties

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Davis v. Jacoby: The court pointed to Ruperts statement Will you let me hear from you as
soon as possible as a request for an immediate reply so that he could make arrangements
and rely on Daviss promise to come to California. Furthermore, since Rupert asked her to
take care of them until both of them had died, it was apparent that he had to rely on Daviss
promise to continue to care for Blanche if she survived him. Bilateral.
Brackenbury v. Hodgkin: Mother forced to let child remain after inviting them to take care of
her. Poor result; should have called it a bilateral contract not accepted until they moved and
performed, then awarded reliance damages instead of forcing servitude in a manner of
speaking.
G. LIMITED AND INDEFINITE PROMISES
1. Mutuality of obligation: when consideration consists of the exchange of mutual promises, the
undertakings of both sides must be real and meaningful. If the promise of one party has
limitations so strong that they negate it, it is really no commitment at all and is an illusory
promise.
2. Some contracts may be enforceable against one party but not the other, minors, fraud, etc.
Obering v. Swain-Roach Lumber: The executor of estate sought to sell his farmland
containing valuable timber. P was interested in purchasing the timber and Buhners
relatives and heirs (d) were interested in purchasing the land without the timber. P entered
into a contract with D stating that if P bought the land, it would subsequently sell the land
to D after it removed the timber. D refused to accept the deed. Just because the contract
doesnt kick in until P does something to accept it and provide consideration doesnt
mean that the contract is unenforceable once P does that thing. The contract was
unenforceable when it was signed, but became enforceable against both parties upon the
plaintiffs

3.

SEC. 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 performance
Wood v. Lucy, Lady Duff-Gordon (Cardozo) Lucy made an exclusive endorsement deal
with Wood. Lucy subsequently gave her endorsement to other products without Woods
knowledge and without sharing the profits. An enforceable contract may be construed
through an implied promise of one of the parties. There is an implicit promise on the part
of Wood to try to put Lucys endorsements on stuff and sell it, Lucy must be held to the
same promise (mutuality)
Omni Group, Inc. v. Seattle-First Natl Bank: A promise dependent on the promisors
satisfaction of a condition is not illusory, it is binding. Omni wanted an engineers
report and the report must be satisfactory; Omni could only cancel in good faith and D
must go through with the sale.
Policy: increases security for both parties when the parties will have extended dealings
before completion.
Lima Locamotive: requirements contract for steel castings, no specific number;
quantity is left open. Traditionally, no enforceable contract, the terms are too vague to
enforce. Policy: Requirement/output contracts have immense social utility 2-306 makes
them enforceable
Empro Mfg. Co. v. Ball-Co: Empro wanted to buy out Ball Co. A letter containing an
agreement that is subject to the execution of a definitive contract has no independent
force; Empro carefully insulated itself against the deal being binding. If Empro was free
to walk, it stands to reason that Ball-Co was too. The judgment of the trial court is
affirmed.

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Catherine Martin

Borg-Warner 2-204(3) A breach of a legally enforceable duty to negotiate (firm option) a

final contract would consist of the failure to come to such a final agreement plus a
demonstration of bad faith on the part of one party)

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