AVOID MEETING OF MINDS

USE COMMON SENSE.

THIS IS NOT _____ BC 1, BLAH 2, BLAH 3 BLAH
BRING IN INTERESTING ANALYSIS TO THE MEATY ISSUES.
ADEQUATE CONSIDERATION

GROUNDS FOR ENFORCING PROMISES (and other, not so clearly promissory grounds for liability)
BACKGROUND
o Two theories of contract formation:
Intent: A promise is significant because, and insofar as, it expresses a fixed purpose in the
mind of the promisor
Policy: In a commercial civilization, it is necessary that sensible expectations induced by a
promisor be not too often defeated
Promises should be enforced unless there is a tangible and controlling practical reason to
not enforce them
o Five Cultural Concepts: (1) Gift, (2) Will, (3) Bargain, (4) Restitution, (5) Reliance on promise.
GIFTS
o Requirements:
(1/3) Donative Intent
(2/3) Acceptance
(3/3) Delivery
Delivery needs to be deliberate
Intent and delivery must correspond to each other
o Not a cause of action; not contract
Gratuitous promises usually not enforced because no delivery or bargain
o Charitable subscriptions (promise to give): Usually worthless bc donative intent without delivery
o Gift with condition: Usually, if condition not met, then promisor gets money back
FORMALITY
o Functions of Formalities: functions are policy concerns that lie behind consideration
The Evidentiary Function: Certification of the deal
You can go back and look at terms of contract
Useful in contract dispute, to provide judge with evidence
The Cautionary Function: Protection from a rash move (think twice before
completing a deal)
That both parties attended to their interests
The Channeling Function: Recognizability. It makes it more likely that the
promisor will execute the contract
Expectation that if it is broken, then judge can provide damages
Formality is useful because that ensures execution
o

Types of Formalities
Writing or Signing something
The Seal
Agreement without consideration and reliance (a substitute)
Advantages:
o Uniform and easily recognizable as an authentication (evidence of intent)
Consideration
The importance of formality:
No enforceable promise or gift if no formality
Congregation Kadimah Toras-Moshe v. DeLeo (Oral promise to donate)

No consideration: No bargain, no contract. Hope or expectation by P is not legal

detriment.
No reliance upon the promise (allocation of the money in budget insufficient).
Charitable subscriptions are not bargains
No gift: Incomplete because no delivery, so no legal consequence

CONSIDERATION (Exchange Through Bargain)

o Bargain is a transaction and a cause of action; need consideration for contract
o Requirements: For an enforceable promise, promise must be given in consideration of:
(1/2) Something of value, and
Benefit or detriment (e.g., restriction of lawful freedom of action upon
the faith of someones promise (reliance))
Value must be tangible (e.g., not in consideration of natural love)
(2/2) Bargained for
Each promise given in exchange for the other (for a K)
Correlation between detriment and promise (inducement)
Is it being used as a mere formality? Is it really bargained for?
o Promise to make a gift generally unenforceable
o

Restatement of Contracts, Second 71: Requirement of Exchange; Types of Exchange

(1/4) For consideration, a performance or return promise must be bargained for
(2/4) Is bargained for if promise or performance (legal detriment) is sought after in exchange
for the others promise
(3/4) Performance may consist of:
an act other than a promise (e.g., Brooklyn bridge), or
a forbearance, (Hamer v. Sidway) or
the creation, modification, or destruction of legal relation
(4/4) Performance or return promise may be given to another person. Also, it may be given by
the promisee or by some other person.
Restatement of Contracts, Second 81: Consideration as Motive or Inducing Cause
(1) Consideration may be found even if what is bargained for does not of itself induce the
promise
(2) Consideration may be found even if the promise does not of itself induce a performance or
return promise
Limits 71s bargained for test of consideration
Promisor might have more than one motive for making a bargain
Only a problem if both parties know that the consideration is mere pretense (mere
formality)
Bargain: Each party has to give up something of value in exchange for the other party giving something
up. (Benefit is not necessary).
Hamer v. Sidway (alcohol/tobacco abstention case)
Doesnt matter whether the uncle benefited; all that is necessary is an exchange where
both people give something up
Restriction of liberty as detriment.
Trustee-beneficiary relationship: A gives money to B to hold for A or C.
Earle v. Angell (funeral case)
As in Hamer, both parties gave something of value up, so there is consideration (nephew
agrees to go to aunts funeral)
Promise for a promise
Not a Mere Formality: Things given up must be in exchange for each other must be sought after and
motivated by

Whitten v. Greeley Shaw (mistress case)

Something must be given up by both: Promise to not call his house was not something
he sought, but was merely added into the contract by mistress (mere formality), so not
bargained for / no consideration
Sharon v. Sharon ($250 if desist from making unwelcome visits)
Forbearance of visiting D is a valid consideration

INADEQUACY OF CONSIDERATION
o We do not inquire into the adequacy of consideration; no such thing as inadequate
consideration
Consideration can be very small; there is consideration as long as the promisee
sought after the promise of the other, even if it seems to be a bad deal or
nominal
o Consideration is sufficient as long as it is not a mere formality
o

No bargain / consideration if the promise or act was a mere formality

Fischer v. Union Trust Co. (promise within the gift of a deed)
$1 for house is just a formality to make it look like contract
If promisor is not actually seeking the act or return promise, then it is only a formality;
promisor must seek what he is receiving or what he asks for in the contract; no bargain
Giving of a gratuitous gift is not a bargain cannot use seal as a way to make
consideration good.
No consideration when exchanging unequal sums of money in the past
Schnell v. Knell (payment of $200 to 3 people in 3 annual installments)
o One penny is of some value, but not bargained for mere formality
o Also past consideration by his wife.
Mere inadequacy of consideration will not void a contract, despite disparity in values
Batsakis v. Demotsis (Greek contract for monetary loan)
We do not inquire into the adequacy of consideration. As long as it is not an equity case.
Demotsis got exactly what she bargained for (What matters), even though the deal was
for unequal sums of money (future payment) Is there consideration, or not?
Embola v. Tuppela (Loan to travel to reclaim gold mine)
Later repayment of much more money than was lent can be valid consideration if the
party who is repaying finds the bargain worth it Not a naked promise.
For consideration, promisor must own (be able to sell) what he promises to sell
Duncan v. Black (sale of land and cotton allotments; no consideration)
For there to be consideration, you have to own something you can sell (cotton allotment
wasnt the sellers to give)
If a contract violates public policy, then not good consideration
Duncan v. Black (sale of land and cotton allotments; no consideration)
If otherwise, would violate public policy as it would defeat the purpose of having the
government make the allotments

COMPROMISE OF A CLAIM (as Good Consideration)

o When P surrenders legal freedom of suing D, in exchange for D paying money
o Courts are happy to do this, but there is a slight nervousness about using compromise of a
claim for consideration
Claim must have some foundation, or
Claim must be made in good faith
Claim must have some value (ex: valid claim, but debtor is insolvent)
o Bargained for: D gains benefit of not going to court; P gains benefit of money

o
o

Some value: Judges are being used to decide the value problem of extortion

Restatement of Contracts, Second 74: Settlement of Claims

(1/2) Surrender of a claim or defense which proves invalid is not consideration unless:
(a) the claim or defense is doubtful because of uncertainty re the facts or the law, or
[some foundation]
(b) the surrendering party believes that the claim or defense may be valid [good faith]
(2/2) Even if person believes no valid claim or defense exists, and he is not intending to assert it,
if a written instrument is executed surrendering it, and is bargained for, then there is
consideration
Formalities useful for the value of certainty (that someone wont sue) (Channeling
Function)
Note: The First Restatement only required an honest and reasonable belief in the possible
validity of an invalid claim or defense.
The claim must have some foundation
Duncan v. Black (sale of land and cotton allotments; no consideration)
Military College Co. v. Brooks (delay of tuition payment)
Some foundation exists (legal claim): You must actually have a legal claim; if you cant
sue for anything, then you arent giving anything up
The claim must be made in good faith
Duncan v. Black (sale of land and cotton allotments; no consideration)
In contrast to Restatement, says and to two criteria, not or
Military College Co. v. Brooks (delay of tuition payment)
College surrenders the ability to sue for debt now, and in consideration, the father agrees
to pay full instead of partial tuition the next year consideration
Good faith: If you honestly believe that you can sue someone, then you are giving
something up by not suing

BORDER LANDS BETWEEN CONTRACT AND RESTITUTION

o Fact patterns that could be contract or restitution, or are initially misleading
o The relationships between the categories or contract and restitution
o Contract Implied in-Fact:
Both parties must manifest intent to be held to agreement (suggested by some
action)
Not required by restitution
o Restitution / Quasi-Contract / Contract Implied in Law / Quantum Meruit
All four refer to the same thing none are contract
Recovery imposed by law where justice so requires, even though there is no
agreement where ones party has been unjustly enriched
No consideration required
Regards to terms not explicitly stated
o

Must be Reasonable Expectation for Contract: Some understanding between the parties
Martin v. Little, Brown & Co. (book plagiarism & $200 check)
The court finds no unjust enrichment because P offered his services gratuitously and
thus D had no reason to believe he expected compensation..
Objective standard for whether person had expectation of payment
Collins v. Lewis (sheriff cares for farmers cows)
Sheriff is awarded damages because:
o Provided D with notice of expectation of payment (benefit)
o D did benefit from Ps services
o Not Contract-implied-in-fact bc no consent pushed into restitution

The court finds sheriff is entitled to restitution for the cost of caring for farmers
cows, and the damages would begin from the time the farmer received the letter.
(Not an implied-in-fact K. Restitution is a stronger case--no need for consent.)
Contract Implied in-Fact v. Restitution
Intent: If there is an understanding of an agreement, even if not expressed, then there is a
contract implied in-fact
Collins v. Lewis (sheriff cares for farmers cows)
o Or, if lack of intent, then no contract implied in-fact, and only remedy is
restitution
Importance of benefit conferred, and not the cost
If a party acts with the knowledge of a certain policy, then he has entered into a contract implied
in-fact with the other party.
Seaview Assn of Fire Island, N.Y., Inc. v. Williams (homeowners association
assessment policy)
o Contract implied in-fact bc D bought properties with knowledge of the
assessment policy, so by purchasing the properties, they entered into contract
Quasi-contract is imposed by law irrespective of intent v. Contract arises from intent of parties
(restitution v. contract)
Martin v. Campanaro
No restitution when:
Gift: Enrichment but not unjust
If there is no actual benefit conferred
o

RESTITUTION
o Same as quasi-contract; contract implied in-law; quantum meruit
o Requirements:
Benefit conferred
Circumstances were such that makes the benefit unjust
o Recovery for unjust enrichment: If A confers benefit to B, and B is unjustly enriched as
a result, then B owes A the value of the benefit.
Unjust combination of loss and gain; loss must be returned (status quo)
o Not necessary for both parties to have manifested consent, but only that the party that
benefits has been unjustly enriched
o *Safer choice than contract implied in-fact
o

Statute of Frauds and Benefit Conferred

Boone v. Coe (verbal contract to rent farm)
Valid agreement made, but not enforceable because the statute of frauds precludes
unwritten contracts that cannot be completed within one year
o Statute of frauds makes contracts unenforceable restitution can get around
statute of frauds (if outside contract) (rescission can also get around statute of
frauds bc it is not relying on or trying to enforce the K)
No unjust enrichment bc D never actually benefited from the contract (different if they
had worked on the land) (Hotdog case: not a case arising from a K, but restitution)
Benefit looked at, rather than loss
Examples: Restatement of Restitution 112, Illustrations, pg. 239
No restitution for the conferment of gifts
Needs to be real reason to intervene somehow without a request
Exceptional Situations:
If someone intervenes without request, and not just gratuitously, then might be entitled to
restitution if protecting against exceptional circumstances of jeopardy to person or
property
Whether or not person intended to charge for services

o
o

No restitution if merely humanitarian intent

Intent of profession (ex: doctor) to charge for services

PROMISES GROUNDED IN THE PAST: MORAL CONSIDERATION

o Promise made in return for detriment that has been suffered previously bargain is
missing, so no consideration
Moral consideration as an exception to usually invalid past consideration
o Like restitution, but circumstances are so weak that a subsequent promise is needed
o Requirements:
Benefit directly conferred to promisor
Past consideration (promise) is not entirely gratuitous
o Restatement of Contracts, Second 86: Promise for Benefit Received, pg. 241
(1) Promise made in recognition for benefit previously received is binding to
the extent necessary to prevent injustice
(2) Exceptions: A promise is not binding under Subsection (1):
(a) if benefit was originally a gift, or no unjust enrichment
(b) to the extent that its value is disproportionate to the benefit
If promise is less than value, then you pay what is promised
If promise is more than value, then you pay only amount of the value (with
interest) if the promised amount is disproportionately larger (if not that much
more, then pay what is promised)
Originally, enforcement limited to three situations:
(1) Statute of Limitations
(2) Bankruptcy
(3) Promises made by minors
If promise is made again (ex: after bankruptcy or once minor becomes of age), then the original
promise is binding (promise to cover previous benefit, already conferred to promisor)
Original three situations expanded by Second Restatement you are bound by the promises
you make
Benefit must be directly conferred upon the promisor, and not be gratuitous
Mills v. Wyman (P cared for Ds son, and D promised payment)
Past consideration (No value and no bargain) no consideration
No unjust enrichment bc the father himself was not benefited
Imperfect duty of obligation: Not bound by moral duties
Underlying contract was completely gratuitous
Exception: Continuation of Payments (revival of past debt)
Not a requirement for moral consideration, but it can push a case over the edge for a court
Statute of Limitation: the debtor promises to pay SoL starts all over again.
Minor: borrowed underage, but then promises to pay when he comes an adult
Bankruptcy: debtor promises to pay certain amount (revival amount)
Webb v. McGowin (save a manager & regular payments)
A special case bc McGowin continued to make the payments and never stopped him
himself, so court wont violate his promise
o Exception made for such a dramatic act and great benefit
Probably decided differently if McGowin himself wanted to stop payments
Benefit of saving life, but no unjust enrichment no restitution
The past consideration is not entirely gratuitous due to continued payments
Cautionary and evidentiary functions are satisfied; Channeling function: clear intent to
pay
Harrington v. Taylor (intervention in domestic violence)
o
o

 Here, no moral consideration or recovery for P bc, unlike Webb, D did not
continuously make payments limitation of Webb exception
Benefit to
Promisor

Benefit > purely

gratuitous

Promise
enforceable

Mills

Harringto
n

Webb

Edson

Examples
Edson v. Poppe, pg. 243 (P built well on Ds property)
Judgment for P, to enforce past promise, bc benefit was directly conferred upon D, and D
promised to pay after examining well
Not a gift, and not disproportionate value
Muir v. Kane, pg. 243 (real estate broker to find buyer for Ds home)
Signed contract agreed to pay P $200 for services rendered
No moral turpitude in prior oral agreement, so D had a moral obligation to pay
In re Schoenkermans Estate, pg. 244 (Mother- and sister-in-law sue to claim promissory notes)
No legal obligation required; in giving the notes, Schoenkerman acknowledged a moral
obligation
But only able to recover the amount promised

RELIANCE
o EQUITABLE ESTOPPEL
Reliance on a statement of facts (past or present)
Different standard than promissory estoppel (injustice not necessary for
enforcement)
Uncontroversial; every court recognizes and applies it
Someone who makes a statement of fact that other relies upon is estopped from
then negating that statement
Goodman v. Dicker (radio franchise)
o Radio company by representation and conduct induced P to incur expenses for
preparing business; they are estopped from later changing their mind bc P had
relied upon that statement when spending money to set up business.
o Could be partially promissory estoppel bc of statement that the company would
grant franchise, but this is a reach.
o Yes have to plead in K, and promissory estoppel, but what is really going on in
reliance on a statement of fact that gives it its force for the claim
What distinguishes promissory estoppel cases in commercial situations.
If right to collect debt is assigned to an innocent third party, then there may be estoppel
against debtor failing to pay the third party. American Natl Bank v. A.G. Sommerville,
Inc. (purchase of two cars, later claiming not to have received.)
o Policy argument: buying papers are not really reliance. If estoppel requires
proof of reliance by the assignee banks, they will be more cautious and this
would in turn increase costs to the users.
Mahban v. MGM Grand Hotels, Inc. (retail lease in hotel)

o
o

Statement of fact bc MGM wrote when P can remodel his arcade, which implied
that MGM was not going to exercise the termination clause of the contract
Equitable estoppel bc MGM implied an intent not to exercise, on which P relied.

PROMISSORY ESTOPPEL (when consideration is not clear/made explicit reliance

can become grounds/substitute for consideration)
(Prerequisite) Reliance on a promise (future intention)
Promise must be sufficiently clear and definite, not mere expression of
opinion.
Restatement of Contracts, Second 90: Promise Reasonably Inducing Action
or Forbearance
(1) Three criteria for binding promise:
o (1/3) Promisor should have reasonable expectation of action or
forbearance of promisee or third party
o (2/3) Promise did induce such action or forbearance
o (4/4) Enforcement is the only way to avoid injustice
Conception of justice is framed by what the parties have
consented to
(2) Exception for charitable subscriptions and marriage settlements:
binding without proof that promise induced action or forbearance

Damages: Full contract damages (Willistoneither promise is binding or it is not) vs.

Reliance damages (Coudertsubstantial justice requires restoring status quo)
Measure of relief is different for promissory estoppel bc there is no consideration.
o Weigh pros and cons of each position
o Restatement 90 provides that remedy can be limited as justice requires (only
way to avoid injustice)
Damages should not put the promisee in a better position than performance of the
promise would have put him.
A single transaction can be portrayed as both a breach of K and tort.
Evolution of Promissory Estoppel
Kirksey v. Kirksey (Brother-in-law takes in widow)
o Despite the way it was decided (mere gratuity), today it would probably be a
promissory estoppel case bc:
(1) Reasonable expectation of reliance
(2) Actual reliance (inducement)
(3) Only way to avoid injustice against woman
Ricketts v. Scothorn (g-fathers promise to Katie, abandoning employment)
o Gift, not contract
o Could be either promissory or equitable estoppel:
Promissory: The note is a promise for the future
Equitable: Statement of fact: I have fixed out something
o Moved the court toward promissory estoppel (away from Kirksey) bc he
encouraged her to quit; not about getting rid of delivery requirement for gift
(halfway btw gift and contract)
Prescott v. Jones (automatic renewal of insurance policyno reply by holder)
o No acceptance bc no words or actions to communicate Ps intent.
o Although the court ruled against promissory estoppel, it does fit within
Restatement 90 (may be analyzed as promissory estoppel)
P may recover on a theory of PE even in the absence of K. PE can act as a substitute for lack of
consideration or lack of mutuality.
Allegheny College v. National Chautauqua Country Bank (donation to colleges
endowment)

Historical context: Cardozo trying to bridge the gap by finding consideration

rather than promissory estoppel.
Could have used promissory estoppel as an alternative to consideration,
or contract, to enforce a promise promissory estoppel as subsumed
within Contract as it provides an alternative to consideration for grounds
for enforcing a promise (even for charitable subscription)
First Natl Bank of Logansport v. Logan Mfg. Co. (Banks assurance for loan)
o Damages: reliance damages, not the lost profits.
No PE in support of contract if representations were not promissory or sufficiently definite.
DUlisse-Cupo v. Board of Notre Dame High School (teacher sues school for not renewing
hiring contract.)
PE v. SoF: PE, even if it replaces consideration, cannot avoid the statute of frauds. However, oral
promise may be enforced, if objective circumstances show that strict application of the statute
would result in promisors fraud or substantial injustice. Stearns v. Emery-Waterhouse Co.
(Employer gives an oral promise of continued employment of five years)
Pre-employment action of reliance do not properly serve the evidentiary function of the
writing required by the SoF. Victim must be able to prove fraud on the part of the
promisor. If this was a tort action, SoF or SoL doesnt apply.
Policy arg.: Employment at will remains the dominant type of employment relationship,
and use of PE to get around the SoF would undermine the system. Reliance is easily
when in the employment setting (taking one job over another = reliance). Goldstick v.
ICM Realty.
Whether injustice can be avoided only by enforcement of the promise (Section 90):
Evidentiary test may play an important role in getting past around the SoF using PE:
(Using the case of a son who stayed to develop farm on his step-fathers oral promise)
o Availability and adequacy of other remedies (e.g., no other land)
o Definite and substantial character of the action or forbearance in relation to the
remedy. (e.g., decision to stay in farm w/ his wife)
o How well these action or forbearance corroborates the evidence of making and
terms of the promise. (e.g., why would he have stayed otherwise?)
o The reasonableness of the action or forbearance. (e.g., belief in getting the land)
o The extent to which the action or forbearance was foreseeable by the promisor.
(e.g., step-father promised, so it shouldve been foreseeable.)
o

MISFEASANCE (could be Tort claim) & NONFEASANCE

Distinct, but related to promissory estoppel
An old doctrine that helps justify promissory estoppel
Promise + Bailment = Replacement for consideration

Reliance upon undertaking gives way to liability

Siegel v. Spear & Co. (burned furniture)
o Tradition (before promissory estoppel) of when one person gets a bailment, if
you make a promise (even gratuitous), then there can be recovery.
o Reliance on a promise associated with larger undertaking, so promises become
part of the whole contract.
o Today would be promissory estoppel bc reliance upon a promise
No recovery if promisor only makes a gratuitous promise (no consideration) and no
bailment. Thorne v. Deas (Insurance of vessel)
o

EQUITABLE DOCTRINE OF PART PERFORMANCE

Doctrine about land; a substitute for a writing
Another conventional doctrine that comes out of history as is related to, but
distinct from, promissory estoppel
If you would usually be barred by the statute of frauds, there is an exception if

you then work on land and improve it case of partial performance in equity;
it would be unfair to make you leave after you worked on it (asking for land,
equitable remedy, not damages)
Three Elements of Part Performance:
(1) Possession
(2) Improvements
(3) Acquiescence
Purpose of showing ownership (like formality)

If only promise, then unenforceable bc gratuitous

Seavey v. Drake (father gives son portion of land, but no deed)
Different from promissory estoppel or regular reliance: Son acted as though the
transaction was completed, that he owned the land
o Made improvements and paid taxes
Uncertainty about land ownership can cause depression due to lack of issuance of loan.
Promissory estoppel alone will not let you get around the statute of frauds, only the doctrine of
partial performance in equity (bc derives from equity, not law)
o

EMPLOYMENT AT WILL
Employment at will: Employer can fire and employee can leave at any time, for
any reason
Permanent employment = employment at will; if you want an indefinite
duration without possibility of being fired, you have to provide separate
consideration for that (to show intention)

Mere detriment to employee is not enough needs benefit

Forrer v. Sears, Roebuck & Co., pg. 271 (old man)
o No additional consideration
o No recovery bc employer fulfilled contract of employment
o No promissory estoppel under 90 bc no injustice (3)
Employer must fulfill contract for at least one day
Hunter v. Hayes, pg. 274 (reneged before start date)
o The employer has not fulfilled its promise bc they promised employment at will,
but reneged before she started promissory estoppel
o Problem of assessing damages: here, they give her unemployment damages based
on old salary
RELIANCE v. RESTITUTION
Restitution requires unjust enrichment and a benefit conferred
Restitution can get around the state of frauds bc its not a contractual doctrine

LIMITED REMEDY OF PROMISSORY ESTOPPEL

Promissory estoppel may have confined application and limited remedy
Need for additional consideration in some instances

Levine v. Blumenthal
o

MODIFICATION & WAIVER

Modification: Alteration of an existing contract/promise between parties
States differ re whether there must be some additional consideration for
new promise (if not goods or sales contract)
o Even if new consideration is required, small modification of
duties is sufficient (doesnt need to be more burdensome)

Reliance might support change in contract

UCC 2-209: Modification, Rescission & Waiver, pg. 34
o (1) Modification does not require consideration
There has already been consideration for the original
contract
*Applies to sales/goods contracts
o (2) If original written contract has clause that requires
modifications to be written, then that will be enforced (no oral
modification)
Other party must either (a) be a merchant, or (b)
separately sign n.o.m. clause
If modification must satisfy the Statute of Frauds, then must be in
writing (virtually all states)
Waiver: Relinquishing ones rights under incomplete portion of promise
Must look at what is being promised
Waiver treated as estoppel (once you waive, you may be estopped from
reclaiming right)
UCC 2-209(4): Waiver may override n.o.m. clause, if other person
relied upon the oral statement that waived right
Guarding against extortion
UCC 1-304: All contracts/duties have obligation of good faith
UCC 2-302: Court can refuse to enforce any unconscionable contract

Must be something additional (in some courts):

Seal
Consideration
Reliance
New offer and acceptance
If you owe a debt, you cant shrink it without extra consideration
Levine v. Blumenthal, pg. 286 (reduction of rent)
o Not enforceable contract bc no additional consideration
o Policy reason: Otherwise, debtors could hold debtees
o Need clear modification to avoid extortion
o No waiver here

PROMISES OF LIMITED COMMITMENT

o SETTING TERMS
Initial agreement is not a contract, but is for setting the terms for future
situations no enforcement if no contract

Nat Nal Service Stations v. Wolf (gas requirements)

o No big contract, but only small contracts that repeat at will
o No obligation of either party to enter into contract; only the small contracts are
enforceable not making agreement to each other, but advertisement
(invitation) for discount, setting the terms of agreement ahead of time, so when
contract formed, there will already be operative terms
No enforcement if terms are indefinite and if D retains absolute discretion on changing the terms
Illusory promise
Davis v. General Foods Corp (recipe idea)
o No enforceable promise bc terms of letter are indefinite and D explicitly retains
control over extent of its performance.
o No reliance upon contractual obligation PE not available.

If D reasonably (or shouldve) expected the promise to induce action of a

substantial character + it induced D wouldve been bound although no
formal consideration exists.
Is there a consideration? If not, persuade the court that for economic reason it may make
sense to have a K.
ILLUSORY PROMISES
Ask what the parties are actually promising; what are the economic choices
If one party has total control to opt out of contract, then the promise is not
consideration bc it has no value a way to see whether there is some value
for consideration of a promise (promise acting as consideration)
Restatement of Contracts, Second 77: Illusory and Alternative Promises
A promise is not consideration if by its terms the promisor reserves a
choice of alternative performance, unless:
o (a) each of the alternative performances would have been
consideration if it alone had been bargained for, or
o (b) one of the alternative performances would have been
consideration and there is substantial possibility (as appears to
parties) that before the promisor exercises his choice, events may
eliminate the alternatives, which would not have been
consideration.
If one of the choices is up to chance (as long as you
dont have total freedom in making decision)

Ex: I agree to buy your store if moon has purple sheen (gambling
contract / investment)
Comment: Promise is consideration if it cannot be kept without some action or
forbearance which would be consideration if it alone were bargained for
Whether there is consideration at the time the agreement is made
Obering v. Swain-Roach Lumber Co. (Take lumber & sell land contract)
o Lumber Co. has two alternatives: (1) Dont buy land; (2) Buy land, remove
lumber, and sell land to Obering.
o Obering only obligated if Lumber Co. does (2)
o Both (1) and (2) are of some value and bargained for There is consideration
and promise is not illusory; contract is binding
o Note: Look at why the parties are behaving as they are to understand why they
made an agreement and whether there is consideration
Paul v. Rosen (sale of liquor store w/ condition of lease)
o Case decided wrongly: There was consideration at time contract was made
Buyer had option to (1) get the lease, and then buy the store and stock of
goods; or (2) not get the lease
Buyer is not obligated to get the lease
Purchase of store is not worth it without the lease, so nothing
gained by not buying the lease
Both buyer and seller have interest in pairing the lease with the purchase
of the store and foods (benefit and detriment); lease and liquor are
valuable separately, but more valuable when paired
They were restraining themselves by the contract - limits freedom to take
other economic paths. There is forbearance and consideration.
Whether both parties have a choice at any time; if both parties have made a commitment
Gurfein v. Webelovsky (plate glass shipment)
o There is consideration bc not only could the buyer revoke order before shipment,
but after shipment, seller could compel buyer to pay for goods

STRENGTHENING THE DUTIES GIVEN BY PROMISE WITH IMPLIED

TERMS
The courts addition of certain terms and obligations not explicitly present in
contract, in order to make contract enforceable
BEST EFFORTS
Requirement that one use best efforts in fulfilling the agreement
(promise of best efforts)
Doesnt require much
UCC 2-306: Output, Requirements and Exclusive Dealings
o (2) In exclusive dealing contracts re goods, seller has obligation
to use best efforts to supply the goods and the buyer has
obligation to use best efforts to promote their sale (unless
otherwise agreed)
In exclusive dealings contracts, to get around this requirement, you
must explicitly state that best efforts dont apply
Court may import best efforts requirement in an exclusive dealings contract that
wouldnt make sense otherwise
o Wood v. Lucy, Lady Duff-Gordon
Consideration found in implied obligation of Wood to use his best efforts
in working for Lucy
Perhaps decided wrongly (if Wood didnt actually have an obligation)

GOOD FAITH
Requirement that a party does something in good faith, to avoid making
the promise illusory (adding an obligation where there doesnt appear to
be one)
UCC 2-306: Output, Requirements and Exclusive Dealings
o (1) In contract that measures the quantity by the output of the
seller or the requirements of the buyer, buyer and seller must
make such outputs or requirements in good faith
Exception: Buyer/seller may not tender or demand a
quantity that is unreasonably disproportionate to any
stated estimate, or (if no estimate) to a normal or
comparable prior output or requirement
Functions:
o Buttresses the weight of consideration: whether or not there is
an expectation of obligation
o Supplement contracts that dont lay out specific terms
Good faith is not necessary to make a contract; you may specify
otherwise within the terms (UCC wont override terms); Good faith
narrow definition and protection against bad faith.
Good faith imposed upon performance (not making contract); similar to
best efforts. Doesn't undo intents or freedom of the parties--may cut off
extreme circumstances.
Attributing moral duties to parties--eliciting what reasonable parties
agreed but didn't bother saying.

Conditional contracts may implicitly require good faith to be enforceable

o Omni Group, Inc. v. Seattle-First Natl Bank (sale of land with condition of
engineers & architects report)
Good faith requirement in deciding whether report was satisfactory (to
create consideration)

On the other hand, seller couldve required buyers deposit as

consideration. such that, if they rejected a satisfactory study, they would
lose the deposit. So, the buyers interest in not losing the deposit
replaces the notion of good faith as consideration to assess the study
honestly.
Good faith and best efforts = starch - if you're spraying it on a contract
where there's already consideration, strengthens. But if you're spraying it
on consideration where there isn't consideration, youre imposing a
meaning on the contract that wasnt already there.

Outputs & Requirements Contracts

o Solution framed in terms of good faith and proportionality
o Implied exclusivity in such contracts
o (1) Consideration problems
Reciprocal obligations can be assumed in exclusive-dealing contracts
Use of good faith to solve consideration problems by finding an implicit
obligation on the party that seems to be in control
Whether factors in flexible business arrangement are beyond the control
of the seller/buyer if so, then mutual obligation
o (2) Problems of uncertainty
Fluctuation of prices and requirements see UCC 2-306 (above)
o There must actually be a need for requirements contract. K missing quantity
for buyer's discretion is not illusory promise--the cap is seller's production
capacity; obligation is on seller
Lima Locomotive & Mach. Co. v. National Steel Castings Co. (steel
requirements contract)
Railroad surely had a need for steel
o Usual test for consideration: Some value & bargained for
Ex: obligation of buyer to buy all that is required, and obligation of seller
to supply all that is required both are giving something up and getting
a benefit
o To escape such a contract, party must show that continued enforcement would
require profoundly altering their business, or require closing business (not just
lost profits)
Feld v. Henry S. Levy & Sons, Inc., pg. 308 (bread crumbs output
agreement w/ notice of termination)
No consideration problem bc buyer gives up right to buy from
others
If you want out of contract bc it is no longer profitable, that is
not good faith; but if you will go out of business, then that is
different
Doesnt require profound alteration bc bread crumbs are just a
part of their business
o Party may get out of such a contract if proper notice (according to contractual
terms) is given
Corenswet, Inc. v. Amana Refrigeration, pg. 311 (either party can
terminate with 10 days notice)
Proper notice provided, so no forced performance of continuing
contract
Proper notice not given in Feld
Good faith requirement doesnt override clauses in contracts
o Debate re whether good faith is required for termination

PUBLIC POLICY (Limits of Good Faith)

Public policy exception for contracts at-will: If termination of contract
would clearly violate public policy

Sheets v. Teddys Frosted Foods, Inc (termination of quality control director)

Not contract action
Applied to termination in retaliation to:
Refuse to commit perjury
File a workmens compensation claim
Engage in union activity
Limitation on public policy exception: No public policy problem here
bc facts arent serious enough must be strong public policy concern to
by-pass at-will employment
o Cannot be merely a matter of individual grievance, but rather must be one that
affects society violation of fundamental rights, duties & responsibilities
(clearly mandated public policy)
Price v. Carmack Datsun, Inc. (termination for filing health insurance
claim)
Public policy might supply tort action, but not here
Is it a good idea to read into a contract default rules?
o Did parties actually intend such an obligation or requirement? (did they just leave
it out?)
o Or is this just an attempt to impose policy (perhaps intervention is mistaken)
o

II. THE MAKING OF AGREEMENTS,

i.e. VARIATIONS ON THE THEME OF INTENT
MUTUAL ASSENT (intent; consensus; meeting of the minds; will theory of contract)
o BACKGROUND: Benefits and purposes of contracts
EFFICIENCY
Economic Theory: If you have a contract, there is an increase in utility between two
parties, and increase in utility to society (benefit of contracts)
o Economic analysis used as a justification for pre-established doctrine of consent
Intent in efficiency theory of voluntary character of contracts
o The theory depends on the assumption that parties chose to enter into contract
Two ways of seeing efficiency and social utility:
o Both parties benefit
o Even if just one party benefits, it the other isnt hurt, there is still increase in
social welfare
FREEDOM
Contracts may serve a liberating function bc they are flexible
Contracts as a means of specialization, but equal society requires people to be
unspecialized
o

OBJECTIVE v. SUBJECTIVE THEORY OF INTENT

Objective intent as primary; subjective intent exceptions
Must rely primarily on objective intent (what a reasonable person would
think), but subjective intent can be relevant (but not dispositive) in that it

informs the objective intent Whether there is an enforceable promise.

If only subjective intent, then Ks would be worthless
Depends largely on context

Objective Intent: What a reasonable person would think and rely upon
Ones manifested intention from words and acts establishes an agreement. Embry v.
Hargadine, McKittrick Dry Goods Co.(Go ahead, youre all right.)
Protects reliance interests
Subjective intent can be relevant if it bears on what the objective intent/representations were
(evidentiary, but not dispositive)
Kabil Developments Corp. v. Mignot (helicopter)
o What VP thought he was agreeing to can help illustrate what he actually
manifested he was agreeing to
o Subjective intent may inform what correct interpretation is when many
interpretations are available
Private intent matters only insofar as it was communicated to the other party (informs
outward behavior / objective standard based on structure and nature) Robbins v. Lynch
Exceptions of Subjective Intent
Reliance upon supposed contract (is it reasonable to rely?)
Intent: If both parties think there is a contract, even though no reasonable person would
think so
Mutual Joke or Sham: Obvious to a third party that there is no real contract, but just a
joke or sham, then no contract; writing is conclusive only so far as the parties intend it to
be authoritative on their transactions.
o New York Trust v. Island Oil (sham subsidiaries to get around Mexico law;
deception of third party)
Material Misunderstanding: Subjective intent is for the sale of something that is not in
reality being bought (Peerless case)
Only when parties have expressly or implicitly agreed that writing will control, do parties actual
(subjective) intentions not matter
Problems of Objective Intent as Primary
Whittier criticizes this: Would be better to have actual assent, except when a party
carelessly misleads the other, and so induces belief in and reliance upon assent
(subjective as primary, with objective exceptions)
Woody Allen Syndrome: If party doesnt actually believe that the other will keep his
promise if neither party thinks there is a real contract, then no contract bc subjective
exception overcomes objective rule
o Would be easier to have Woody Allen prevail if subjective intent was primary
and objective was the exception need another category of exception for
Woody Allen case bc otherwise would be lumped in with joke exception, and
contract not enforced
Employee Handbooks (modification of at-will employment?)
If objectively, it would look like contract, then there is a contract that modifies
employment at-will depends on context and what a reasonable employee would
assume or think (contract?)
Reliance: Employee may rely on handbook even if there is a disclaimer (not
conspicuous; what a reasonable employee would believe) (but still requires showing that
there is a promise)
o McDonald v. Mobile Coal Producing, Inc.
o For modification of employment at-will, still would require additional
consideration for contract no additional consideration, but may be issue of
reliance
Disclaimer must be conspicuous and clear

If not, then disclaimer doesnt count and there might be a contract

Kari v. General Motors: Disclaimer in employee handbook was in italics, red,
big lettering, and so was sufficiently clear and conspicuous no contract
Look for consideration or reliance
o If there is an offer in the handbook communicated to employee, and employee
accepts and supplies consideration, then there can be contract (Pine River State
Bank v. Mettille)
INDEFINITENESS (Q1 of Intent)
Patent Ambiguity: Ambiguity intentionally in an agreement, or one party knows of ambiguity,
but the other doesnt
The UCC provides that one or more terms left open does fail for indefiniteness if the party have
intended to make a K and there's a reasonable certain basis for giving an appropriate remedy.
UCC doesnt require definite terms (modern approach of relaxing standard of definiteness)
2-204: Intent to contract, and being able to give remedy is good enough
2-305: You can fill in terms, not according to just standard of reasonableness, but also
according to trade usage
Reasons of Indefiniteness:
Inadequate description or quantity of subject matter; but requirement applies to the AGR
of the parties and not to the offer.
o a. "a fair share of my profits" = pure conjecture and thus denied.
Caused by haste: To take the time or the trouble, especially in routine transaction->default rule (courts to supplement expressed terms w/ implied ones)
Caused by reluctance: to raise difficult issues that the deal might fall through --> implied
warranty of merchantability.
Caused by unforeseeability: complex transactions to be spread over a period of time -->
relational.
Failure to agree: fatal to the enforceability because of lack of assent, not indefiniteness.
Steps in Deciding Definiteness
(1/3) Interpret the language of the AGR
o Design of K picked from terms and words of invitation with K construction (i.e.,
common experience and common sense justice)
If duration of employment interpreted as one year, then definite; if not,
unenforceable for indefiniteness.
(2/3) Look at the Incorporation
o Piece together from preliminary negotiation, eternal sources of terms, description
via sketch, etc.
o Careful drafting of AGR satisfies requirements of definiteness.
(3/3) Usages and Implied terms
o Course of dealing btw two parties before and after the AGR
o Indefiniteness cured by supplied implied terms--obligation of good faith and fair
dealing
o Reasonableness = interpreted as good faith based on what is reasonable and
intended.
Price: at the time for delivery by reference to a market
Time: depends on all the circumstances (e.g., Ferrari in 6 months =
reasonable)
If agreement is too indefinite, then the court can turn to promissory estoppel
Should there really be a different result?
o Wheeler v. White: K not relied upon, but subsequent assurances (egging on
promissory estoppel)
Should promissory estoppel be a way around indefiniteness?
o Some courts will allow promissory estoppel to get around indefiniteness, but it
raises serious problems
o
o

 Damages: Courts may give reliance damages instead of expectancy damages

o Reveals weakness in liability to balance this, provide less damages
o Severity of the sanction makes it imperative that the court and the parties be
certain of its limit.
o Easier to estimate damages based on the reliance than on the expectancy
Tolerance by the Court
o Complex and sale of stated kind of goods extending over a period of time-- tricky
but tolerable.
Real estate transaction supported by earnest money receipts stating basic
facts (price, payment, terms, etc)
Long-term contract calls for practical interpretation--"reasonable" price
bc of unpredictable market condition.
o

OFFER & ACCEPTANCE (and invitation to negotiate)

For contract formation, there must be offer and acceptance meeting of the
minds (to find the intent of the parties)
Offer: Not just invitation to negotiate, but has to have an element of
promise/commitment that can be accepted on the terms of the offer
Hesitation to call something indefinite an offer
Must look at context and content to decide if it is an offer
Acceptance: Must be on the terms of the offer (Mirror Image Rule)
If variation from offer counteroffer or mere advertisement

Intent to make offer resulting in binding K v. Advertisement

Intent as a guide: No binding K if objectively there was no intent to make such an offer,
but it was rather an advertisement / solicitation, notice of ability to supply rather than a
promise to supply (Moulton v. Kershaw, accepting salt ordersno commitment, amount
left open w/o a fixed ceiling)
Open-ended offer is more likely to be an ad
If advertisement is specific enough, it could be an offer
o Ex: day, time, specific item, first-come-first serve; expectation that if you
perform unilateral K, then you are entitled to prize/item
Need to go to the store to accept
o Putting a ceiling on an offer can make it an offer and not an advertisement
(invitation to negotiate v. commitment)
But not offer if sent to many people (no intent for offer of binding
contract) different if particular thing is made available to particular
person
o ROR cannot add arbitrary rules to clear and definite conditions posted on the ads.
o But not binding if you know the offer doesnt apply to you (Leftowitz v. Great
Minneapolis Surplus Store, fur case, offer for unilateral contract)
Unknown offers of rewards: Performance rendered in total ignorance of the offer is not
a valid acceptance of the offer bc w/o intention of accepting, the act is more based on
public duty or other motives unconnected w/ the reward.
Agreements to Agree
Intent as guide If intent to be bound, then contract
Perhaps shows agreement to negotiate in good faith, but usually just shows that there was
disagreement between parties re term(s)
Traditional Rule: If material terms are left open in the agreement, then it is not
enforceable bc the parties havent actually contracted and the court wont presume what
standard/term should be, unless the agreement specifically delegates that decision to the
court (Joseph Martin, Jr. Delicatessen v. Schumacher, pg. 346, right to renew lease
with annual rentals to be agreed upon)

UCC 2-204(3): K wont fail for indefiniteness if parties intended to make a K and there
is a reasonably certain basis for giving an appropriate remedy
o Changes the harsh traditional rule for sales of goods
o If in judges opinion the parties intended to K and left terms open, and it is clear
what the remedy should be, then the court will infer the additional terms
Restatement, Second, 33 adopts modern rule for all agreements, but some courts dont
apply it
o (1) Even if intention to make an offer, it cant be accepted unless terms of the K
are reasonably certain
o (2) Reasonably certain = basis for determining breach and appropriate remedy
o (3) Open / uncertain terms may show there wasnt intent to make an offer (no
offer and acceptance then)
But if intent to form K and leave those terms open, then that is OK
o Fundamental principle that Ks should be made by parties, not by the court
UCC 2-305: Open Price Term
o (1) If parties intend, they can conclude a K for sale even though price is not
settled. Price is a reasonable price at time of delivery if:
(a) nothing is said as to the price; or
(b) price is to be agreed upon, and parties dont agree; or
(c) price is to be fixed by some agreed market or standard as set by third
party and it is not set
o (2) If price to be fixed by buyer or seller, then price is fixed in good faith
o (3) If price fails to be fixed through fault of one party, then other party may
cancel K or fix a reasonable price
o (4) If parties dont intend to be bound before price is fixed, then no K before
then.
UCC 2-310: Open Time for Payment or Running of Credit
o Unless otherwise agreed, payment is due at time and place where buyer is to
receive goods
o Southwest Engg Co. v. Martin Tractor Co. If the agreement for sale of goods is
enforceable (mutual assent), but the terms of payment are omitted, then court will
use UCC 2-204(3) and 2-310(a) to infer that payment is due at time of delivery.
Indefiniteness in the UCC v. the Restatement (modern law)
o More indefiniteness is tolerated under UCC than for other Ks under the
Restatement
o For goods, easier to determine reasonable value bc markets are accelerated by
fungible goods
o Danger of the UCC:
(1) Court will assume what the parties intended, so parties should specify
if they want specific terms
(2) Floodgate of litigation in opposition to efficiency increases postcontractual transaction costs
Agreement in Principle: Did parties intend to be bound (or just negotiations)? Is there a
reasonable basis for court to provide a remedy?
Distinguished from agreement to agree (no agreement re a part of the K); Agreement in
principle is agreement at high level of generality of particulars (so more definite than
agreement to agree)
If letter of intent signed, but final agreement not signed, then that implies that parties did
not intend to bind themselves. Empro Mfg. Co. v. Ball-Co Mafg., Inc.
o Look at objective manifestations; when is K made?
o Also, no promissory estoppel bc no actual promise made
o Policy issue: Inefficient to expose businesses to litigation every time they
negotiate (no commitment made yet)

If final agreement showed that it was just a memorial of a pre-made agreement, then the
letter of intent would be enforceable. Borg-Warner Corp. v. Anchor Coupling Co.
Promissory Estoppel as a potential solution to indefiniteness
If one party purposefully leads the other to perform its part of an indefinite agreement,
then there is possibility for promissory estoppel (Wheeler v. White destruction of
buildings)
o The more definite the terms are the closer the parties are to contracting, the more
reasonable it is to rely on repeated statements. (Repetition of assurances v. just
relying on a not yet finalized contract)
o Promissory estoppel used as a replacement for consideration
Reliance not used as a substitute for agreement; must be an actual promise to enforce
MATERIAL MISUNDERSTANDING & THE ABSENCE OF ASSENT
Peerless Doctrine of Material Misunderstanding: If there is a
misunderstanding as to a material fact, then no contract bc no actual agreement
bc each party was contracting for something different. Raffles v. Wichelhaus
Only if both parties are equally blameless / at fault for misunderstanding
(both understandings are equally plausible)

Latent ambiguity (underlying ambiguity material to the contract) that parties dont
realize until dispute arises.
If theres no sensible basis for choosing between conflicting understandings of the
contractual language, then neither party is at fault, and no K. Judge Posner. Flower City
Painting Contractors v. Gumina Constr. Co. But this is an odd decision bc court chose
to not use trade usage as the winning reasonable interpretation.
Must leave the parties where they are if problem with rescission or restitution. Konic
International Corp. v. Spokane Computer Services, Inc ($56.20 v. $5620)
In an ambiguous situation, if a response indicates buyers interpretation contrary to
sellers intent, then the seller has the duty to inform the buyer. Dickey v. Hurd
Reasonable interpretation standard as the flip side (opposite) of material misunderstanding
Restatement, 20: Effect of Misunderstanding
o (1) No K: There is no mutual assent if parties attach materially different
meanings to their manifestations and
(a) neither party knows / has reason to know the meaning attached by the
other; or (equally ignorant)
(b) each party knows / has reason to know the meaning attached by the
other (equally knowledgeable)
If parties are equally at fault, then no K (Peerless problem)
o (2) Manifestations of the parties are operative in accordance with the meaning
attached by one party if
that party doesnt know / have reason to know of any different meaning,
but other knows / has reason to know the meaning attached by first party
If one party has reasonable interpretation and other unreasonable
interpretation, then its just an interpretation issue and there is a K
(Embry)
Once one party has reason to know of the others misunderstanding, then
he has a duty to inform the other party of its mistake, or else he is bound
by other partys interpretation (Dickey v. Hurd)
Trade usage can help us (custom) (Flower City case)
CONTROL OVER CONTRACT FORMATION
o OFFERORS CONTROL OVER FORMATION OF CONTRACT
The offeror controls the terms of the contract and the formation of the contract

Objective theory of intent: The offeror has the control, but must be careful as to how he
represents the offer; what a reasonable person would think the offer means (Cobaugh v. KlickLewis, hole-in-one case)
Death exception: Death or incapacity of either offeror or offeree terminates power of
acceptance immediately, regardless of whether or not offeree knew of death (Jordan v.
Dobbins)
Which/where is the offer?
Context matters (objectively, when is offer made)
If advertisement, then not offer; but if there was an inquiry into prices before letter, then
perhaps that would be an offer (Moulton v. Kershaw, accepting salt orders)
When does offer/power to accept expire?
Oral Offers
o Traditional Rule: Oral offer expires at end of conversation
o Revision: The offer expires after a reasonable time, which is determined by the
context (question of fact; for the jury if it is uncertain) (Textron, Inc. v.
Froelich):
What kind of K
What is custom in the business
Other circumstances which offeree knows/has reason to know
Deposited Acceptance rule:
o Offer begins at date that it is received by offeree
o Acceptance on the date of mailing to offeror. Risk on the offeror has the merit of
closing the deal more quickly and enabling performance more quicklybetter
than imposing the risk of loss and inconvenience on offeree.
Restatement 36: Methods of Termination of the Power of Acceptance
o (1) An offerees power of acceptance may be terminated by
(a) rejection or counter-offer by offeree, or
(b) lapse of time, or
(c) revocation by offeror, or
(d) death or incapacity of the offeror or offeree
o (2) Offerees power of acceptance is terminated if a condition of acceptance
under the offer does not occur
Offerors control over mode of acceptance
Offeror can permit other methods of acceptance
o If specification of how to accept is merely a suggestion or statement of
convenience, then that is not the only mode of valid acceptancee.g.,
performance triggering a bilateral agreement. (Allied Steel & Conveyors. Inc. v.
Ford Motor Co., battle of the forms; acceptance should be executed)
o If offeror wants only one mode of acceptance to make a contract, then he needs
to make that explicit, otherwise, no contract (to be accepted only by x, and by
no other way)
The more unreasonable the method appears, the less likely it is an
exclusive mode of acceptance, so the more important it is to be explicit.
Specific prescription of methods of acceptance --> performance w/o
notification of acceptance is not valid (nonoccurrence of a "condition")
(Panhandle Eastern Pipe Line Co. v. Smith)
OFFERS FOR UNILATERAL CONTRACT
Promise (offer) exchanged for performance (acceptance)
Bilateral v. Unilateral K: Depends on what the offeror is seeking (performance or commitment
to perform)
If mode of acceptance is ambiguous, then the offeree can choose. Restatement 32
Offeror controls mode of acceptance: Contract made only by performance that is invited as
acceptance of offer (specific mode of acceptance)

Who/when it applies to: What a reasonable person would think of the intention of the
offeror. Cobaugh v. Klick-Lewis, Inc. (hole-in-one)
Acceptance: In order to accept the offer and make a binding K, offeree must know about the
offer before performance, and have intent to perform and collect prize (otherwise, no mutual
assent) (Glover v. Jewish War Veterans of U.S.)
Act can be consideration for anothers promise even if it only partially induced/motivated
by promise (prize does not have to be the sole or main motivation for performance)
Acceptance in Ads: The offers are to anybody who performs the conditions named in the
ad, if performed, the offer is accepted. In general, acceptance must be notified, but not
always. Ad cases, notice and performance is made contemporaneously. Ad was enough
consideration. Company will sell more products by getting the public to have confidence
to use the product. Also there was legal detriment to users following instructions.
Particular mode of acceptance is sufficient to make the bargain binding. ROR impliedly
deems performance sufficient w/o notification. Carlill v. Carbolic Smoke Ball, co.
Unique problems of unilateral contract:
Performance reliance
o Traditional rule: Offeror can withdraw at any time before performance is
completed, and owes offeree nothing (no K until performance is completed)
(Petterson v. Pattberg. Brooklyn Bridge)
Depends on when a reasonable person would know the offer was
withdrawn
Needs to be additional consideration for leaving the offer open
Pre-45 rule: Offeree must accept before offer is withdrawn
Solution: Restatement alters the law of unilateral contracts by providing ways for both
the offeror and the offeree to protect themselves
o 45: Protecting Offeree: In unilateral K, when offeree tenders/begins
performance, it creates an option contract, whereby offeree has right to try to
complete performance. Brackenbury v. Hodgkin (bitchy mom)
Implies promise that once offeree begins performance, offeror will give
him the opportunity to complete it
Preparation doesnt count; what is begun/tendered must be part of actual
performance invited (protects against performance reliance but not
preparation reliance)
Exception for reliance under 87(2): May not be given expectancy
damages, but justifiable reliance may make offerors promise binding
(promissory estoppel) under 87(2).
Shifts risks of obligation to offeror
o 62: Protecting Offeror: If offer invites acceptance by promise or performance,
then tender or beginning of performance becomes acceptance and operates as a
promise to complete performance (binding contract) (pg. 388)
Creates offerees obligation to perform in this instance (becomes bilateral
K)
Shifts risk of obligation back to offeree
o 32: If mode of acceptance that is invited is doubtful, then it can be either
promise or performance, whichever the offeree chooses (presumption of offerors
indifference when mode of acceptance is unclear unilateral v. bilateral K) (pg.
377)
Precursor to this rule: Davis v. Jacoby, (method of acceptance is
ambiguous, and court decides to interpret as bilateral K bc offeree made
a promise to come; invitation of action is unilateral, but asking for an
assurance turns the K into bilateral)
Feeds into 62
C --> Defenses: (No Consideration--(1) no promissory estoppel, (2) no
mutual consideration? || No intent--(1) indefinite, (2) no offer &

acceptance, (3) mutual mistake || Statutory/formal- (1) Statute of Frauds,

(2) illegality, (3) statute of limitations).
Allows protection mechanisms, but does this limit freedom of parties to contract /
choose?
Notwithstanding all the reform, formalities remain significant
o Formality of tender (Petterson v. Pattberg)
o Formality in 87(1): Formalities can be useful, even when not based in the
transaction (mere formality)
PRECONTRACTUAL OBLIGATION
o BILATERAL CONTRACTS
Promise to hold open an offer
Traditional rule: Must be express and have consideration or formality
o A separate contract for holding open the offer / promise not to revoke (offer &
acceptance; consideration)
o If offeror breaches, might be able to get reasonable expectation costs (ex: costs of
having sofa appraised)
But there might be a condition that stands in the way (ex: stock market
stays below certain number)
Restatement 87(1): Offer is binding as option K (to keep offer open) if it:
o (a) Is in writing and signed by offeror, recites a purported consideration, and
proposes an exchange on fair terms within a reasonable time; or
o (b) is made irrevocable by statute
o Still must be express, but now, mere formality of purported consideration (can be
nominal) is sufficient elevation of formality and departure from usual
consideration
o Still whether there is intent to hold the offer open
o Thomason v. Bescher writing under seal
o Serves functions of formality:
Evidentiary: by providing a bright-line rule
Cautionary: bc they will think about what they are doing before inserting
terms and signing
Channeling: bc encourages compliance by providing reasonable time
o Any monetary consideration, however small, paid and received is adequate
(Marsh v. Lott)
o Recital of purported consideration in writing is enough, so even if dollar isnt
paid, the offer is still irrevocable (Smith v. Wheeler)
UCC 2-205: When merchant gives assurance in signed writing that offer will be held
open, it is not revocable for lack of consideration during time stated, or if no time stated
for reasonable time (maximum of 3 months)
o RELIANCE ON AN OFFER
See Restatement 90 (supra)
Not relying on the offer itself, but a separate promise to hold open the offer for some time
(reliance on real promise; opposed to 87(2), which is legal fiction of reliance on an
offer, infra)
To hold open an offer, must have:
Promise; and
Grounds for enforcing it
o Consideration
o Formality (ex: UCC 87(1))
o Promissory estoppel
Traditional Rule: If no promise to hold open an offer, the offer for an exchange does not become
a promise until a C (e.g., counter-promise) has been received contractors cannot suppose that
bidding is acceptance Sub can rescind even after Gen's bid is accepted (same goes for Gen)

No obligation No K. James Baird Co. (Limoleum, Sub rescinds Gen). General contractor
takes on the risk.
Modern Rule: Because the gen relies on the subs bid in making its own bid, and gen is bound by
large bid if accepted, PE binds the sub to its offer once it gives the gen a bid, and then gen uses
that bid to calculate large bid.
Implicit in sub's bid is subsidiary promise to keep the bid offer open for a reasonable
time, but gen is not obligated to accept that bid even if it uses it for the large bid (can
continue to shop around). Drennan
Preparation for performance is not part performance --> no K. Only available action is
PE. Ragosta v. Wilder (financing cost to purchase a property)
Shifts Risk from Gen to Sub.
Court implies a subsidiary promise as a matter of policy to avoid injustice to/protect gen.
Finding a bilateral contract by going through promissory estoppel
No PE for sub who rely on gen that lists sub in prime bid; silence/listing is not acceptance
unless relationship btw parties or previous courts of dealing. Southern CA Acoustics Co.
Loss on (reasonable) mistake should fall on the party who caused it.

Restatement 87(2): Option Contract (general & subcontractors)

If reasonable expectation of substantial inducement, and does induce such action, then the
offer is binding as an option contract to extent necessary to avoid injustice
Works for unwritten agreements between gen/sub contractors (where UCC 2-205 cant
be used bc there isnt a signed writing) E.A. Coronis Associates v. M. Gordon Const. Co
RELIANCE ON NEGOTIATING POSITION
Even vague statements that are not close enough to promises to use traditional understanding of
promissory estoppel as a substitute for consideration (so a part of Contract), can be enough for
promissory estoppel for reliance on a negotiating position rather than reliance on a promise or
offer (Hoffman v. Red Owl Stores, Inc., pg. 409, couple applying for franchise are induced to
sell businesses, and then increase in franchise price)
Expansive view of Hoffman is not adopted by most courts, so it is generally limited to its own
facts (severe reliance, stringing along)
If it were, there would be no need for consideration or contract if you can just get
damages for vague statements that have been relied upon
Because there is no promise for the court to enforce, only reliance damages are available
Even if the contract is not effective as a whole (and there are only negotiations), if a promise is
designed to induce reasonable detrimental reliance, then it will be enforced to the extent
necessary to compensate relying party for his reliance (Skycom Corp. v. Telstar Corp, pg. 415)
Theory Question: If promissory estoppel can be used outside of contract (not just as a substitute
for consideration), and applied to vague statements, then what effect does that have on contract
law?
If adopted widely, then it would discourage negotiations bc those negotiations could form
the basis for reliance damages. Without negotiations, there wouldnt be real bargains,
and contract law would become unnecessary.

Criticism:
o Goes against intent of parties (sub does not intend to be bound and gen does not
intend to be bound to that sub either; no agreement/promise to keep the offer
open)
o It doesnt make sense to shift risk from more powerful to less powerful (K is
based on egalitarian assumption of freedom to contract, and gen might not be the
most deserving class)
o Seeking commitments raises prices, which is one reason why contractors dont
seek commitment in bid offers

If promissory estoppel is not a part of Contract, and if it can be used for reliance on its
own, without a supporting promise, then it seems to have one foot in Tort and one foot in
Contract
CONDUCT CONCLUDING A BARGAIN
o Traditional Offer & Acceptance: Acceptance must follow the terms laid out in the offer. Deviation from
those terms is not acceptance, but is rejection or counteroffer. (counteroffer operates as rejection of prior
offer)
o How long does the offer stay open for? v. Evans, pg. 416
Seller offers land for $1800, buyer says he will give $1600, seller responds Cannot reduce
price, and buyer replies with acceptance of $1800 price
Because Cannot reduce price referred to/implied initial offer of $1800, buyers wire was
renewal of that offer, and so buyer could accept it
o If offer is made to multiple persons, the person who first accepts may get specific performance (if a
house, for ex.), but others may be entitled to damages
o Last Shot Rule: Last sent form wins bc there is implicit acceptance when performance is begun
o UCC 2-207: Additional Terms in Acceptance or Confirmation (Battle of the Forms): the last form
before performance has begun becomes the terms of the K as performance operates as implicit acceptance
of those terms. First, decide what the offer and acceptance is, and then run terms through the provisions
to see which terms make up the contract.
o In a counteroffer, a persons conduct can be an expression of acceptance
(1) Is there intent to contract?
Look for definite and seasonable expression of acceptance sent within a reasonable time,
even if terms are additional to or different from those terms proposed in the offer.
Offeror can make his acceptance expressly conditional on assent to certain terms added
by offeree. If so, then dont analyze Part 2 because offerors terms govern.
(2) Which terms govern? For merchants, additional terms become part of the contract, unless:
(a) the offeror expressly limits acceptance to the terms of the offer
o To combat the knock out rule which can favor offeree who can cancel out
contradictory terms
(b) the additional terms materially alter the contract
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
(3) Even if writings dont establish a K, conduct by both parties which recognizes the existence
of K is sufficient to establish a K. Richardson.
o Knock Out Rule (Majority rule): Conflicting terms are knocked out, leaving only non-contradictory
terms (including additional terms). Then gaps can be filled in by looking UCC gap-filler provision at the
K to see what is reasonable. Richardson v. Union Carbide Indus. Gases, Inc. (furnace. Conflicting forms
on parties' indemnity)
*Minority view is to honor offeror's terms
o Policy: 2-207 creates additional drafting problems and enables more litigation (by allowing additional +
different terms), therefore causing increase in pre-transaction costs and post-transaction costs (efficiency
argument).
o Impact: 2-207 changes the traditional mirror image rule and last shot rule in common law by
distinguishing between additional and contradictory terms. Without the 2-207, the most recent offer
(or counteroffer) would win as the final agreement.
o Shrink wrap licenses are treated just as any other contract, so their terms are enforceable unless they are
objectionable on grounds applicable to Ks in general. (1) Notice on the outside, (2) terms on the inside,
and (3) a right to return the product if the terms are unacceptable (as the license expressly extends)
ProCD.
o UCC2-204(1)--"A vendor may invite acceptance by conduct" + (plus) UCC2-606(1)--after an
opportunity to inspect, buyer fails to make an effective rejection--> acceptance by using the product.
o Upside: This type of license serves buyers interests by accelerating effectiveness and reducing
transaction costs (no need to sign disclaimer or license before buying)
o Downside: Giant manufacturers and distributors pushing for less requirement in making an agreement.

Prof. Hamburger: Knowledge can solve many problems, including 5% failure in product--K is about
intent of the parties. - also buyers are the offerors not the seller (in criticism of Easterbrook).
ProCD v. Zeidenberg(The Court upholds the validity of the shrink wrap license, reasoning
that Zeidenberg had a right to return the software when he read the full terms, but clearly
accepted the terms by using the software (example of acceptance by silence in 69(1).
ENFORCEABLE
Hill v. Gateway 2000, Inc. return of computer after 30 day warranty. ProCD decision applies.
Hills had an opportunity to return after reading the documents. The duty of sellers doesn't end at
the checkout counter, and these promises and arbitration clause contained in the documents
enclosed bind sellers as well as buyers. Buyers can ask vender to send a copy before decision;
consult public sources; and inspect the document after the product's delivery. ENFORCEABLE.
Klocek v. Gateway, Inc.-- 2-207

Restatement, Second 69: Acceptance by SILENCE or Exercise of Dominion

(1) When offeree fails to reply to an offer, his silence or inaction operates as acceptance only:
(a) Offeree takes the benefit of the offered services with reasonable opportunity to reject
them, and reason to know that they were offered with expectation of compensation
o [Contract implied-in-fact (tacit contract)] v. Restitution (Implied-in-law;
imposed by law)
Remedy would be the same. Restitution would be easier to prove bc it
doesn't need silence as assent (Collins. Sheriff holding cows).
o Austin v. Burge (newspaper subscription): Offeree is liable to pay bc he took the
papers home and read them, so derived benefit, but he knew the paper expected
compensation.
o Expectation of payment needs to have an objective basis (doesnt change the
holding of Martin v. Little Brown, where offeree didnt represent that he expected
payment, and no previous course of dealings)
(b) Offeror has stated or given offeree reason to understand that acceptance may be
manifested by silence or inaction, and the offeree in remaining silent/inactive intends to
accept the offer.
(c) Bc of previous dealings or otherwise, it is reasonable that offeree should notify the
offeror if he does not intend to accept.
o (c) as a reason for (b); (c) added to (b)
o Hobbs v. Massasoit Whip Co. (eel skins): Bc there was a previous course of
dealings btw the parties, jury could find that offeree accepted the skins by not
responding with offeror sent them
Offeree who acts inconsistently with offerors ownership of offered
property is bound to the offered terms unless they are manifestly
unreasonable. If act is wrongful against the offeror, then offeror must
ratify the act for it to count as an acceptance.
(2) Offeree who acts inconsistently with offerors ownership of offered property is bound to the
offered terms unless they are manifestly unreasonable. If act is wrongful against the offeror, then
offeror must ratify the act for it to count as an acceptance
THE EFFECTS OF ADOPTING A WRITING (PAROL EVIDENCE RULE)
o Generally: Substantive rules that protect the primacy of writing. A preliminary issue for the judge to
decide whether preliminary or contemporaneous terms extrinsic to the written K can be a part of the
agreement, by balancing the parties reasonable expectations. Parol (both oral and written) evidence
rule restricts or enables some opportunities to include prior terms into the written K.
Any oral or written agreement that occurs before or at the same time as the writing in question
cannot modify that contract unless the writing was not final or complete.
Rationale: Judicial efficiency
o Restatement, Second 209 and UCC 2-202 use UCC

o
o

o
o

PER allows contemporaneous writings to be admitted, because it is more reliable evidence of agreement,
and it may be supplementary to the other K, and not superseded.
Three-Step Analysis (common law and the UCC)
(1) Final expression of the terms in written agreement and adopted by both parties?
One K is collateral to another is to say that the original K is final.
Parties meant this to be the last agreement to be contracted in. (e.g., maybe not napkins)
(2) Are the terms partial or complete (Question of law decided by judge)?
Williston v. Corbin debate:
o Willistonian View: Do not look beyond four corners of the K to see whether it is
final and complete
Only look at the writing's face value, and not any extrinsic evidence to
aid interpretation.
o Corbinesque: Judge (gatekeeper) looks at circumstances/context to decide
whether parol evidence is admissible .
Final expression permits consistent additional terms, unless there's
substantial evidence that the parties intended the writing complete.
Judge looks at extrinsic evidence to decide whether writing is complete
and final, or there could be collateral agreement, "might naturally be
made as a separate AGR." Hatley.
What's natural and ordinary? Familiarity of contract forms (land
transaction expected to be very complete)
Relative bargaining strength
Negotiation at arm's length or not.
Apparent completeness and detail of the writing.
Whether parties intended to include-e prior/concurrent terms
Modern view tends to look at context
(3) If incomplete, are the terms consistent or inconsistent? (shaped by the (2) question).
If actual terms are contradictory, then they are excluded
If actual terms are not contradictory, but merely additional, then evidence allowed
Mitchill v. Lath (ice house)--(Oral agreement to tear down ice house nearby house being bought. Later
written agreement doesnt mention the ice house and sellers refuse to tear it down.)
No separate consideration for taking down the ice house; the oral agreement is linked to the K for
purchasing the house.
Prior oral agreement is inadmissible bc writing on its face seems final and complete.
Court takes Willistons view to not look beyond the writing, but you could reach the same
conclusion via Corbins view as well
Hatley v. Stafford--(lease agreement has the condition of leasor buying out leasee for no more than $70
per acre; P demanded $400 per acre, fair market value of the wheat crop; oral agreement that buy back
provision only applied for 30 to 60 days)
The date of how long the provision applies is left out while other dates are specified might be
a partial, not complete statement, so look at the context (Corbins view)
Here, the agreement is handwritten (lack of formality), without legal aid
Doesnt make sense to not have gradation in buy out price if leasee is planning to use it
for crops that will increase value of land makes the contract seem incomplete
Look at whether something seems left out of the terms; whether economic agreement makes
sense
By looking at the context, it seems the agreement is partial, so then you can look at other
evidence as long as it isnt contradictory.
The idea that to be inconsistent the term must contradict or negate a term in the writing
Hayden v. Hoadley (written sale of property; oral agreement of time to complete repairs).
Parol evidence not allowed bc the writing was final and complete, so court imports reasonable
time for repairs to be completed.
Merger Clauses (Channeling function)

Generally: Some courts will find merger clause dispositive, and thus consider writing complete
(Williston). Some courts will find a merger clause just presumptive, and not conclusive of
completeness bc of imbalance in sophistication of the parties. (Corbin) Court may still look at
context. Risk of Corbin view is that courts wont take document at its word. Dont rely on merger
clause to determine consistency.
UCC 2-202: Merger clause--If parties intend writing to be final agreement, and writing calls
for unconditional sale of goods, then parol evidence that shows a condition on sellers obligation
is inconsistent and must be excluded.
2-202(b) Inconsistency will be defined as the absence of reasonable harmony in terms of the
language and respective obligations of the parties. broad definition.
Luria Bros. & Co. v. Pielet Bros. Scrap Iron & Metal, Inc. (contract to sell scrap steel;
D argues that K was expressly conditioned upon obtaining scrap metal from particular
supplier. Parol evidence barred)
Escapes from the Parol Evidence Rule (when parol evidence is allowed)
(1) Conditions Precedent: Condition to formation of K rather than performance of K. The
obligation of the K then doesnt come into effect until the condition is metparole evidence here
is irrelevant.
Long Island Trust Co. v. International Inst. For Packaging Educ., Ltd. (five
guarantors supposed to sign the K, but only four signed delivery of promissory note
was conditional on all five guarantors signing)
o Because the other guarantors signatures were conditional on all five officers
signing (condition prior to the K itself), the contract was not formed until all five
signed. Parol evidence outside the K can be consulted to show this. The failure
of one to sign then made the entire K unenforceable.
o Condition precedent is the actual basis of entering into the K (why the condition
of taking down the ice house in Mitchill was not a condition precedent)
o Because conditions precedent come before the K, the parol evidence rule
doesnt come into play and whether the terms were contradictory doesnt matter
o Dissent: Public Policy Concerns--Possibility of fraud against the bankresolve
the issue by adding the word unconditional in front of guarantee.
[Western Commerce Bank v. Gillespie (heirs settle with bank, with the condition that
heirs will obtain financing in a reasonable time)
o Here, the condition is on the performance of the K, not on the formation of the K
Westerns acceptance of the offer and promise to forbear claims constituted
formation of the K, which then became binding, so the parol evidence rule
applies
o Corbin view that this distinction is an illusion and is just a came of how an
attorney characterizes the clients conduct.
Must be careful when applying conditions precedent bc judges will likely be skeptical
Increases transaction costs of banks, meaning that interest rates will increase to cover
costs of litigation]
(2) Disclaimers
If the disclaimer in the written K is specific enough, then disclaimer will bar earlier
conversations / agreements the more specific, the more enforceable the disclaimer is
LaFazia v. Howe (Ps sold to Ds delicatessen business; Ds claim they relied on Ps
representations that the business was profitable, despite tax returns that suggested
otherwise)
o Written K contained a disclaimer clause saying buyers only rely on their own
judgment and not on any representations of the sellers; also a merger clause
saying K constitutes the entire agreement between the parties.
o The disclaimer clause was specific and thus precludes D from asserting that P
made material misrepresentation, bc he announced that he is not relying on any
representation. Parol evidence rule goes into usual effect under Ps breach of K
claim.

The Ds fraud claim gets around the disclaimer and parol evidence rule, but then
the merger clause bars the evidence because the agreement is then final and
complete.
o If the Ds claim asking for rescission had related to the disclaimers (to rescind the
disclaimers), then perhaps they wouldnt have lost.
Rio Grande Jewelers Supply v. Data General Corp. (buyer of computer system sues
seller for negligent misrepresentations of systems capabilities)
o Written sales contract contained merger clause and disclaimer clause negating
all prior representations and warranties not contained in the contract
o Just as in the common law, under the UCC, the merger and disclaimer clauses
block parol evidence (same analysis as in LaFazia)
(3) Arguments against the K: parol evidence rule doesnt apply if trying to get out of the
contract
Mutual Mistake
o Hoffman v. Chapman (Agreement that buyer will buy only part of the land, but
deed is mistakenly drawn for the entire lot)
Reformation of a Deed: Bc it is an attempt to correct the deed to match
the K (what the parties agreed to), then it isnt barred by the parol
evidence rule
Bc both parties intended to contract for only part of the land, the error in
the deed was a mutual mistake parol evidence showing what parties
intended is then admissible
If what was written in the
K wasnt what parties intended, then you can get around the parol
evidence rule and court can look to what the parties intended (parol
evidence rule doesnt block the actual intent of the parties)
o Rare for courts to find mutual mistake
Tort (fraud rescission) Either Tort or K (choose one claim)
o If it is a genuine tort, then you can get reliance damages (parole evidence rule not
applied bc you are not trying to enforce the K), but court can either (1) deny tort
action, or (2) knock down your damages (reliance instead of expectancy), or (3)
limit extrinsic evidence.
o If this is a K action, intrinsic (shouldve been weaved into K) v. extrinsic (outside
of the K) question, and parole evidence rule need to be answered. (murkier)
o Damages for fraud might suggest party is trying to get around the parol evidence
rule by dressing a breach of contract claim as a tort claim for fraud--important to
police the boundary between tort and K to avoid distorting K law. COULD BE
ON THE EXAM.
o Lipsit v. Leonard (employer orally promised employee equity interest in the
business; employment renewed through annual letter agreements; breach of K
and tort fraud claim)
The parol evidence rule doesnt apply to tort claims, so can use evidence
of oral agreement for claim of fraud
Misstatement of present intention = misrepresentation of a material fact.
Mistaken damage calculation is not a fatal defect.
o Bank of America v. Pendergrass (bank sues for promissory note payable on
demand; D claims bank made fraudulent promise that D could use land without
interference for one year)
Parol evidence not admissible where it would prove a promise that
directly contradicts the promise of the writing But most states
recognize a doctrine of promissory fraud (not barred).
o Sabo v. Delman, (written K to assign shoe-cutting machine patent to D)
o

Because P was suing for rescission, rather than enforcement, of the K for
fraud, the parol evidence rule doesnt bar proof of fraud (even w/ merger
clause).
Restitution: If restitution is a separate cause of action from
o Contract, then you can get around parol evidence rule. But the court may knock
you down to restitution damages.

Interpretation
Restatement 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.
Comment: General usage re the meaning of words can be a matter of law for the court to
decide without looking at evidence extrinsic to the writing.
If text of writing is ambiguous, then parol evidence rule doesnt apply and you may look
beyond the K (but that is a judgment call). (Robert Indus., Inc. v. Spence, pg. 503)
Contrastingly, if the text of the K is clear and unambiguous, then extrinsic evidence is not
relevant. (Bethlehem Steel Co. v. Turner Constr. Co., pg. 502)
Williston: If text of K is ambiguous, then look beyond the writing
Corbin: If all circumstances are ambiguous, then look beyond the writing to determine correct
interpretation of the writing
Modern trend that context is important
Policy Concerns
Transaction Costs:
(1) Pre-contractual
(2) Post-contractual, but pre-breach
o Monitoring costs (ex: high monitoring costs in construction)
(3) Post-breach
Williston would allow parties to take more pre-contractual costs and lessen post-breach
costs
Corbin almost requires parties to shift to more post-breach costs, even when there is a
merger clause, bc might need to look at context

III. CONDITIONS, ETC.

i.e., MORE VARIATIONS ON THE THEME OF INTENT
ASSUMPTIONS ABOUT EXISTING FACTS: CONSTRUCTIVE FRAUD, MUTUAL MISTAKE,
UNILATERAL MISTAKE, MISREPRESENTATION
o In descending order of strength / persuasiveness; what to plead, if possible:
(1) Arguments on the Contract (may get expectancy damages)
Express / Implied Warranty
(2) Arguments Against the Contract: (contract voidable to stop enforcement or get
rescission)
Mutual Mistake (Restitution damages)
Frustration of Purpose
Impossibility
o Kull, Mistake, Frustration, and the Windfall Principle of Contract Remedies
Courts should leave the parties where they lie rather than filling the gaps of a contract with
judicial intervention. Court would rather avoid injustice than to pursue justice.
If there is no basis for courts intervention or for shifting costs to one party, then the court
shouldnt interfere reallocation then results in administrative costs while achieving no social
end

The law will not enforce windfalls. If parties havent allocated risks of windfall within the
contract, then there is no basis for correcting it and court must leave the parties where they are
Modern courts are more likely to restore parties to where they were before, but if one party has
done a lot and the other nothing then courts are more likely to intervene
Caveat Emptor (Foundational assumption)
Laidlaw v. Organ (New Orleans, Civil law in 1817)
A seller asks a buyer if anything would change the price of tobacco. Does the buyer have
obligation to disclose? No. As long as a party does not impose on the other.
Constructive Fraud: Mode of equitable relief and justification of equitable remedy. Breach of legal or
equitable duty that deceives others. A catch-all doctrine (through unconscionability) that rarely will be
first resort (consider after looking at other ways to rescind contract). Tort-like and difficult to define.
Courts in equity will sometimes use constructive fraud to rescind a contract that seems unfair when there
is mutual mistake (or almost), gross inadequacy in price (a warning signal), and confidential
relationship that incorporates a fiduciary duty (e.g., Donor Trustee Beneficiary (equitable
owners)).
Elements: (most common elements, but this is not a set rule)
Unconscionability
Inadequate consideration (gross inadequacy in price paid / shocks the conscience)
o Doesnt vitiate the contract, but can be important with the addition of other
elements
Confidential relationship (high degree of trust and confidence but not legal relationship
like fiduciary relationship; duty to disclose all of the elements or terms of the transaction;
who seems to have profited has the burden of proof)
Dependence upon advice (related to confidential relationship)
Mutual mistake
Usually you need at least (1) inadequate consideration, with addition of other elements
Jackson v. Seymour (brother buys sisters land with timber)
No independent mutual mistake claim bc no evidence that brother didnt know about the
timber / value of the land. with the addition of other elements, may claim constructive
fraud when there isnt enough evidence to show something else rescission (undoing
whats done on each side = restitution).
No actual fraud bc cant show that the brother intentionally misled or lied.
Mutual Mistake: Parties agree on what is being contracted for (unstated, shared assumption), but it turns
out to be something else, and both parties are surprised. Courts are very reluctant to rescind a contract
due to mutual mistake bc usually when a party enters a contract they take a risk that something
unexpected will happen. Located within contract voidable. Best to plead mistake rather than mutual
mistake bc then court will be less likely to grant rescission. (mutual misunderstanding makes contract
voidable instead of finding there is no contract at all)
Forms of mistakes: Material misunderstanding (Peerless. Both agree on the same thing, but it
means different in their heads. No intent). Mistake in deed (reformation of deed. Based on
mistakes on the deed. Says the same thing, but thinks the same different thing). Mutual mistake
(both think the same, but in reality doesnt exist.)
Mutual mistake must relate to (1) a basic assumption, (2) have a material effect on the contract
(cant just be a small mistake, but needs to go to the heart of the contract), (3) and the party
seeking avoidance must not bear the risk
Substance v. quality: No mutual mistake if the mistake just goes to the quality of the
thing being contracted for, but rather must be a major substantive element (type or kind)
of the K.
Sherwood v. Walker (barren / fertile cow)
Parties had shared assumption that the cow was barren; capability of breeding is the
very nature of the thing, affecting the character of the animal for all time.
If that shared assumption was implied in the contract, then mutual mistake would be
acceptable can rescind; however, this case might be decided incorrectly if the buyer

was taking a risk/gamble on the cow actually being fertile In this case, it may not be
mutual mistake; the buyer is not buying the cow for meat, but breeding.
Beachcomber Coins, Inc. v. Boskett (coin purchase)
Both parties thought the coin was valuable, but it turns out to be a counterfeit bc both
parties were certain the coin was valuable, and the price was based on that material fact,
it is mutual mistake
Parties may be restored to the status quo, so rescission is permissible.
But Hamburger thinks that this was a question of judgment.
Lenawee County Bd. of Health v. Messerly
Mutual mistake calls for case-by-case analysis whereby rescission may be allowed when
the mistake belief relates to a basic assumption of the parties upon which the contract is
made, and which materially affects the agreed performance of the parties
In effect rejects Sherwood (should be limited to its facts), showing mutual mistake is a
dangerous doctrine that judges are uncomfortable with.
Condemns substance v. quality distinction; might be better to look to allocation of risks
within the K (buyer assumes the risk)
Smith v. Zimbalist (sale of violins)
When seller of violins sues to recover the rest of the promised payment for violins that
turn out to be cheap imitations, court doesnt rescind or enforce the contract, but just
leaves the parties where they are (application of Kull article)
If Zimbalist had asked for the money back, he likely would have received rescission and
restitution
Gartner v. Eikill (property conveyed for commercial use, but zoning problem)
Bc both seller and buyer thought the property was suitable for commercial use, and that
was a basic assumption of the contract, there is mutual mistake and rescission is
acceptable.
Despite caveat emptor, the court finds the buyer could rely on representations of sellers
and didnt have a duty to investigate whether property was suitable express warranty
Unilateral Mistake: when only one party is mistaken. Usually, if it is the mistake is the fault of just one
party, then not able to rescind the K. Based on Caveat Emptor (the burdens usually on mistaken party)
Traditional Rule: Avoidance for unilateral mistake only allowed when non-mistaken party knew
or had reason to know of the others mistake at the time the contract was made. But courts are
much less willing to allow rescission for unilateral mistake rather than mutual mistake.
Modern View: Under the Restatement, must meet the same three criteria as for mutual mistake:
(1) mistake must be as to a basic assumption on which the K was made, (2) mistake
must have a material effect on the agreed exchange of performances, and (3) the party
seeking relief must not bear the risk of the mistake (as in K provision)
Also, one of the following must be the case: (1) mistake is such that enforcement of K
would be unconscionable, or (2) the non-mistaken part had reason to know of the
mistake, or his fault caused the mistake
Exception for clerical mistakes: Jewelry store example. Seller didnt intend to sell for 10 cents
and purchaser also didnt think there was intent to sell for 10 cents (restitution). As compared to
bookshop example, where the owner intended to sell book for $1 (no restitution). The difference
is that the owner made the judgment to sell for that price, so seller intended to sell for that price.
errors in judgment v. errors in calculation
Genuine clerical mistakes are excused bc they are difficult to prevent and no useful social
purpose is served by enforcing the mistaken term; must be a math-like clerical mistake
rather than a mistake in judgment S.T.S. Transport Serv., Inc. v. Volvo
Worry about contractors binding themselves to Ks that they cant afford to perform,
resulting in shoddy construction
Remedies for Mistake
KullIn case of mistakes, judges traditionally left the parties alone, unless theres a
gross wrongdoing by one party. No rescissionleave the parties as is, K void.

Elsinore Union Elementary School Dist. V. Kastorff (general contractor makes mathematical
error when calculating bid)
Bc this was a clerical error, and not an error in judgment, the contractor can rescind his
bid. This only works for general contractors, not others.
But usually if you are told to double-check and you do and you say it is OK, then you
wont be able to rescind (different if D didnt have opportunity to check)
If the contractor had been negligent, or if school had already relied on the K or suffered
harm as a result, then K probably wouldnt be rescinded
White v. Berrenda Mesa Water Dist. (contractor made calculations based on wrong area of
land)
It is a mixed mistake of both fact (clerical) and judgment the line is to fine to draw,
so the court cancels the bond and K (perhaps closer to clerical mistake since he was
looking at the wrong part of the map)
Implied Warranties (Common Law): Implicit warranties as to non-visible defects (most likely to apply
to sales of land, but perhaps not for unimproved land). As implied warranties are strengthened, the seller
might have to disclose something. This might be an impediment to commerce as duty to disclose reduces
prices. In most instances, buyer wont be able to cancel or rescind due to implied warranties, so a party
shouldnt rely on this (use as a back-up argument).
Traditional Common Law Rule of Caveat Emptor: Buyer beware buyer has duty to find out
if land is suitable for the intended purpose. Usually, just bc something is sold with restrictions
there is no guarantee implied that it can be used for those purposes. The benefit of this was that
courts didnt have to look at implied warranties, but buyers assumed all the risk and loss for nonvisible defects.
In very limited, rare instances, the courts make an exception to this rule to allow
rescission / cancellation for contracts that have implied warranties. Hartley (buildervendor
Some courts have extended implied warranties to protect consumers of houses, cars,
horses, motorboats (large, common purchases that arent luxury purchases)
Policy: Is doctrine of implied warranties imposing something on the parties that they didnt
actually agree to, and thus threatening freedom of contract by trying to rescue a buyer that made a
bad choice? If there werent warranties, then purchaser would just hire an inspector (inexpensive
private solutions instead of large cost of litigation) shift in transaction costs.
Hinson v. Jefferson (septic system required to build residence; neither party knew land wasnt
suitable for a residence)
Not mutual mistake bc courts want to leave the parties as they are remedy from
rescission is nothing. Land transaction: clouding the title (loss to the society).
Court finds implied warranty bc the deed restricted use to residential purposes and the
defect wasnt visible. If there wasnt a covenant running with the land (persistent with
the sale of land), but rather just zoning rules, then probably not an implied warranty.
Narrow Rule: If there is a narrow restriction on the deed (how the land can be used),
and the buyer couldnt reasonably foresee or discover the defect through inspection, then
there is implied warranty.
Distinguishing factors btwn the Miller case, that purchaser in Miller was a developerspeculator, not a consumer, and property in Miller was not rendered valueless.
Express Warranties (Common Law) Similar to Mutual Mistake
Just like the Rose case, both parties mistook the identity of the violin as one thing, when the
reality differed. Also, this could be understood as express warranties. Primary claim would be
express warranty, which enforces the contract and may grant P expectancy damages. Smith v
Zimbalist (Stradivarius).
Smith v. Zimbalist (sale of violins)
Mutual mistake here qualified as an express warranty as there was clear
representation / understanding about what was being contracted for
Gartner v. Eikill (property conveyed for commercial use, but zoning problem)

Despite caveat emptor, the court finds the buyer could rely on representations of sellers
and didnt have a duty to investigate whether property was suitable seller had made an
express warranty that property could be used commercially
Express Warranties (UCC)
UCC 2-313: Express Warranties by Affirmation, Promise, Description, Sample:
(1) A seller makes an express warranty by any (a) affirmation of fact or promise, or (b)
any description of the goods, or (c) any sample or model which is made part of the basis
of the bargain
(2) Seller need not use formal words to signify a warranty. Exception: An affirmation
merely of the value of the goods, or a statement purports to be the sellers opinion is not a
warranty.
UCC 2-316: Exclusion or Modification of Warranties (Disclaimers)
Sellers can disclaim express warranties. If the scope of the disclaimer is clear, then court
may construe the warranty narrowly, but it must do so in a way that is consistent. If it
isnt possible to do this, then the disclaimer is ineffective. Implied warranties may be
expressly disclaimed under 2-316 as well (applies to all types of warranties).
Implied Warranties (UCC)
UCC 2-314: Implied Warranty: Merchantability; Usage of Trade
(1) If seller is a merchant of goods of that kind, then there is is an implied warranty that
goods shall be merchantable (but can be excluded or modified under 2-316). Serving
of food counts.
(2) To be merchantable, goods must at least conform to the K description and: (a) pass
without objection in the trade; (b) for fungible goods, be of fair average quality; (c) fit for
ordinary purposes; (d) even quality, kind, quantity, with variations permitted by the
agreement; (e) adequately contained, packaged, labeled; (f) conform to the promise or
affirmations of fact made on container or label. all related to what is described /
permitted / required in the agreement
(3) Other implied warranties may arise from course of dealing or usage of trade as well
(unless excluded or modified by 2-316)
If goods are merchantable, then seller has a duty to disclose
UCC 2-315: Implied Warranty; Fitness for Particular Purpose
If the seller has reason to know any particular purpose for which goods are required and
buyer relies on sellers skill / judgment to select/furnish such goods, then there is an
implied warranty.
Warranties under Common Law v. UCC
Pros of UCC warranty provisions: reduces transaction costs; provides clarity in the law; doesnt
interfere with freedom to K bc it just makes explicit what the K implies but parties dont state;
relatively modest warranties (as opposed to having a warranty for a big purchase like a house);
shifts burden to seller to specify disclaimers, so there is more certainty re what parties are actually
contracting for
Why this works for UCC and not for Sales of Land: (1) Most goods under the UCC are
fungible, so easier to know what standard is, whereas houses are not; (2) Transaction costs:
Lower costs for having the burden on the seller of goods; higher costs for purchaser of house to
get an inspector, but it is the largest purchase a person will likely ever make, so UCC rules not
needed for houses / sales of land
Innocent Misrepresentation: Tort-like (actually negligent misrepresentation), and not a category
within contract law (intellectual fiction). Implied warranties. To address the problem of parol evidence bc
writing obliterate the oral agreement. If possible, mutual mistake is better to use.?? Third party cost to
perfection imposing perfection would increase the price substantially. Mode of regulation.
Johnson v. Healy (improper fill & house settles)
During negotiations, buyer asked about houses construction and seller said it was made
of the best materials, that he built it, and there was nothing wrong with it but due to
improper fill that was there before D bought the lot, the house settled

By reading this as an express warranty that induced reliance, the court it moving away
from caveat emptor to protect buyers by creating limited exceptions to the traditional
rule. Caveat emptor cannot limit the imposition of liability for negligent
misrepresentation against express and implied warranty (dictum).
But the court is reading tort into contract law to help the P in a lawless way.
In awarding damages, the Ct. compares the K price and cost of repair to place P into a
position as he wouldve enjoyed had the property been as warranted. If gap is too high,
then full repair would be unlikely. Expenses for repair versus for improvements.
o Silent Fraud: Tort-like (intentional misrepresentation), not a category within contract law, and is a
legal fiction that shouldnt be used.
Cushman v. Kirby (sulfur water)
The seller wife misrepresents the water as hardfine, and husband remains silent
Her speaking assurance is actually what makes this a wrongdoing. Also there is an
implied-warranty.
Silence alone is insufficient to constitute fraud unless there is duty to speakw/ superior
knowledge, seller and vendor have duty to speak.
Husband has an affirmative duty to speak bc he and wife are joint sellers (in privity), so
he is responsible for her misrepresentation. If seller makes a knowing misrepresentation
then they have duty to correct.
Distraction is permissible; but physical covering of a defect may be analogous to words
Only limited duties to disclose that are based on statutory law, and no duty to speak up
even if asked directly (only in trouble if seller deliberately misleads buyer).
Damages, when permanent, will amount to the variance in value of the property before
and after the injury. If temporary reasonable cost of repair is adequate.
Eytan v. Bach (paintings turn out to be recent reproductions instead of valuable originals)
Seller is not liable bc buyers didnt inquire whether paintings were original, seller made
no express representation that paintings were old or originals, and the price was low, so
buyer should have realized they might not be originals (gamble)
An appropriate use of caveat emptor (which DEFAULT for transactions), whereby the
seller didnt know and cant be held liable for what the buyer wanted.
Parties are left where they are found
ASSUMPTIONS ABOUT THE FUTURE: IMPOSSIBILITY AND FRUSTRATION OF PURPOSE
o Where performance depends on the existence of a given thing, it is excused if the thing ceases to exist or
turns out to be nonexistent
o Impossibility
When the performance itself is not practicable bc it can only be done at an extensive and
unreasonable cost, then performance is excused. This does not apply to when performance is
more expensive than anticipated, or makes one party incur a loss. There has to be a great
difference in cost, such that the performance is impracticable, so its as if performance is
impossible for all intensive purposes. Courts dont normally do this, so dont rely on it, but you
can attempt to use it.
Impossibility doctrine has to do with unstated, shared assumptions of the parties re the
continued existence of some fact court filling in the gaps of what parties intended, but didnt
specify
(1) What are the shared assumptions of the parties about continuing existence of some
fact? (Implied condition in lieu of any express implied warranty)
(2) Where is the allocation of risk / duty to insure (a way of understanding the parties
intent) risks come with control and assumptions relate to that
(3) Control is linked to responsibility that that tells you about risk allocation (makes risk
allocation physical)
Taylor v. Caldwell (music hall burns down)
Bc existence of the music hall was essential for performance of the K, performance is
excused when the music hall burns down.

Not genuinely impossible (could rebuild or hold it next door)

General rule that when something burns down, the party in control bears the loss (lease
v. license to use property).
Fungible v. personal property if the thing that ceases to exist is fungible, then performance is
not impossible (property isnt fungible) needs to be the destruction of the particular thing that
was the subject matter of the K, not just something of the kind of the subject matter
Roberts v. Lynne Ice Co. (ice houses burn before lease expires)
If there is a lease, then the user is held responsible for the loss and must pay rent for the
rest of the term of the K question of who had exclusive possession at the time.
Best to place liability on the party that has control. (leasefull control, licenselack of
full).
No impossibility.
Harrison v. Conlan (organist)
When services contracted for are personal in nature, then once they cannot be performed
for that person (as when death results), then the K is voidable.
Organist can get restitution for what he has already performed, but cant get future wages
bc he was employed personally by the priest, who died, and not by the Catholic Church.
But it is questionable whether the organist was hired by the priest or the church. Priest
embodies corporate.
Tompkins v. Dudley (school house burns down right before completion)
If contractor is in the process of building and it burns down, then he is liable / bears the
loss bc he was in control of the property. Key is symbolic of control.
Contractor guaranteed (to unconditionally engage in) the performance and thus created a
liability and incurred a duty by express K. Theres no legal justification for the nonperformance of the K.
Not impossible to perform.
Garman v. Hoover (partly constructed house & buyers insurance)
Contractor isnt entitled to recover the insurance proceeds that the buyer received after
house burned down. The buyer took it upon himself to get insurance, and the contractor
should not be able to take that benefit as he could have gotten insurance himself.
As a result, as usual, contractor is still under obligation to perform K and does not receive
restitution for partially constructed house.
No impossibility, and buyers insurance doesnt make a difference
Frustration of Purpose: When events destroy one partys purpose of entering into the K, although
performance itself is not impossible. Where one partys purpose is completely or almost completely
frustrated by supervening events, most courts will discharge him from performing. Must be mutual
assumption of both of the parties that the purpose is an underlying condition of the contract. Whether
there is an assumption on the part of the seller/leaser about why buyer/leasee is buying/leasing.
(coronation cases v. taxi cab ex.).
Some helpful factors:
Whether seller is advertising the thing as fulfilling that specific purpose / use
Whether price reflects the underlying purpose (ex: higher price for viewing coronation)
Whether service/product is essentially fungible (transportation is not individualized but is
a fungible service)
Doctrine creates confusion / ambiguity in many cases.
Transportation companies protect themselves from the uncertainty of this doctrine by placing
disclaimers on the back of tickets bc it can become dangerously open-ended when the court looks
at what the parties intended.
Traditional Rule re Deposits: Leave the parties where you find them whatever the parties
have done up to the point that the contract was voidable will not be undone
Modern Rule re Deposits: To a limited extent, where it is feasible, courts are open to undoing
the performances and returning the parties to pre-contractual states (more likely to do this if
performances are unequal)

Krell v. Henry (flat for coronation viewing)

Not impossible to rent the flat, but the purpose for renting it has disappeared with the
postponement of the coronation.
Each case must be judged by its own circumstances. randomness.
Bc the leaser advertised the flat for the purpose of watching the coronation, the price
reflected that, and the leasee reserved the rooms for that purpose, the implied condition
was coronation event, and the court discharges performance for frustration of purpose.
UNCONSCIONABILITY: When contract is unenforceable bc it is shockingly unfair. A catch-all provision (like
constructive fraud) to turn to as a last resort (use with great caution). Two kinds:
o (1) Contract that wont be enforced in court of equity: Old doctrine that has always been applied. Bc
equitable remedies are discretionary, the court may choose to not enforce contracts that would be enforced
in a court of law for an action for damages. Operates as a defense against specific performance.
Woollums v. Horsley (old, uneducated farmer sells oils, gases and minerals in his land to
business man)
Perhaps dealing w/ ppl w/ different spheres of knowledge and skills.
P (business man) sues for specific performance and loses bc court of equity wont
enforce such a harsh bargain:
o Specific performance is not a matter of absolute right, but of discretion in the Ct.
o Gross disparity in price: in equity, this might be enough.
o Lack of meaningful choice for D. D was misled and acted under gross
misapprehension.
Mutuality matters in equity (though not at law).
But P can still sue for damages in court of law. Also P is a businessman buying a huge lot
of land for coal mining, not specifically looking at Ds land.
Comparison w/ Batsakisinadequacy of consideration is not an obstacle to enforcing a
K. (If P phrased his claim as specific performance, he might have lost.) Not giving the
remedies to P bc of the unconscionability. Also bc to enforce a specific performance has a
higher threshold than other transactions dealing w/ fungible goods.
Options for P: sell the land to an innocent third party.
Kleinberg v. Ratett (stream of water crosses below land)
Bc no showing of fraud, Ps not entitled to rescission or restitution of their down payment,
but Ds arent given specific performance either bc D was aware of the stream and great
hardship would result parties left where they are found
Modern court will attempt to sort this out to undo the contract, but this is too ambiguous
Seymour v. Delancy (exchange of two farms for 1/3 interest in some land)
Although there seemed to be a large disparity in values of land, the court ordered specific
performance bc there was discrepancy in testimony re value of land, and the D already
had a 2/3 interest in the land, so it was worth more to him if he didnt have that interest
contract is non unconscionable, so specific performance is ordered
o (2) Contract is voidable, so unenforceable in both law and equity: Newer, more aggressive conception
of unconscionability that enables rescission. Requires both substantive and procedural issues with
contract.
(1/2) Substantive issue: Gross disparity in price/exchange (this alone is never grounds for
rescission, no matter how shocking, BUT is grounds for refusing equitable remedy)
(2/2) Procedural issue: Look at possible grounds for rescission in problems of making the K
(deception, misrepresentation, gross inequality of bargaining power, etc.) if none of these are
certain, but seems they might be present, then can use unconscionability as a solution that
doesnt distort these established grounds
Incompetence, Duress, Fraud / theft, Conflict of Interest, Confidential Relationship
Waters v. Min Ltd (exchange of money for annuity policy):
More active use of unconscionability to undo the K (rescission), as opposed to specific
performance case before.

Because there is substantive issue of there being gross inadequacy in K price, plus
enough of hints of procedural issues like duress, conflict of interest, and confidential
relationship, the court is able to rescind the K.
UCC 2-302: Unconscionable Contract or Clause: But it is a general clause that doesnt have
any real meaning
Williams v. Walker-Thomas Furniture Co. (welfare woman on installment K with crosscollateralization clause).
Exceptional case that most courts wouldnt follow today. (bc there is not clear substantive
or procedural issue)
Shifting the presumption of who should give notice.
Absence of meaningful choice due to lack of alternatives like banks (procedural) w/
unfair terms (substantive) considering the circumstances.
Seems like she got a bad deal, but if furniture co. cant make these kinds of contracts,
then it will be less willing to sell to poor people on credit.
Unclear issue of whether co. shouldnt be able to make this kind of K with her, or
whether co. needs to make it more clear what she is agreeing to
o Restatement 205: General, abstract duty of good faith and fair dealing that every K imposes upon
each party in its performance and its enforcement.
Faithfulness to an agreed common purpose and consistency w/ the justified expectations of the
others. Fair dealing requires more than honesty.
EXPRESS CONDITIONS
o Express condition is a provision/clause within the K upon which a partys obligation to perform the K is
conditioned (K has been formed, but no obligation to perform arises until that condition has been met)
A conditional clause must depend on the intention of the parties to be determined by the (1)
language of the entire agreement and the (2) subject matter. If burden of proof would be
impossible/illogical, then might suggest that the parties intended the other. Glaholm (freight on
voyage on time).
The writing included the K is framed in the language of agreement only + voyaging on
time is critical to success of a mercantile adventure condition precedent.
o Conditions Precedent (see escapes from the parol evidence rule)
Condition that proceeds the obligation/promise. P must prove the condition has been met before
obligation/promise can be enforced.
Theres a general legal policy opposing to forfeitures, insurance policies construed against the
insurer. In determining Conditions precedent, the expression of one thing is the exclusion of
another. Lack of use of warranty or subject to in subparagraph is construed against the
insurer. Restatement Section 261: when doubtful, words are interpreted as creating a promise.
Howard (insurance on destroyed crops).
Failure of conditions precedent entitles a party to discharge himself from a K, but not to demand
damages from nonfulfilling party.
o Conditions Subsequent
There was an obligation that had already arisen, but obligation can be defeated if condition
subsequent not met. (what the court seems to do in Gray obligation to pay for the sperm whale
oil had already arisen, but there was a subsequent condition of being obligated to pay more if
there was a surplus of sperm whale oil).
The burden of proof is on D. Gray v. Gardner (sperm whale oil; promise to buy oil at set price;
subsequent promise to pay extra unless a large amount of oil comes in (adjusting price to supply))
Parties are held to their contract bc it was essentially a wager as to the quantity of oil for
that year; court decides ship hasnt arrived yet until it has anchored or moored.

IV. REMEDIES FOR BREACH OF CONTRACT

THE GOALS OF CONTRACT DAMAGES

Contract remedies are for compensation rather than punishment bc they are to make the other party
whole for loss resulting from violation of law that parties have voluntarily created
o Courts wont enforce punitive damages, even if specified in the K for breach, but this may be avoided by
using drafting techniques to make it look like there are two modes of compliance with the K (party can
do x or y)
Allowing punitive damages would have cautionary effect that would go beyond what is
acceptable for a formality by discouraging contract formation
With freedom of K comes freedom of breach
o When parties try to set damages in the K courts get very suspicious and wont enforce if it looks like they
are being told what to do rules that attempt to bar punitive damages can actually bar compensation.
Risks of incomplete compensation: (1) costs of litigation; (2) court may knock down to reliance damages;
(3) may not want to reveal profit margins (secrecy interest), so wont ask for expectancy damages
MEASURES OF DAMAGES
o Restitution Interest: Recovering value of benefits that the other party has received; correcting an
imbalance.
o Reliance Interest: Restoring the party to where he was before the contract. Recovering losses suffered by
virtue of a partys reliance on the K, regardless of whether there was a gain to the other party looking
back at what the party has lost (treated like tort)
Where party was before K was entered into compared to where party currently is (remember to
add in anything he has paid
o Expectation Interest: Applies to damages or specific performance. Taking the party to where he would
be if the contract were fully performed. Gives the non-breaching party the benefit of the bargain; looking
forward.
MEASURING THE EXPECTANCY INTEREST
o Expectation damages are the usual (the exception is when court will knock a party down to reliance
damages). Might get knocked down to reliance damages if:
Difficult to measure expectancy damages and easier to measure reliance damages
Secrecy interest: Some firms dont want to claim expectancy damages bc they will then have to
reveal their internal profit margins
Weakness of liability under the contract may lead party to take reliance damages instead
(Sullivan)
o

FORMULA (Restatement 347):

What P has not yet received at time of breach + other losses, incidental
or consequential
Less:
What P has not yet given at time of breach + loss P can avoid by
entering another contract

Hawkins v.
McGee, pg.
3 (hairy
hand;

warranty of 100% good hand)

Calculate expectancy damages by comparing where the P currently is (the hairy hand) to what he
was promised (the good hand) (+ any incidental or consequential losses), less what he has not yet
paid for the surgery (+ loss he could avoid by entering another contract).
o Incidental losses = costs of selling to someone else (recouping contract)
o Consequential losses = other costs resulting from breach
STRENGTH OF LIABILITY & MEASURE OF DAMAGES (Court may knock usual expectancy damages
down to reliance damages when the liability is weak)
o Sullivan v. OConnor, pg. 7 (Heddi Lemar nose job)
Court gives her reliance damages (back to where she was before the operation fee paid to D,
Ps hospital expenses, worsening of Ps physical and mental condition due to breach; pain and
suffering and mental distress) bc:
Expectancy damages are difficult to calculate (value of the nose)
Unlikely that doctor promised a perfect nose and Sullivan shouldnt have expected that
expectancy damages arise only out of a promise
o Without promise, just compensation for a tort

Due to weakness in liability (weakness of the promise) P is knocked down to

reliance damages
o Most courts wont allow such a breach of K claim bc it is really just tort
(recovery is the same), but if they do, they will knock P down to reliance
damages
LOSS IN VALUE v. COST OF COMPLETION
o Unless there is some special/idiosyncratic value (not just economic value) for the performance, then Ps
expectancy damages are the loss in value of the land
Depends on what P actually wanted (what was promised) and what will compensate him
Concern of courts to not overcompensate Ps (more comfortable with under-comensation)
o Groves v. John Wunder Co., pg. 12 (K to remove gravel)
P wanted the land so they could resell it (no special reason for having the land itself in a particular
condition), so damages should have been limited to the loss in value that the breach caused
o Restatement, Second 347: P may get cost of completion if idiosyncratic value and the cost is not
clearly disproportionate to probably loss of value. (but if less expensive to complete, P can still get loss
of value)
o Peevyhouse v. Garland Coal & Mining Co., pg. 19 (K to remove coal)
Bc the value was probably economic, rather than idiosyncratic, and jurys award was more than
the total value of the land, Ps damages are measured by lands loss in value
even if there
was idiosyncratic value, Ps dont get cost of completion bc it is disproportionate to loss of value
o Laurin v. DeCarolis Construction Co., pg. 26 (gravel removed from land without permission)
Ps receive value of gravel on the land (before removal) rather than value of the gravel in the
trucks (Ps should not get benefit of Ds labor) Ds took a profit that Ps could have had
EFFICIENT BREACH
o When both parties are better off as a result of the breach
o Common law rule: Damages are measured by the market price at the time of delivery.
o Acme Mills & Elevator Co. v. Johnson, pg. 23 (merchantable wheat)
Seller gets higher price, and buyer a lower price
No damages beyond the cost of the bags and the transaction costs bc buyer has not suffered a loss
o

MITIGATION OF DAMAGES (second part of formula)

o COST AVOIDED (what P has not yet given at time of breach)
Rockingham County v. Luten Bridge Co., pg. 41 (bridge company sues for payment for bridge
completed after D breached)
Completion of bridge is irrelevant; once other party breaches, the non-breaching party
should stop performance to avoid building more damages
Might be minimal duty to protect what has already been performed in case there hasnt
really been a breach
Fixed overhead costs are not included (nothing that P would have spent and can spend
elsewhere)
Leingang v. City of Mandan Weed Board, pg. 44 (weed cutting contract)
When breach prevented P from performing the service he was contracted for, he is able to
recover his reasonable expenditures put toward performance (incidental losses) and the
anticipated profits (what P has not yet received), but overhead costs are not included.
Kearsarge Computers, Inc. v. Acme Staple Co., pg. 45 (data-processing services; contract
breached mid-performance)
D not able to reduce damages bc the breach did not produce substantial savings, P
hasnt avoided any cost (what he has not yet given)
o LOSS AVOIDED (Non-breaching partys duty to mitigate damages) (loss P can avoid by entering
another contract)
Depends on whether offered employment is substantially similar to previous employment.
Not required to mitigate damages in employment context by accepting different or inferior
employment.

Depends on whether the job is merely to earn money, or if it has to do with the persons
career path.
Possible differences: (1) location; (2) name/reputation; (3) type of employment; (4)
duties/privileges
Parker v. Twentieth Century-Fox Film Corp., pg. 47 (Shirley MacLain film contract)
o Bc other movie that studio offers her is different in kind (genre of movie) and
inferior re her creative control, she is not required to take it (even though K price
is the same) to mitigate her damages.
Billetter v. Posell, pg. 53 (floor lady)
o Not obligated to accept replacement job bc it is inferior (just floor lady rather
than designer)
o Collateral source rule: courts are divided on whether P should recover for what
she has been compensated for in other ways (unemployment compensation);
ultimately should be a matter of legislation. Conflicting interests:
Court doesnt want to overcompensate P
But it was Ps choice to get insurance (and she paid for it), so it seems
fair to let her have that
There is a duty to make reasonable efforts to find a job to mitigate damages, and if offered
substantially similar job, then must accept.
If job offered is substantially similar in terms of position/career path, but some economic loss
incurred as a result, then dont have to take it
But if you accept other employment then you are accepting the differences and may only collect
on the difference in income
Favors the wealthy who dont have to take another job
ANTICIPATORY REPUDIATION (breach): When a party makes clear, before his performance under
K is due, that he does not intend to perform. Generally, the other party may then sue for breach even
before the repudiators time for performance has arrived. Exception for contracts with municipality: cant
breach in anticipation of another party breaching.
If a party clearly states they are going to breach, then other party should take them seriously and
attempt to get another K to mitigate damages bc otherwise they may or may not be compensated
for consequential damages.
Missouri Furnace Co. v. Cochran, pg. 56 (coke/coal contract)
Cochran notified P he had rescinded K, then P made substantially similar K with another
for delivery of coke for the rest of the year.
This is anticipatory repudiation bc the installment K called for many individual
deliveries, and D breached before performance of all those deliveries became due P
doesnt have to wait until the end of the year (end of K term) to sue D, but damages cant
be calculated until the end of the year.
Common law measure of damages: K price market price at time of delivery under K
o For each date of delivery under the K, take the market price for each of those
dates, add them all at the end of the year and compare to the contract price the
difference between the K price and the market price at each date of delivery (do
not compare to the subsequent K that the P got)
P was not bound to enter into another forward K, so he did so at his own
risk P not entitled to extra damages if that turned out to be a bad deal,
but not bound to cover
No duty to mitigate before other partys performance became due
(Reliance Cooperage Corp. v. Treat, pg. 58)
UCC 2-610: Anticipatory Repudiation. When a party repudiates before performance is due,
and the loss will substantially impair the value of the K to the other party, the aggrieved party
must:
(a) await performance for a commercially reasonable time; or
o This time wont extend beyond a day, but may be even shorter, depending on
trade (ex: trading commodities). Time starts when party learns of others breach.

After this time, the risk passes to the aggrieved party if he doesnt cover
(consequential damages cut off once buyer could have found a substitute).
(b) resort to any remedy for breach (even if he told the other party he would await
performance); and
(c) in both cases, suspend his performance or proceed under sellers remedies.
Measure damages by comparing price at time of breach (when party becomes aware of
the breach) to contract price.
Ex: If $10 contract, $15 at time of breach, $12 at time of delivery, damages = $5
o If aggrieved party thinks price will go up, then should cover at the time of
breach, but if party thinks it will go down, then wait to purchase at lower price
(but this is a gamble).
DAMAGES UNDER THE UCC
SELLERS REMEDIES
UCC 2-706: Sellers Resale Including K for Resale
o Seller can resell the goods.
o Measure of damages: Resale price K price + incidental damages less expenses
saved by buyers breach
UCC 2-708: Sellers Damages for Non-acceptance or Repudiation
o Default provision, if seller not able to resell or cant get damages under 2-706
o Measure of damages: Market price at time and place of tender unpaid K price
+ incidental damages less expenses saved by buyers breach
o If that is inadequate to put seller in as good a position as performance would
have, then measure of damages: Profit (including reasonable overhead) from
full performance + incidental damages
If there is lost volume then seller can get lost profits
For standard priced goods
UCC 2-710: Sellers Incidental Damages
o Incidental damages: things like expenses of stopping delivery and returning or
reselling goods
BUYERS REMEDIES
UCC 2-712: Cover; Boyers Procurement of Substitute Goods
o Buyer has option to cover losses by entering into another K
o Measure of damages if buyer covers: The cost of cover (new K) the K price +
incidental or consequential damages less expenses saved in consequence of
sellers breach
Overrules Missouri Furnace
UCC 2-713: Buyers Damages for Non-delivery or Repudiation
o Measure of damages: The market price at the time when buyer learned of
breach K price + incidental and consequential damages less expenses saved in
consequence of sellers breach
Use this if buyer cant cover
UCC 2-714: Buyers Damages for Breach in Regard to Accepted Goods
o Measure of damages for breach of warranty: Value of goods accepted (at time
and place accepted) value goods would have been if they had been as warranted
UCC 2-715: Buyers Incidental and Consequential Damages
o Incidental damages: things like expenses reasonable incurred in inspection,
receipt, transportation, expenses re cover
o Consequential damages: things like loss resulting from general/particular
requirements and needs, injury resulting from any breach of warranty
Liberal conception of Hadley conception of consequential damages (see
infra)
UCC 2-716: Buyers Right to Specific Performance or Replevin
o When goods are unique, or other proper circumstances

o If buyer cant cover, then right to replevin goods

LOST VOLUME DAMAGES (what is factored into loss P can avoid by entering another K) what
profits have really been lost?
If seller could have sold two (the second buyer isnt just covering the costs lost by the first
buyers breach), then that resale is not a cost avoided
Neri v. Retail Marine Corp., pg. 64
They have already taken a step to order the boat, so no loss avoided when another buyer
calls and orders (different if they hadnt done anything to order the boat yet)
Seller recovers full lost profits and incidental damages
If, in furniture maker example, buyer only makes 12 chairs every yr, then no lost volume
and can only recover incidental damages
o CONSEQUENTIAL DAMAGES: damages that result from the breach and go beyond the value of the
thing/service being exchanged
Hadley v. Baxendale, pg. 64 (mill sends broken shaft for repair)
Two rules: Damages must either:
o Arise naturally (according to the usual course of things), form the breach of K
itself; or
Court will impute foreseeability for damages that a reasonable person
should have foreseen
o Arise from special circumstances under which K was actually made if these
circumstances were communicated by P to D
Court will also award damages for remote or unusual consequences, but
only if D had actual notice of the possibility of these consequences
Lamkins v. International Harvester Co., pg. 72 (sale of farm tractor; buyer says he wants
lighting equipment)
Buyer doesnt get damages bc he caused them after the breach, the buyer caused the
harm by not buying a light
Otherwise the damages would be disproportionate, and judges shy away from that not
reasonable that seller would consent to be bound for more than ordinary damages
Victoria Laundry Ltd. v. Newman Industries, Ltd., pg. 73 (K to purchase large boiler; Ps
expressed intention to use it for business)
Here, damages were actually foreseeable, so P can get lost profits, but not lost profits for
particularly lucrative Ks it might have entered into (not reasonably foreseeable)
normal v. unusual profits
Hector Martinez & Co. v. Southern Pacific Transp. Co., pg. 75: P doesnt need to show that
consequence was the most foreseeable harm, but just that it was reasonably foreseeable (not so
remote)
Traditional Hadley rule is inept in modern circumstances bc in industrialized economy, the
person behind the counter cant take extra measures in response to special circumstances that P
informs them of
RELIANCE DAMAGES
o Restatement 349: Damages Based on Reliance Interest
As an alternative to expectation damages, P has right to reliance damages, including
expenditures made in preparation for performance or in performance, less any loss that D can
prove with reasonable certainty that P would have suffered had K been performed
Reliance costs Cost avoided by breach
o P may be knocked down from expectancy to reliance damages when:
Difficult to measure expectancy damages (profits) and easier to measure reliance damages
Secrecy interest: Some firms dont want to claim expectancy damages bc they will then have to
reveal their internal profit margins
Weakness of liability under the contract may lead party to take reliance damages instead
(Sullivan) (promissory estoppel, when K isnt legally enforceable, but P is still entitled to some
relief)
o Chicago Coliseum Clum v. Dempsey, pg. 89 (boxing match)
o

Cant get expectancy damages (lost profits) bc not able to measure

Need something like history of transactions
Even if you can show a possible range, lower number in that range usually wont be
given, but perhaps you can get it if you phrase it by saying this is certainly the lost profit,
rather than by pointing to range
P cant get damages incurred prior to Ds signing K bc the general rule is that you can only get
damages that naturally flow from the breach
P cant recover for expenses incurred by attempting to restrain D
P can get reliance damages: expenses incurred after signing K and before the breach
General Rule: Reliance damages are capped by the expectancy: If it is a losing K (profits = 0 or
less than what is spent in preparation), then P cant get reliance measure that is in excess of that
expectancy (reliance damages minus loss that breaching party can reasonably prove with
certainty that other party would have incurred as a result of K being fulfilled)
L. Albert & Sons v. Armstrong Rubber Co., pg. 98 (buyer of machines to recondition
rubber spend $3,000 on foundation for machines). If the profit of the machine would be
more than the preparation/reliance costs ($3,000), then can recover reliance damages.
But if less, then subtract the reliance from the loss (and recover no more than expected
profits). Buyer recovers $3,000 what buyer would have lost upon performance.
o WASTED EXPENDITURES (expenditures wasted bc P relied on K not yet made)
Rule for common carriers: duty to take packages at set rates, so party can rely on K before it is
made and collect reliance damages for this only case when expenditures will be granted as
reliance damages
Security Stove & Mfg. Co. v. American Ry. Express Co., pg. 96 (K to transport oil and
gas burner to convention for exhibition): P gets damages for renting booth, hotel, and
shipping even though he would have expended these costs anyway, bc due to breach, he
wasnt able to show at convention (taking P back to where he was before K was entered
into)
Anglia Television Ltd. v. Reed, pg. 97 (expenses incurred before actor signed onto play counted
as recoverable wasted expenditures when P then couldnt find another leading actor)
P is not necessarily limited to wasted expenditures incurred after the K was made (can get
such expenditures that were made in reliance of forming K) expands Security Stove,
but this is not the path of modern reliance doctrine and infringes upon traditional law of
reliance damages
Damages should have been limited to post-contractual expenses
RESTITUTION (DAMAGES) (the benefit conferred to the breaching party; the value to the D of the Ps
performance)
o May be awarded both for suit in Contract and for suit in Restitution
o The measure is the objective market value (not subjective value to D)
o Bc restitution is a separate cause of action, P may recover beyond the expectancy
U.S. v. Algernon Blair, Inc., pg. 103 (general contractor breaches; subcontractor sues U.S. for
their performance). If D breaches before completion of Ps performance, then P can get
restitution damages, even if that is greater than the expectation damages.
Oddly creates an incentive to breach sooner rather than later.
As opposed to contract claim, which caps damages at expectancy interest (Oliver v.
Campbell, pg. 109, lawyers client breaches at end of trial; although lawyers services
are worth a lot more than the K price, the lawyer only recovers the balance of his fee bc it
was close enough to completion to push it into breach of K claim rather than restitution)
If Ps performance is completed (or close enough), then Ps recovery is limited to
K price (expectancy) (pushes from restitution to breach of K claim K price then is a
better measure of the damages than restitution)
If P chooses to complete performance, despite Ds breach, then he is limited to
expectancy damages and cannot claim restitution (Clark-Fitzpatrick, Inc. v. Long
Island R.R. Co., pg. 110)
o Restitution Damages for Breaching Party

If benefit has been conferred, then the breaching party may recover in restitution, measuring the
injustice of the benefit in terms of the K (damages are capped by that amount to not encourage
breach), but parties can write K to make it explicit that was is being contracted for is the
completion of a full years of work (and then no recovery for restitution bc no actual benefit yet
conferred to non-breaching party). Either way, non-breaching party recovers incidental damages
of hiring someone else / entering into another K (so that is deducted from restitution damages).
Britton v. Turner, pg. 115 (servant breaches K for one year of work after 9 months)
If P willfully breached, then P gets nothing. Non-breaching party may be able to keep down
payment bc otherwise would deprive seller of protection that the down payment was supposed o
provide and encourage violation of contracts. Party can keep deposit without it looking like a
penalty. Depends on what the purpose of the down payment / deposit was. (Thach v. Durhman,
pg. 119, buyer breaches K for sale of sheep and court declines to give him restitution of his down
payment)
CONTRACTUAL CONTROLS ON THE DAMAGES REMEDY: LIQUIDATED DAMAGES &
LIMITATIONS ON DAMAGES
o Restatement 356: Liquidated Damages and Penalties, pg. 139
A contract may specify liquidated damages, but only an amount that is reasonable in light of
anticipated / actual loss caused by breach. Unreasonably large damages are unenforceable.
There are two factors for determining whether specified damages are unreasonably large
(and so constitute a penalty):
o (1) The anticipated or actual loss caused by breach: must be reasonable to the
extent that it approximates the actual or anticipated loss.
o (2) The difficulty of proof of loss: the greater the difficulty of proving that loss
has occurred, or calculating that loss, the easier it is to show the amount fixed is
reasonable
o This applies to a narrow group of cases: (1) Rare goods/art; (2) Losses are
difficult to calculate bc the business is complicated (but then it is difficult to
determine whether damages are reasonable)
o Courts wont enforce a clause that looks like a penalty more comfortable with
under-compensating (limitation on damages) rather than under-compensating
courts sense of its institutional role
o Tension between not wanting to punish breaching party bc it would discourage contract making and
doesnt comport with the goals of damages, and the theme of freedom to K (why not allow parties to K
for liquidated damages)
o Liquidated Damages Example: Whereas we own unique items of a, b, c and these are difficult to
calculate the value of, but we know these are roughly within range, then if x, y, z, we will calculate as
liquidated damages at that time, as follows
o Limitations on Damages in a K are permissible
Fretwell v. Protection Alarm Co., pg. 144 (K limits liability to $50)
This is not liquidated damages, but a limitation on liability. Explicitly states that alarm
co. is not an insurer.
For limitations on damages, P still has to prove what damages are, but they are just
limited to what they can recover (for liquidated damages, not necessary to show actual
damages bc P just gets whatever amount the K specifies).
But if limitation on damages gets too high might trigger Restatement 356 and court
may conceive of it as liquidated damages.
REMEDIES IN EQUITY: SPECIFIC PERFORMANCE, EQUITABLE TRUSTS, NEGATIVE
ENFORCEMENT
o Equitable Remedies:
Specific Performance: Court can compel party to do what was promised. Must either be (1) for
title of land; or (2) where damages would not be an adequate remedy (ex: unique object, essential
to have the goods themselves, even if you can measure their value)
Injunction: Usually to restrain a party from doing something. Courts are hesitant to compel a
party to perform personal services.

Imposition of Constructive Trust: Where a party has possession of a property, the court can
order it to be held in trust and conveyed to the other party upon death.
But sometimes equitable remedies cant do justice.
o Fitzpatrick v. Michael, pg. 170 (nurse stays on at request of widower, who promises her life interest in
estate; widower repudiates)
P cant get legal remedy bc she is barred by the statute of frauds bc life interest in the land not
conveyed in a writing.
P cant recover in specific performance equity through equitable doctrine of part performance
bc (1) land hasnt been conveyed and she hasnt assumed ownership; and (2) her services are
ordinary (essentially fungible), so damages would be adequate but she is barred from getting
damages due to the statute of frauds, so she recovers nothing
Restitution likely wont help her either bc she has already been paid for services thus far and those services dont
add up to a life interest in the house

Doctrinal response what doctrines apply and where are they in relation to each other and boxes of Contract,
Tort, Restitution
o Recognizes relationship between doctrines, but analyze the most specific one first
Philosophic / Economic lens:
o Transaction costs: pre-contractual; post-contractual and pre-breach; post-breach who should assume
the risks / costs?
o What leads to increased clarity and efficiency in the law
o Control and Responsibility: separation of the two leads to problems
Can provision of law be justified in some deeper sense?
o The nature of freedom as it relates to contract law
o Justice

o MUTUALITY
Though at the time K was signed, there was no enforceability due to contingency on future event, the moment Plee acquired the title, it becomes mutually binding--enforceable.
o Performance = acceptance + consideration
If one party reserves absolute right to cancel the K at any time --> No commitment, therefore no detriment

o OUTPUT CONTRACTS
UCC 2-306 states an "output" K has mutuality and is not too indefinite, as long as sellers and buyers engage in
good faith production and purcNhase.
A lawful AGR for exclusive dealing obligates by seller to use best effort to supply, and buyers to promote sale.
Good faith cessation of production terminates any further obligations
o Bankruptcy or genuine imperil
o AGREEMENT AND INTENT
Intent in K objective rather than subjective --> intent not to be bound.
o Pact subject to later agreement.
o Return of earnest money

o Terms and conditions addable.

o Investigation cost = Not reliance expenditure
Preliminary agreement
o Fully binding--only in form.
Preliminary commitment
o Binding to carry out further good faith negotiation--easily no obligation.
o SECTION 33. CERTAINTY
K = Manifestation of intention + terms of the K reasonably certain (if it provides basis for determining breach and
appropriate remedy). UCC 2-204.
Terms of the bargain left open = (may) not intended to be offer or acceptance.
Intention not to be bound unless price be fixed or agreed --> not fixed or agreed = No K.
Indefiniteness Examples:
o Missing loan terms
o "at cost plus a nice profit"
o Future agreement as to price