Pawlowic Contracts Outline; Grade: B+

I.

II.

III.

Contracts
a. A contract is a legally enforceable promise made between two entities. If there is a breach, the law gives
a remedy.
b. Contract law originated as common law, made by judges on a case by case basis. Currently, statutes,
regulations, and common law govern contracts.
c. Restatement is not law. It is a guide or summary/explanation of contract issues. It is not binding on any
jurisdiction, but it is persuasive authority. It is an attempt to provide a basic, coherent explanation of
current law or in some cases what the law should be.
d. Contract
1. Mutual Assent
2. Consideration
(a.) Legal Value
(b.) Bargained for exchange
e. White v. Benkowski
i. Benkowskis (supplier) and Whites signed a written contract in which the Benkowskis would
supply water to the White home for $3 a month plus half all future costs of well repairs. The
Benkowskis, in turn, promised to supply the Whites with water for ten years or until the well
became inadequate, a municipality supplied water to the White home, or the Whites purchased a
well of their own.
ii. Court found that inconvenience suffered by Mrs. White was sufficient to require compensatory
damages.
f. Bilateral Contract
i. Both parties made promises
ii. Both parties have duties
d. Unilateral Contract
i. Only one party makes a promise (Hamer v. Sidway).
ii. Only one party has a duty.
Remedies
a. Three Remedies Restatement 344
i. Expectation interest: The promisee is put in the position he would have been in had there been no
breach of contract; benefit of the bargain; represents the actual worth of the contract to the
promisee; recovery is often limited by the objective standard of market value at the time of
performance, not the time the contract was made
ii. Reliance interest: The promisee is reimbursed for any loss caused by reliance on the contract
iii. Restitution interest: The promisee is restored any benefit that he has conferred upon the other
party.
b. Judicial Remedies
i. Award sum of money due under contract or as damages
ii. Require performance of the contract or enjoin its non-performance
iii. Require restorations of a specific thing to prevent unjust enrichment
iv. Declare the rights of the parties
v. Enforce an arbitration award
Consideration as a Basis for Enforcement
a. Fundamentals of Consideration
i. Requirements
1. A return promise or performance of some legal value that would result in a benefit to the
promisor OR a detriment to the promisee
2. Bargained for exchange: The promise must induce the detriment & the detriment must
induce the promise.

ii. Hamer v. Sidway

1. Uncle promises $5,000 to his nephew for not drinking, swearing, using tobacco, or
gambling until he is 21.
2. Issue: Has any consideration been given for that promise?
3. The nephew refrained from drinking, using tobacco, swearing, and gambling until he was
21; this is consideration.
4. Detriment: The most important element of detriment is that the party restricts his legal
freedom in order to keep the promise. Even if the person did not like to drink, smoke,
gamble, or curse, he gave up that right.
iii. Gratuitous Promises
1. If a gift is completed, the beneficiary is the rightful owner. There is no legal way to get
that gift back.
2. A promise to make a gift without consideration is not a legally enforceable contract. If
the promisor fails to perform the promise, the promisee has no legal recourse.
iv. Peppercorns Restatement 81
1. If the peppercorn is given in pretense(proposed the peppercorn to try and make contract
valid), there is no bargained for exchange.
2. See Restatement (Second) Section 81: Consideration requires that at least part of the
motive for the promise be that what is being bargained for induces that promise.
3. In Bargained for exchange need (promise induced detriment)& (detriment induced
promise). Peppercorn is not.
v. Fiege v. Boehm
1. Boehm allegedly became pregnant as a result of a sexual encounter with Fiege.
2. Louis allegedly promised to pay medical expenses and $10/week support of the child
until it was 21 years of age. In return, Hilda would not file suit for bastardy as long as
the payments were made. (Promise was made by Louis for a performance by Hilda).
3. Louis had blood tests, and found out he was not the father. He stopped making payments,
and Hilda filed criminal bastardy proceedings.
4. Issue: Is the contract valid even though the consideration was an invalid claim?
5. The contract is valid because Hilda made the contract based on a good faith belief that
Louis was the father.
6. Two Requirements for an Invalid Claim
a. The claim must be made in good faith belief (subjective standard)
b. There must be a reasonable basis of support for the claim (objective standard)
b. The Requirement of Exchange: Action in the Past
i. Feinberg v. Pfeiffer
1. Feinberg worked for Pfeiffer for 37 years.
2. The company promised Feinberg $200 per month upon her retirement for the remainder
of her life.
3. Feinberg alleged that there is consideration for that promise: past services, her continued
employment after the agreement, and abandonment of gainful employment.
4. Past services cannot be consideration because they were not induced by the promise
5. Continued employment did not induce the promise since there was a clause allowing her
to retire at any time.
6. Retirement did not induce the promise since she could work as long as she wanted.
c. The Requirement of a Bargain
i. Kirksey v. Kirksey
1. Defendant promised to give the defendant land and a place to stay.
2. Plaintiff moves to live on her brother-in-laws land.
3. Defendant put her in a comfortable house, then made her move into the woods, then told
her to move off his land.
4. Plaintiff claimed that there was consideration because she abandoned her home and
moved 60-70 miles away.

5. The court found that the defendant merely promised a gift. There was a condition to the
promise, but there was no consideration.
d. Rewards
i. Rewards are enforceable as contracts as long as the promise is known about before the
performance is completed.
ii. Bargain for Exchange requirements are satisfied if the detriment induced the promise, and the
promise induced the detriment.
e. Promises as Consideration
1. Unilateral contract: contracts in which the promisor has sought performance in exchange
for a promise.
2. Bilateral contract: Where consideration for a promise is a return promise.
ii. Strong v. Sheffield
1. Gerardus promises to pay Strong the money he owes him. Strong asked for a promissory
note(payable on demand) from Gerardus (defendants husband).
2. In addition, Louisa (defendant) endorses the note (because she has more assets),
promising to pay if there is a default.
3. D signs promissory note in exchange for forbearance on the collection of promissory note
4. Plaintiff testified that there was an express agreement that he would collect when he
wanted it. This is a promise but how does it benefit the promisor or a detriment to the
promise? This is illusory promise.
5. Gerardus defaults on the note, and Strong asks Louisa to pay. Louisa refuses.
6. There was no consideration because the plaintiff stated in the contract that he would
collect the money when he wanted it. There was no change of position after the
contract.
iii. Mattei v. Hopper
1. Mattei, a real estate developer, enters into a contract with Hopper, the land owner.
Hopper agrees to sell his land to Mattei for $57,500 in return for a $1,000 and the
promise to purchase the land. Matteis promise is contingent that he finds satisfactory
lessees for the property and finds the title satisfactory within 120 days.
2. Hoppers attorney notifies Mattei before the 120 days was up that he would not sell his
land under the terms in the contract.
3. The subjective good faith standard (common law) is applied. If a good faith standard
applies, the buyer cannot just get out of the contract because he wants to.
4. Even when promises are conditional, they satisfy consideration requirements.
iv. Eastern Air Lines, Inc. v. Gulf Oil Corporation
1. Eastern agreed to buy jet fuel from Gulf in certain cities (based on demand rates).
2. The contract stated that prices of jet fuel would reflect the prices of crude oil (West Texas
Sour) as reported.
3. Gulf threatened to breach if their demands for a higher price were not met
4. Gulf claimed that the contract lacked mutuality of obligation because Eastern could
buy as much or as little jet fuel as they wanted.
5. U.C.C. 2-306 imposes a good faith standard on requirements contract. The purchaser
may not buy on his whim. If there are estimates in the contract, the actual demand cannot
vary unreasonably from those estimates.
v. Wood v. Lucy, Lady Duff-Gordon
1. Lady D-G was a fashion designer/guru. She entered into an agreement with Wood in
which she promised him the exclusive right to her name. Wood promises 50% of all
proceeds.
2. Lady D-G breached the agreement by selling her endorsements on the side.
3. She claimed that the contract was not valid because Wood did not specifically promise to
market her endorsements.
4. The court found that the contract implied obligation, or was instinct with an obligation.
Parties are liable for breach of contract if an implied meaning within a contract is
breached.

IV.

vi. Termination Clauses

1. Parties often use termination clauses to reduce the risks they assume by contracting.
2. If a termination is read as giving a party the power to terminate at any time at will,
without more, that partys promise will be held to be illusory.
3. If however a termination clause is read as requiring that notice be given some period of
time before termination becomes effective, or be given in writing, or in some other way
restricts the right of termination, the promise will not be held to be illusory
Reliance as a Basis for Enforcement (Promissary Estoppel)
a. Detrimental Reliance Restatement (Second) 90
i. Promise (that)
ii. Promisor should reasonably expect to induce action or forbearance
iii. That does induce action or forbearance
iv. Unjust not to enforce the promise
v. Remedy may be limited as justice requires
b. Ricketts v. Scothorn
i. Ricketts promised his granddaughter, Scothorn, $2,000 at 6% per year so that she would not have
to work anymore. He wrote out his promise.
ii. In reliance on her grandfathers promise, Scothorn quit her job.
iii. Ricketts had only paid one years worth of interest at the time of his death.
iv. Ricketts estate said the promise was gratuitous, and refused to pay.
v. The court found that there was no consideration, but that there was another principle on which
Scothorn could recover: detrimental reliance.
vi. The grandfather made a promise, on which he reasonably expected his granddaughter to rely.
Scothorn relied on the promise, and it would be unjust not to enforce the promise.
vii. Court used concept of reliance for the first time..developed into equitable estoppels.
c. Equitable Estoppel
i. A representation of fact made by one party
ii. Relied upon by another party
iii. The reliance causes a harm
iv. It must be just to enforce the contract
d. Promissory Estoppel (same as detrimental reliance)
i. Family promises
ii. Promises to convey land
1. The recipient of a promise to convey land relied on it by moving onto the land and
making improvments
iii. Promises coupled with gratuitous bailments
2. A person to whom the owner of something entrusts its possessions makes a promise
to the owner respecting the property, on which the owner relies.
iv. Charitable subscriptions
e. Feinberg v. Pfeiffer (Detrimental Reliance)
i. Employer promised to pay Pfeiffer $200 per month upon her retirement.
ii. Court found that there was no consideration but that Feinberg relied upon her employers
promise.
iii. Feinberg could recover under the principle of detrimental reliance.
f. D & G Stout v. Bacardi Imports
i. D & G (General Liquors) lost two suppliers during a tumultuous time in the Indiana liquor
business.
ii. Stout knew he could stay in business if he kept Bacardi and Walker, but he could also sell to
National.
iii. Stout began negotiating with National, and Bacardi said theyd remain as a supplier.
iv. General rejected Nationals offer to buy.
v. Court called Bacardis promise a promise to continue at will and the return promise was at
will implying the time of the relationship is indefinite.
vi. Bacardi pulled out as a supplier, and Walker followed.

V.

vii. The court held that D & G could recover because Bacardi made a promise on which they could
reasonably expect D & G to rely on. It would be unjust not to enforce the contract.
Restitution as an Alternative Basis for Recovery
a. Restitution Restatement 373
i. Enrichment or receipt of some benefit
ii. At the expense of another
iii. Retention of that benefit without compensation is unjust
1. Was there some expectation of remuneration from the defendant?
2. Was there a mistake?
3. Was there a direct dealing between plaintiff & defendant?
4. Was a fraud perpetrated?
iv. Family members gratuitous acts have no claim to restitution. Ex. Taking care of dying father
cannot have a claim of restitution against him. But in Pyeatte there was an exceptional unilateral
benefit and restitution was justified.
b. Cotnam v. Wisdom
i. Cotnam, a doctor, performed a difficult operation on Harrison after he was thrown from a car.
ii. Harrison died without ever regaining consciousness, so he never expressly agreed to the
operation.
iii. The court found an implied contract & allowed the doctor to recover.
iv. There was a benefit, at the expense of another, & retention w/out compensation would be unjust.
v. The law presumes that the acts of Good Samaritans are gratuitous.
vi. Good Samaritans are not usually compensated because they do not expect compensation,
but medical professionals can recover under restitution because they normally expect
compensation.
c. Callano v. Oakwood Park Homes Corp.
i. Pendergast made a contract with Oakwood to build a home.
ii. Pendergast made a contract with Callanos to put in shrubbery.
iii. Pendergast died after the shrubbery was put in but before he paid the bill.
iv. Oakwood cancelled the contract and sold the home to another family.
v. The Callanos sued for unjust enrichment.
vi. The court held that the Callanos could not collect because Oakwood had not made a contract with
the CallanosThe Callanos should sue Pendergasts estate.
vii. The Callanos never made a contract with Oakwood. The Callanos had a contract and expectation
of compensation from Pendergrast.
viii. In order for unjust enrichment to apply, the parties involved must have entered into the
contract.
d. Pyeatte v. Pyeatte
i. A married couple agreed that the wife would put her husband through law school & then the
husband would put his wife through graduate school.
ii. Neither would work while going to school.
iii. The wife put her husband through school & then he asked her for a divorce.
iv. The wife sued for restitution.
v. Where both spouses perform the usual and incidental activities of the relationship, upon
dissolution, there can be no restitution for those activities.
vi. Where the facts demonstrate an agreement between the spouses and an extraordinary or
unilateral effort by one spouse which inures solely to the benefit of the other by the time of
dissolution, restitution is appropriate.
e. Gratuitous Promises
i. Mills v. Wyman
1. Wyman fell ill after returning home from a sea voyage.
2. Mills took care of Wyman for two weeks.
3. Wymans father promised to pay for expenses, but did not.
4. Restitution The son was grown, so the father had no obligation to care for his son. He
did not gain any legal benefit, so he had no legal obligation to pay.

VI.

5. Moral obligation but no legal obligation to perform a gratuitous promise.

ii. Dementas v. Estate of Tallas
1. Tallas promised Dementas $50,000 for his good friendship & promised to change his
will.
2. Tallas died before he paid.
3. The father did make a promise, but it was for past services.
4. Even formally written, notarized and sealed promises, if found gratuitous, are not
enforceable.
f. Moral Obligation
i. General rule is that moral obligation is not sufficient to base a legal claim upon.
ii. Exception Promisory restitution according to Restatement 86
iii. Exception Reaffirmation Restatemtn 82, 83
iv. Promisory Restitution Restatement 86
1. A promise made in recognition of a benefit previously received by the promisor from the
promise is binding to the extent necessary to prevent injustice.
2. Promise is not binding under Section 1 if
a. The promise conferred the benefit as a gift or for other reasons the promisor has
not been unjustly enriched (Person doing his job cannot enforce a promise
against someone he saved fireman)
b. To the extent that its value is disproportionate to the benefit.
v. Webb v. McGowin Pine Block
1. Webb worked for a Lumber Co. where McGowin was president.
2. Webb falls to the floor with a huge pine block in order to save McGowin who was on the
floor beneath it.
3. Webb saved McGowins life but was crippled in the process.
4. Webb did not expect compensation & therefore cannot collect based on restitution.
5. McGowin received a material benefit & the benefit was recognized with a specific
promise to pay that Webb would have made if he were able to continue working.
6. The court allowed the complaint to stand because McGowins promise to pay was
specifically linked to the harm.
The Nature of Assent
a. Requirement of a Bargain - Restatement 17
i. Except as stated in subsection (2), the formation of a contract requires a bargain in which there is
a manifestation of mutual assent to the exchange and consideration.
b. Subjective Standard
i. Early courts required a meeting of the minds
c. Objective Standard
i. If there was a manifestation of intent, the court enforced the promise.
d. Middle Ground
i. The court now looks at the outward (obj. standard) as well as whether one of the parties
reasonably thinks that a valid contract had been made (subj. standard).
e. Lucy v. Zehmer
i. Zehmers agreed to sell their farm to Lucy as a joke.
ii. The parties bargained over the price, wrote the contract on a napkin, & signed it.
iii. After Lucy offered the Zehmers $5 to bind the bargain, the Zehmers said they were kidding.
iv. The appellate court found for Lucy because he had no reason to believe that a valid contract had
not been formed. He thought he had bought the Zehmer farm.
v. The bargaining, two signatures, two drafts of the contract, & provision stating title was subject to
the buyers satisfaction shows intent to form a contract.
vi. The mental assent of the parties is not requisite for the formation of a contract. An objective
manifestation of assent is required.
f. Intent to be Bound
i. The Restatement does not require mutual assent just a manifestation of assent.
ii. Court looks at outward manifestation of mutual assent & what each party thought.

VII.

g. Effect of Misunderstanding 20
i. There is no manifestation of mutual assent to an exchange if the parties attach materially different
meaning to their manifestation &
1. Neither party knows or has reason to know the meaning attached by the other
2. Each party knows or each party has reason to know the meaning attached by the other
ii. The manifestations of the parties are operative in accordance with the meaning attached to them
by one of the parties IF
1. That party does not know of any different meaning attached by the other, and the other
knows the meaning attached by the first party
2. That party has no reason to know of any different meaning attached by the other party.
h. Gentlemens Agreements
i. Gentlemens agreements by express provision prevent courts from enforcing their agreements.
ii. If the parties agree to put promises in writing, there may or may not be a formation of a contract
until it is written out.
i. Formal Contract Contemplated - Restatement 27
i. Manifestations of assent are in themselves sufficient to conclude a contract will not be prevented
from operating as such simply because the parties also manifest an intention to prepare & adopt a
written memorium.
The Offer
a. Offer Defined - Restatement 24
i. Manifestation of willingness to enter into a bargain
ii. So made as to justify another person in understanding that his assent to that bargain is invited &
will form a contract.
b. Factors determining an offer
i. Words of commitments -reasonable implication or express promise
ii. Specificity of the terms must specify terms or way to determine them
iii. Identity of offeree Who has the power of acceptance?
c. Owen v. Tunison
i. Will you sell me your property for $6,000?
ii. It would not be possible for me to sell for less than $16000
iii. Accept your offer.
iv. This is not really an acceptance because there was no offer.
v. Seller only said it would be possible to sell at a certain price. He did not say he would sell to the
buyer at that price.
vi. The buyer did not have the power of acceptance there was no contract.
d. Harvey v. Facey
i. Harvey Will you sell us Bumper Hall Pen. Telegraph lowest cash price.
ii. Facey Lowest price $900.
iii. Court found that the first question was not answered. The sellers price quotation was not an
offer.
iv. A price quotation does constitute an offer to sell.
e. Fairmount Glass Works v. Crunden-Martin Woodenware
i. Crunden said Advise us the lowest price you can make us on our order for ten car loads.
ii. Fairmount said We quote the following price & terms. This is an offer because Fairmount
answered Crundens question of the price at which Fairmount will sell & includes the phrase for
immediate acceptance.
iii. A price quote can sometimes be considered an offer, depending upon the specificity of the
terms.
f. Advertisements as Offers
i. Advertisements are generally not considered offers.
1. Invitation to make an offer- the offer occurs when you give them the money for the item
and they accept your money
g. Lefkowitz v. Great Minneapolis Surplus Store
i. It is possible for an advertisement to be an offer.

ii. Factors of an Offer:

1. Words of promise? Yes
2. Specificity of terms? Yes ( know what the price and product is)
3. Identifications of offeree? Yes first come first serve offeree
iii. Where the advertisement is clear, definite, and explicitly, and leaves nothing open for
negotiation, it constitutes an offer, acceptance of which will create a contract.
iv. Offeror master of offer/K
v. The advertisement said first come, first served.
vi. Lefkowitz tried to buy a fur, but the store said there was a house rule that restricted the sale to
women.
vii. The house rule was not put in the advertisement (contains no restrictions) & therefore cannot be
enforced.
h. Competitive bidding
i. For competitive bidding, the person making the bid has made the offer.
ii. The other party may accept or decline any bid.
iii. Auctioneer inviting offers from audience
VIII.

The Acceptance
a. Restatement 50 Acceptance of an Offer
i. Manifestation of assent to the terms made by the offeree in a manner invited or required by the
offer
ii. Acceptance by performance requires that at least part of what the offer requests be performed or
tendered an includes acceptance by a performance which operates as a return promise
iii. Acceptance by a promise requires that the offeree complete every act essential to the making of a
promise.
b. Restatement 58 Acceptance must comply with terms of offer
i. An acceptance must comply with the requirement of the offer as to the promise to be made or
performance to be rendered.
c. Restatement 56 Acceptance by promise Notification
i. The offeree must exercise reasonable diligence to notify the offeror of acceptance or that the
offeror receive the acceptance within a reasonable period of time
ii. General rule for acceptance by promise
d. International Filter Co. v. Conroe Gin, Ice & Light Co.
i. A letter that does not confer the power of acceptance is not an offer.
ii. The general rule is that notice of acceptance is required for the contract to be completed.
iii. In this case, the offer stated that the contract would be completed upon approval by an upper-level
officer of the company.
1. Letter was invitation to make offer
iv. This is an exception to the general rule requiring notice.
v. Consideration- yes
vi. Until an executive officer accepts offer it is NOT a K
1. Offer made by gin company
e. Restatement 60 Time, place, manner of acceptance
i. If an offer prescribes the specific time, place, & manner of acceptance, those terms must be
complied with in order to form a contract.
f. Restatement 30 Form of Acceptance Invited
i. Unless otherwise indicated, the offer invites acceptance in any manner and by any medium
reasonable in the circumstances.
g. Restatement 50 Acceptance of an Offer
i. Manifestation of assent to the terms of the offer
1. Assent to terms provided by offeror
ii. Acceptance by performance

iii. Acceptance by return promise

h. White v. Corlies & Tift
i. White made an estimate for a remodel of Corliesoffice (Offer)
1. Builder makes another offer changing the contract to the specifications made.
ii. Corlies said upon agreement (when we have agreed), you can begin at once.
iii. White purchases lumber & then Corlies revokes the offer.
iv. The court held that the offer invited acceptance by promise & that an offer can only be accepted
by performance if performance is invited.
v. The upon agreement clause invited acceptance by promise only, so there was no enforceable
contract.
1. Additional term
2. You cant bind someone else while proposing additional term to K
3. Counter offer
vi. An offer that invites acceptance by a promise cannot be accepted by beginning
performance.
vii. Essential to provide notice or reasonable diligence to try to provide notice for a promise
i. Ever-Tite Roofing Corp. v. Green
i. Greens signed an agreement with Ever-Tite for them to replace their roof.
1. Offer
2. Agreement became binding upon written acceptance of authorized worker of Contractor,
or upon commencement of work
ii. The agreement allowed for acceptance by return promise or performance.
iii. If the offer was accepted by a return promise, there must be notice of acceptance.
iv. Performance constituted acceptance
1. No notice is necessary if acceptance is invited by performance.
v. To begin performance, you must do something the contract requires you to do.
vi. There is a difference between preparing to perform & performing.
j. Restatement 54 Notice in Acceptance by Performance
i. No notice is required unless the offer specifically requests notification
ii. If the offeree knows that the offeror has no way of learning of the performance with reasonable
promptness & certainty, the contractual duty is discharged UNLESS
1. The offeree exercises reasonable diligence to notify
2. The offeror learns of the performance within a reasonable time
3. The offer indicates that notification is not required
k. Restatement 62 Effect of Performance where offer invites acceptance by performance or promise
l. Restatement 45 Option contract created by part performance
i. Preparing to perform v beginning performance
ii. Performance starts when promisee starts preparing for activity
m. Carlill v. Carbolic Smoke Ball Co.
i. Advertisement that Carbolic would pay $100 to anyone who used smoke ball for two weeks &
still got a cold or flu.
ii. This was an offer that invited acceptance by performance.
iii. Notice was not required (by nature of the offer).
iv. Unilateral contract
1. Partial performance is acceptance and stops revocation
2. The offereee has not made a promise and therefore can stop performance at any time.
v. In some situations, beginning a performance operates as a promise to render complete
performance.
vi. In this case, the user could quit performance at any time because the offer was an advertisement
& notice was not required.
vii. 54
n. Restatement 25 Option Contract Defined
i. Option contract is a promise which meets the requirements for the formation of a contract and
limits the promisors power to revoke the offer.

o. Unilateral Contracts
i. 50(2) Acceptance defined
ii. 62 Effect of performance where offer invites either performance or promise
iii. 54 Acceptance by performance
iv. 45 Option contracts
p. Allied Steel and Conveyors, Inc. v. Ford Motor Co.
i. FordAllied (offer)
ii. Ford ordered machinery from Allied on Fords printed form
1. Saying Allied would be responsible for all damages to property and injuries to their
employees and to Fords
iii. Allied starts work, Allied employee sustains injuries as a result of negligence on Fords
employees
iv. Employee sues Ford, Ford implead Allied
v. Verdict for P against D and D against impleader
vi. Allied motions for JNOV, denied, appealed
vii. Affirmed
viii. Issue: Was K binding even though amendment wasnt followed?
ix. Holding: offeror merely suggest a permitted method of acceptance, other methords of acceptance
are not precluded
1. If performance completed/tendered within time allowed for acceptance=have K
x. Two different K, second one was a new K and therefore new terms
xi. Allied consented to terms by starting on project
xii. Restatement 62 (2) 70
q. Shipment of Goods as Acceptance
i. UCC 2-206 Offer & Acceptance
1. Unless stated otherwise, an offer shall be construed as inviting acceptance in any manner
and by any medium reasonable under the circumstances
2. An order for prompt or current shipment shall be construed as inviting acceptance either
by prompt promise to ship or shipment of conforming or non-conforming goods.
3. Shipment of conforming or non-conforming goods operates as acceptance
4. UNLESS the seller tells the buyer that the non-conforming goods were offered only as an
accommodation
5. If the offeror is not notified of acceptance within a reasonable time, the offeror may treat
the offer as having lapsed before acceptance. (2)
ii. UCC 2-204 Formation in General
1. A contract for the sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of a
contract.
iii. UCC 1-103 Supplementary General Principles
1. Unless displaced by the UCC, the principles of law and equity (common law) shall
supplement its provisions.
iv. Restatement 53 Acceptance by Performance
1. Rendering of a performance does not constitute an acceptance if within a reasonable time
the offeree exercises reasonable diligence to notify the offeror of non-acceptance.
r. Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories
i. Lederle sent out notices that their prices for DTP would increase from $51 to $171.
1. P gets letter before it is sent out to clients (not an offer to P)
ii. Corinthian ordered 1,000 vials (Offer) & got an automatic tracking number (acknowledgement)
from an automated system.
iii. Lederle sent out 50 vials at $51, said this shipment was sent out merely as an accommodation &
Corinthian could cancel their remaining order if they so desired.
1. Conformations from B- does not constitute A bc B is the one who made the offer
(conformations of offer)

10

2. S notified that yes it was performance but it wasnt an acceptance, it was just
accommodating B
3. If there was no notification and counter-offer D wouldve had to provide all 1000 vials
iv. Under UCC 2-206 the shipment was not acceptance but a counter-offer.
1. B then had the power to A and did of the 50 vials
v. A shipment of non-conforming goods offered as an accommodation is not acceptance by
performance.
s. Silence not Ordinarily Accepted
i. The general rule is that silence does not constitute acceptance.
ii. Restatement 69 Acceptance by Silence
1. Silence is acceptance only in three cases
a. Offeree takes benefit of offered services with opportunity for rejection
b. Offeree knows his silence will be taken as acceptance
c. Because of previous dealings, it is reasonable that the offeree should notify the
offeror if he does not intend to accept
IX.

Termination of the Power of Acceptance

a. Restatement 36 Termination of Power of Acceptance
i. Rejection or counter-offer
ii. Lapse of time
iii. Revocation
iv. Death or incapacity
b. Lapse of an Offer
i. Offers lapse after a reasonable time under the circumstances
ii. Oral offers lapse at the end of a conversation
iii. Akers v. JB Sedberry Inc
1. Offer made face-to-face convo cannot be accepted after the close of convo
c. Revocation
i. Direct Revocation Restatement 42
ii. Indirect Revocation Restatement 43
iii. Revocation of General Offers Restatement 46
iv. Dickinson v. Dodds Indirect revocation
1. Dodds offered to sell property to Dickinson & gave him til 9am on Friday to accept (this
type of offer requires notification of acceptance).
2. Before Dickinson could accept, he heard that Dodds had agreed to sell the property to
someone else.
3. Because there was no consideration for the promise to hold the offer open until 9am,
there was no option contract.
a. Since Dickinson knew that Dodds offer had been implicitly withdrawn when he
learned that he had sold the property to someone else, there was no meeting of
the minds at the time acceptance was made and therefore a binding contract was
not formed indirect revocation of offer
4. According to Rest. 43, an offerees power of acceptance when an offeror takes
indirect action inconsistent with an intention to enter into the proposed contract &
the offeree acquires reliable information to that effect.
5. Dodds indirectly revoked the offer to sell.
6. UCC Article 2 does not apply because its talking about goods & services, not property
v. Detrimental Reliance for Option K Restatement 87
1. Offer is binding as an option K if:
a. In writing and signed by offerer, consideration for making of offer, proposes
exchange on fair terms within reasonable time
b. Made irrevocable by statute
2. Offer which offeror should reasonably expect to induce action/forebearance of substantial
amount on the part of offeree before A AND induce action/forebearance is binding

11

vi. 90-Promise inducing action

vii. Firm Offers Under the Code
1. UCC 2-205 Firm Offers (real prop v goods/services) by a merchant
a. Signed
b. Gives assurances it will be held open
c. Period cannot exceed 3 months
d. Only merchants can make firm offers
e. Term of assurance supplied by offeree must be separately signed by offeror
2. UCC 2-104 Definition of Merchant
a. a person who deals in goods of the kind or otherwise by his occupation holds
himself out as having knowledge or skill peculiar to the practices or goods
involved in the transaction
b. to whom such knowledge or skill may be attributed by his employment of an
agent or broker or other intermediary who by his occupation holds himself out as
having such knowledge or skill.
viii. Ragosta v. Wilder
1. Wilder offered to sell Ragosta The Fork Shop any time until Nov. 1 st that he would
meet him at a bank with $.
2. Wilder sent back Rogastas check, so there was no consideration.
3. They planned to meet.
4. Wilder called Ragosta & said he would not sell.
5. There was no consideration as required for an option K.
6. Plaintiff argued detrimental reliance.
a. Courts said that whatever detriment they suffered was not in exchange for Ds
promise to keep the offer to sell open
b. Ps merely engaged in preparation for performance
i. They never tendered the $- no performance
7. Court said that there was no promise that Wilder could have reasonably expected Ragosta
to rely on & that there was no acceptance because performance never began.
a. The promise to keep the offer to sell open was not enforceable and absent the
operation of equitable estoppel, D could revoke the offer to sell the property at
any time before P accepted
b. Equitable estoppel inapplicable bc there were not facts known to D but unknown
to P
8. Under a unilateral K, an offer cannot be accepted by promising to perform; rather the
offeree must accept by performance, @ which time the K is enforceable
9. Ragosta was merely preparing to perform by incurring closing costs.
10. An option contract requires consideration. Not enforceable
11. Restatement 87
12. Compared to equitable estoppel, where the grandpa gave $5000 to granddaughter to not
work
d. Death of an Offeror
i. Restatement 48 Death of an Offeror
1. General rule is that death or incapacity terminates the offerees power of acceptance.
2. Death or incapacity of offeree has the same effect as that of the offeror
a. Does not terminate the offerees power of acceptance under an option K
3. A valid contract can still be enforced against an estate, if performance began
4. If A on the part of offeree was by performance after offerors death, not enforceable
a. K must be established before death
ii. Restatement 37 Termination of Power of Acceptance Option K
1. Offerees power of acceptance is not terminated by
a. Death or incapacity of offeror
b. Rejection
c. Counter-offer

12

d. Revocation
e. Rejection
i. Rejection of an offer terminates the power of acceptance so that the offeree cannot thereafter
accept the offer.
ii. The Mirror Image Rule
1. Acceptance must be the mirror image of the offer
2. An acceptance upon condition is considered a counter-offer
3. A counter-offer operates as rejection of the original offer (one that does not exactly mirror
the terms of original offer)
4. Under this rule, the party that sent the last form usually prevailed.
5. An acceptance that has a new condition or a new limitation is a counteroffer and requires
A by original offeror before a K exists
6. Courts may decided that what seems to be an additional term in A was really implied
term in the offer=valid K
a. Court may also decide that the language of A relating to an additional/different
term is only suggestive, still have a valid K
7. Parties often act on assumption that promises are binding even when K hasnt been made
iii. Disputes over K
1. Whether K was made
2. Performance under belief of K but terms not exact match
iv. Rejection of an Irrevocable Offer
1. 37 doubtful that the holder of a power to A under an option K puts an end to the power
by rejecting the O
2. Possible to distinguish when the grantor of the option had received consideration for it
and one in which an offer is irrevocable as a firm offer
f. UCC 2-205 Firm Offer
i. An offer to buy/sell goods that is signed that gives assurance that it will be held open is not
revocable for lack of consideration
ii. In no event may such a period of irrevocability exceed three months
g. The Mailbox Rule-Contracts by Correspondance Restatement 45
i. Acceptance is effective on dispatch of A
ii. Once the offeree has dispatched an acceptance, it is too late for the offeror to change his mind &
revoke the offer.
iii. Receipt of an electronic is effective even when no individual is aware of its receipt.
iv. Restatement 63 makes the mailbox rule applicable only if the acceptance is made in a manner
and by a medium invited by the offeror
1. Would not ordinarily apply to A by mail of an offer made by telegram
v. Connection with the termination of the offerors power to revoke and offerees power to reject
1. Once the offeree had dispatched an A, it is too late for the offeree to change its mind and
reject offer
h. Restatement 42 Revocation
i. Revocation is effective on receipt, not on dispatch.
i. Restatement 40 When rejection or counter-offer terminates acceptance
i. Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until
received by the offeror, but limits the power so that a letter or telegram of acceptance started after
the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless
acceptance is received by the offeror before he receives the rejection or counter-offer.
j. Restatement 64 Acceptance by Telephone/Teletype
i. Acceptance by telephone, teletype, or other two-way medium is governed by principles
applicable to acceptances where the parties are in the presence of each other.
k. Restatement 38
i. A manifestation not to accept an offer is a rejection unless the offeree manifests an intention to
take it under further advisement.

13

l.

X.

Restatement 39
i. An offerees power of acceptance is terminated by his making a counter-offer, unless the offeror
has manifested a contrary intention or unless the counter-offer manifests a contrary intention of
the offeree.

The Battle of the Forms & The UCC

a. Last Shot Rule
1. Which of the parties was the last to fire before performance
2. Advantageous to have fired the last shot before performance commenced
b. Battle of the Forms: Opening Skirmish
i. Proposal to A or an A upon terms varying from those offered, is a rejection of the offer and puts
an end to the negotiation unless the party who made original offer renews it or assents to
modification suggested
c. Example
i. BP.O. 100 TVs @ price S (offer)
ii. SAcknowledgement; repeats all original terms of O w/ add terms B
1. Big terms match up but if response add terms or doesnt meet all original terms- NOT A
a. Common law rule= A needs to be mirror image of offer, no K
2. Last Shot Rule- whoever shot last
iii. On certain day Sships goods
1. Reference of acknowledgment but there is still no A, just a counteroffer bc it materially
alters O
iv. B accepts TV constitutes A of counteroffer
d. K for a sale of goods is often the result of an exchange of several messages, rather than a single document
signed by both parties
i. Characteristic sequence: request for quotation answered by a quotation form, then purchase order,
sales acknowledgment
e. Battle of the Forms
i. Arises most often when parties use standardized forms to express O and A
ii. Also arises when the parties exchange individualized messages
f. Transcending the Mirror Image Rule- UCC 2-207
i. Exchange of non-identical forms did not, by itself, create a K
1. offerees form was considered to be a rejection of the offer and a counter-offer on the
offerees terms
ii. Art II
1. Abandoned mirror image in favor of an analysis more attentive to the types of
commercial practices
iii. UCC 2-207 (1)
1. Written confirmation sent w/in reasonable time
a. Confirmations come after K
2. Once K is determined UCC 2-207(2) to hash out other terms.
3. Additional or different terms in a seasonable expression of acceptance that contains
different or additional terms still operates as acceptances unless acceptance is expressly
made conditional on assent of the additional/different terms.
iv. UCC 2-207 (2)
1. Terms of K may be determined at a diff time than time at which K is formed
2. Three ways to interpret
a. Treat Different Terms as additional terms
b. Knockout Rule: Con flicting terms cancel each other out. Any supplementary
terms are filled with UCC Gap Fillers.
c. Fall-Out Rule: Conflicting terms of the offeree fall out, leaving only the terms
of the offeror as governing.
3. Additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless

14

a. The offer expressly limits acceptance to the terms of the offer

b. They materially alter it
c. Notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
d. Conduct by both parties which recognizes the existence of a contract
v. UCC 2-207 (3)
1. Conduct by both parties establishes and recognizes existence K despite lack of writing
that establishes a K under (1).
a. Terms are those that writings agree on; the rest are supplemented by gap filler,
trade usage, etc.
b. Different terms handled by knock-out rule (all conflicting terms gone), fall-out
rule (offerees conflicting terms gone), and by using 2-207(2).
2. establishes a contract even if the writing would not. Terms of the contract will be those
agreed upon by both parties supplemented by gap-fillers of the UCC.
g. UCC 2-207 rejects the Mirror image rule & the Last shot rule.
i. Where a response can reasonably be interpreted as an acceptance, it is recognized as such.
ii. Performance of a contract after a counter-offer is not deemed acceptance.
h. Dorton v. Collins & Aikman Corp.
i. Facts
1. Dorton owned Carpet Mart & repeatedly bought carpets from Collins & Aikman.
2. Carpet Mart filed suit against Collins when the found out that the carpets were not made
of 100% polyester.
3. Collins had an arbitration clause in some of the boilerplate provisions on the back of one
of its forms.
4. The court found that the arbitration clause materially altered the contract and was
therefore not enforceable.
5. Case remanded by to District Court
6. BphoneS (offer), Soral responseB (A or under advisement)
a. Swritten acknowledgmentB (written confirmation)
i. Arbitration clause
b. Scarpet shippedB accepts delivery
7. COA: reverse/remanded
ii. Issue
1. Were oral agreements reached prior to sending of acknowledged forms?
2. If additional or different, the Ds forms were within the UCC 2-207(1), was acceptance
expressly made conditional on assent to additional or different terms
iii. Holding
1. Yes- Ps oral orders may have embodied arbitration provision
2. Proviso intended to apply only to an A which clearly reveals that the offeree is unwilling
to proceed with the transaction unless he is assured of the offerors assent to addition or
different terms
iv. Reasoning
1. Arbitration provision deemed to have been A by Carpet Mart under 2-202(2) unless it
materially altered terms of oral offers
a. If provision was additional to and material alteration, P not bound
i. Materiality
i. Terms may be found to materially alter if their inclusion would result in surprise or hardship if
incorporated without express awareness by the other party.
j. C.Itoh & Co. Inc. v. Jordan Intl Co.- Battle of Forms
i. UCC 2-207(3)
1. Conduct by both parties that recognize the existence of a contract is sufficient to establish
a contract for sale although the writings of the parties do not otherwise establish a
contract.
2. In such case the terms of the particular contract consist of those terms on which the

15

writings of the parties agree, together with any supplementary terms incorporated under
any other provisions of this Act
ii. UCC 2-307-309
iii. Facts
1. Bpurchase orderS (offer)
a. Sacknowledgment formB (arbitration clause expressly conditional on Bs A)
This is a counteroffer
b. SShipped steelB, B uses it
c. Based on conduct of the parties, there is a K
2. P sues D claiming defective steel and late delivery
3. D moves to stay pending arbitration
4. TC= dismiss motion
5. D appeals
6. AFFIRMED
iv. Issue
1. Can arbitration be considered a supplementary term incorporated under some other
provision of the Code
v. Holding
1. No- disputed terms (terms on which the writings of the parties do not agree) which are
necessarily excluded from a (3) K by the language terms on which the writings of the
parties agree cannot be brought back into the K under the guise of supplementary terms
2. No arbitration term by the conduct of P and D in proceeding to perform even though no K
had been estab. by their exchange in writings
vi. Seller sends an acknowledgment that said acceptance is expressly conditional on buyers assent
to additional or different terms.
vii. There was no express consent that created a contract, but both parties actions recognized the
existence of a contract. So, under 2-207(3) there was a contract.
viii. Under this provision, the terms of the contract were the terms both parties agreed upon plus gapfillers as provided by the UCC.
ix. Both parties did not agree on arbitration as a term of the contract, so it is not part of the contract.
k. Different or Additional Terms
i. UCC 2-207(2) Different Terms
1. Knockout Rule The different terms are knocked out & the terms of the contract are
only the terms that both parties agreed upon along with UCC gap fillers.
a. Majority approach
b. B wins
2. Fallout Rule The different term falls out & the terms of the contract are the original
terms under the offer.
a. S wins
3. Different = Additional Different terms are treated as addition & are applied under UCC
2-207(2).
a. S wins- addition terms material alter K
l. Northrop Corp. v. Litronic Industries
i. Sbid +90 warrantyB (offer)
ii. Bpurchase orderS
1. Purchase order= unlimited warranty (acceptance under 2-207(1))
iii. Seller sends offer with 90 day warranty.
iv. Buyer sends a purchase order with an unlimited warranty.
v. Under the knockout rule, the different terms cancel each other out & the UCC provides gap
fillers.
1. The two warranties knock out each other
2. Warranty becomes a reasonable period of time under a UCC gap filler

16

m.

n.

o.

p.

vi. The buyer ends up with an unlimited warranty because the UCC allows for this in its gap fillers.
1. Trial judge said that nonconforming goods may be rejected within a reasonable time and
that the six months P took to test Ds boards was a reasonable time bc of the complexity
Knock-out Rule
i. When the difference between Bs terms and Ss terms are material, two terms cancel each other
out
ii. Contested term is to be supplied by a Code gap-filler
Step-Saver Data Systems, Inc. v. Wyse Technology
i. Bphone an orderS (possible offer, need more info)
ii. Soral promise to ship promptlyB (might be A= K)
iii. Bwritten purchase orderS (confirmation)
iv. Sships + invoice+ box top licenseB (confirmations)
v. Conflict over nature of terms, not over the existence of K
vi. Step-Saver shipped a program with a box-top license that said opening this package is assent to
warranty terms.
vii. Issue
1. Were the box top terms part of the agreement btwn Step and TSL?
viii. Holding
1. No- disclaimer of warranty and limitation of remedies terms did not become a part of the
agreement
2. Should have been treated as a written confirmation containing additional terms
3. The court found that the additional terms of the warranty materially altered the terms of
the contract & therefore were not enforceable
ix. Reasoning
1. TSL did not clearly express its unwillingness to proceed with the transactions unless its
additional terms were incorporated into the parties agreement
2. Box top license did not constitute a conditional A under 2-207(1)
3. TSLs unilateral act of repeatedly sending copies of the box-top license with its product
can estab. a course of dealing that resulted in adoptions of the terms of the box top license
4. Course of conduct not estab. between TSL and Step-Saver
5. The box-top license was not clear enough to meet the requirement for acceptance is
expressly made conditional upon.
Strategies in the Battle
i. When parties have an on-going relationship, the parties may draft an overriding master agreement
to govern all their dealings.
ii. A trade association may work out a standard to which its members agree.
Shrinkwrap and Clickwrap Terms
i. ProCD, Inc. v. Zeidenberg
1. Facts
a. Splace items on shelf (In Wisconsin- constitutes offer)
b. Customerpays (Wisconsin-constitutes acceptance)
c. 0Every box containing P software declared that it came with restriction stated in
an enclosed license
i. Limited used of application program and listings to non-commercial
purposes
d. Zeidenberg bought the software, at a consumer price but used it to form a
program & resell ProCDs information.
e. Zeidenberg had to click ok to the license in order to use the program.
f. P filed suit seeking an injunction against further dissemination that exceeds the
rights specified in the licenses
g. DC= D license ineffective bc not on outside of box
i. Purchaser cannot be bound be secret terms
h. REVERSED

17

XI.

2. The court held that the terms of the contract are established in the license of the software
& that Zeidenberg agreed to those terms when he clicked ok.
3. Notice on the outside, terms on the inside, and a right to return the software for a
refund if the terms are unacceptable, may be a means of doing businesses valuable
to buyers and sellers alike.
ii. UCC 2-204 Formation in General
1. 2-204(1)
a. a K for sale of goods may be made in any manner sufficient to show agreement,
including O & A, conduct, interaction via electronic means, interaction of an
electronic agent an individual
iii. UCC 2-602 Manner and Effect of Rightful Rejection
1. 2-602(1)
a. rejection of goods must be w/in a reasonable time after their delivery/tender
i. ineffective unless B seasonably notifies S
iv. UCC 2-606 What Constitutes Acceptance of Goods
1. 2-606(1) Acceptance of goods occurs when the buyer
a. (b) fails to make an effective rejection under 2-602(1)
q. Hill v. Gateway 2000, Inc
i. Facts
1. Hill (P) ordered a computer from Gateway (D) by phone. The customer service
representative did not read the terms and conditions of the sale. Hill received a box
containing the computer and the terms that would govern the transaction unless Hill
returned the computer within thirty days, including an arbitration clause.
2. Hill was dissatisfied with the purchase and filed suit in federal court. The district court
refused Gateways request that it honor the arbitration clause, holding that the record did
not support a finding of a valid arbitration agreement, or that Hill had adequate notice of
the arbitration clause. Gateway took an immediate appeal
ii. Issues
1. In order for an arbitration clause to be valid, must the purchaser receive notice of the
clause apart from the terms and conditions of sale included in a box, or must the clause be
otherwise prominent or stand out?
2. Does an allegation that an arbitration clause is part of a scheme to defraud render that
clause unenforceable?
iii. Holding
1. No. In order for an arbitration clause to be valid, the purchaser need not receive notice of
the clause apart from the terms and conditions of sale included in a box, and the clause
need not be otherwise prominent or stand out.
2. No. An allegation that an arbitration clause is part of a scheme to defraud does not render
that clause unenforceable.
iv. Reasoning
1. The court held that the enforceability of an arbitration clause is determined on the same
basis as any other contract clause. A contract need not be read to be effective. The terms
included in the box stand or fall together if the terms constitute the contract between the
parties then all must be enforced.
2. The court held that UCC 2-207(2) only applies where there is a battle of the forms, and
that it did not apply in this case because there was only one form.
v. No contract until 30 days after delivery or product used
vi. Customer paid w cc, gateway product sucks
vii. PAWLOWIC DOES NOT AGREE W COURT
Pre-Contractual Liability
a. These cases do not have a manifestation of mutual assent or consideration.
b. The general rule requires acceptance to recover under the principle of detrimental reliance. These cases
are exceptions.
c. Restatement 45

18

i. If an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree begins the invited
performance.
d. Restatement 90
i. A promise which the promisor should reasonably expect to induce action or forbearance and does
induce such action or forbearance is binding if injustice can be avoided only be enforcement of
the promise
e. Revocability of Sub-Contractors Bids
i. Drennan v. Star Paving Co.
1. Facts
a. General contractor was putting together a bid to build a school & he was looking
for subcontractors to pave the parking lot.
b. The subcontractor sends in a bid & the general uses it to send in his master bid.
c. General goes to subs office to accept the bid & sub revokes it.
d. The court held that the sub shouldve known that the general would rely on his
offer when making the bid.
e. AFFIRMED
2. Issue
a. Did Ps reliance make Ds offer irrevocable?
3. Holding
a. Yes- under Section 90 & Detrimental Reliance
i. D had reason to expect that if its bid proved the lowest it would be used
by P, It induced action of a definite and substantial character on the part
of the promisee
ii. Turning to 90 for substitute of A
4. Notes
a. The General contractors proposal of the offer of subcontractor to school board
was not acceptance of the subcontractors offer
b. No express promise not to revoke (ordinary rule is that offer can be revoked
before acceptance)
c. General cant show offer and acceptance, turned to detrimental reliance theory
d. Detrimental Reliance
i. Promise-yes
e. Even though no manifestation of mutual assent, justice requires enforcement of
promise
5. Sub-contractors are bound by their offers to general contractors. Generals can
recover on detrimental reliance.
6. Restatement 153
a. Where a mistake of one party at the time a contract was made as to a basic
assumption on which he made the contract has a material effect on the agreed
exchange of performances that is adverse to him, the contract is voidable by him
if he does not bear the risk of the mistake under the rule stated in 154, and (a)
the effect of the mistake is such that enforcement of the contract would be
unconscionable, or (b) the other party had reason to know of the mistake or his
fault caused the mistake."
f. Holman Erection Co. v. Orville E. Madsen & Sons, Inc.
i. Subcontractor submitted a bid to general contractor.
ii. General submitted a bid, using Holman as his sub.
iii. Orville then accepted a bid from another contractor.
iv. Holman sued for detrimental reliance.
v. Putting a subcontractors info on a general bid does not constitute acceptance.
vi. Orville never made a promise to Holman that he reasonably expected Holman to rely on.
vii. Holman did not actually rely on Orville.

19

viii. A subcontractor cannot generally recover for detrimental reliance against a general
contractor.
g. Liability When Negotiations Fail
i. Hoffman v. Red Owl Stores
1. Facts
a. Hoffman & his wife owned a bakery.
b. Hoffman began negotiations with Red Owl in order to open a Red Owl store in
his town.
c. Red Owl told Hoffman to sell his bakery & move to a neighboring town.
Hoffman did.
d. Negotiations fell through when P refused proposed financial statement
e. J=awarded P all incurred loss
f. TC=affirmed except for Wautoma store, ordered new trial
g. P & D appealed
h. AFFIRMED
2. Issues
a. Was there promissory estoppel between promisor and promisee to be the
equivalent of the offer that would result in a binding K?
b. Was the granting of a new trial in re: the Wautoma store correct?
3. Holdings
a. Yes- injustice would result here if Ps were not granted some relief bc of the
failure of Ds to keep their promises which induced Ps to their detriment
b. Yes- since evidence does not sustain the large award of damages from the sale of
the Wautoma grocery business, the trial court properly ordered new trial on this
issue
4. Reasoning
a. Promissory Estoppel is a substitute for consideration rendering gratuitous
promise enforceable
b. Act of detrimental reliance=consideration
c. Mistake to regard action grounded on promissory estoppel as equivalent of a
breach of contract action
d. Damages in re: Wautoma store
i. P made purchase more or less as a temporary experiment
ii. Justice does not require that the damages awarded him, bc of selling
these assets at the behest of D, should exceed any actual loss sustained
measured by the difference between the sales price and the fair market
value
5. A specific offer is not required to recover under detrimental reliance.
6. The court found for Hoffman but said that justice required that Hoffman be limited to his
losses in reliance on Red Owls promise.
7. To have a breach of K
a. mutual assent
b. consideration
8. For a claim based on Detrimental Reliance
a. Promise
9. Offer
a. Words of promise
b. Specificity of terms
c. offeree
h. Cyberchron Corp. v. Calldata Systems Development, Inc.
i. Calldata sent a purchase order to Cyberchron that had specific terms for weight & severe
penalties for exceeding that weight.
ii. Cyberchron never accepted the offer but began performance.

20

iii. Calldata insisted that Cyberchron continue to perform & that the terms of the contract would be
resolved later.
iv. Cyberchron later sent a partial request for payment of $500,000.
v. Calldata began working with another company for the same equipment.
vi. The court found that Calldata made a promise that they should have reasonably expected
Cyberchron to rely on. Therefore, Cyberchron was entitled to promissory estoppel but vacated
judgment and remand for a redetermination of damages in accordance with this opinion
XII.

The Requirement of Definiteness

a. When is the agreement definite enough to be enforced?
b. Requirement serves two functions:
i. Court first must know with some certainty what the terms of the K are
ii. Implicit in the principle that the promisees expectation interest are protected.
c. Court must determine what promise was to calculate damages
d. Complete Contingent K
i. An agreement that provides for every possible eventuality or contingency
e. Incomplete K
i. Contracts that do not provide for all contingencies
f. Relational K
i. K between parties who deal with one another on a regular basis (repeat players) or who interact
over an extended period
g. The terms must be specific enough that if a person says I accept, you would know what they accepted.
h. Oral Promise of Job Security
i. Must contain terms that are ascertainable and definitive to be enforceable
i. Handbook cases
i. Allow employees to escape rules of at will employment
j. Restitution
i. A party who has in the course of performing an agreement that is unenforceable for indefiniteness
conferred a benefit upon the other party is entitled to restitution
k. Restatement 33 Certainty
i. Terms of a contract are reasonably certain if they provide a basis determining the existence of a
breach and for giving an appropriate remedy.
ii. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer for acceptance.
l. UCC 2-204(3) Formation in General
i. Even though one or more terms of the contract is left open, a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably certain
basis for giving an appropriate remedy.
m. Toys, Inc. v. F.M. Burlington Co.
i. Facts
1. Burlington leased a mall space to Toys in a contract for 5 years with the option to renew.
a. Toys notified of renewal and Burlington stated a higher rent rate
2. Toys leaves mall sues for breach of K
3. TC=summary judgment that the lease had created a binding option
4. Burlington appealed saying that the option was too indefinite
5. The contract had a provision that rent shall be renegotiated to the then prevailing rate
within the mall. (language sets forth a definite, ascertainable method of determining the
price term for lease extension)
6. The court found that the contract had sufficient specificity to enforce it.
ii. Issue
1. Was there a binding K between P & D?
iii. Holding
1. Yes- the lease provision created a valid option for P to renew for an additional five years
iv. Reasoning

21

n.
o.
p.

q.

XIII.

1. Not necessary for option agreement to contain all terms of the K as long as it contains a
practicable, objective method of determining essential terms
2. Before voiding a K, court must attempt to construe the K to avoid the defect
v. An option contract is valid if it did not fix a certain price bud did appoint a mode of
determining the price.
UCC 2-305 Open Price Term
i. A contract for the sale of goods can be concluded if the parties so intend, even though the price
term is left open.
Assent Revisited
Restatement 204 Supplying an Essential Omitted Term
i. When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to
a term which is essential to a determination of their rights and duties, a term which is reasonable
in the circumstances is supplied by the court.
Oglebay Norton Co. v. Armco.
i. Facts
1. Oglebay had a long-term contract with Armco in which Armco would haul coal for
Oglebay.
2. The price term was regular net contract rates.
3. If there was no regular net contract rate, the parties were to mutually agree upon a price
term, taking into consideration the contract rate being charged for similar transportation.
4. Armco argued that the parties never consented to be bound by a contract whose pricing
mechanism had failed.
5. The court found that the parties did intend to be bound & that the court had the power to
set a reasonable shipping rate-AFFIRMED TC
ii. Issues
1. Was the K binding despite failure of pricing mechanisms?
2. Did the court have jurisdiction to establish a shipping rate?
3. Did the court have equitable jurisdiction to require P & D to utilize a mediator if they
were unable to come to agreements on their own?
iii. Holding
1. Yes
2. Yes
3. Yes

Chapter 3- The Statute of Frauds

a. Contemporary Statutes of Frauds
i. Courts are usually willing to enforce oral agreements under common law, unless a written
contract is required in that jurisdictions statute of frauds.
ii. Statute of frauds is a defense against enforcing valid contracts- encourages a K to be put into
writing
iii. Requires certain kinds of agreements to be in writing in order for it to be enforceable.
1. Suretyship clauses
2. Real estate transactions
3. Agreements not to be performed within one year
b. CR Klewin Inc v Flagship Properties Inc
i. Facts
1. D was developer of a project
2. At a meeting in March of 1986 between reps of P and D, ended in handshake of
percentages proposed by P weve got a deal
3. Construction began in 1987
4. D engaged another firm bc it was dissatisfied with P
5. P brought action against D, charging it with breach of a K for work on the entire project
6. D moved for summary judgment that enforcement of the alleged oral K was barred by the
statute of frauds

22

7.
8.
ii. Issues
1.
2.

DC= summary judgment

Yes to first issue No to second

Is a oral K that fails to specify explicity a time is a K of indefinite duration?

Method of performance called by K contemplates performance to be completed over a
period of time that exceeds one year unenforceable?
iii. Holdings
1. Yes
a. Where a time for performance is definitely fixed at more than one year, the K is
within the statute
b. If no time is definitely fixed but full performance may occur within one year
through the happening of a contingency upon which the K depends, it is not
within the statute
2. No
a. Oral K that does not say that performance is to have a specific duration beyond
one year is the functional equivalent of a K of indefinite duration for the purposes
of the statute of frauds
b. Such a K enforceable
3. No Statute of Fraud as a defense
c. Thwarted Performances
i. Long term K may be terminated by event making performance impossible/impractical
1. Death
d. Performance by Inaction
i. A K containing a covenant not to compete for a period longer than a year does not run afoul of
the Statute of Frauds, while a K containing a term of employment for such a period would do so
e. Interests in Real Property
i. Clause requires a signed writing for the enforcement of an agreement for the transfer of an
interest in real estate (leasing being treated separately)
ii. Richard v Richard
1. Within the general Statute of Frauds- has to be within writing and signed by party
(neither of each)
2. *Exception part performance
a. improvements (substantial)
b. possession
c. payment of a substantial part of the purchase price
3. Under these facts, Court says that you put all these facts together and it constitutes part
performance and Father cannot raise the Statute of Frauds as a defense
f. Suretyship Clause
i. Agreements to answer for anothers debt or other obligation as surety or guarantor.
ii. Undertaking to be a surety is not enforceable unless it is expressed in a signed writing
iii. Suretys obligation is not conditioned upon anothers default
iv. NOT suretyship- novation (change in K, substituting one party for another)
v. Debtor(principal)Original or primaryCreditorsecondary/collateralSurety
vi. Main Purpose Doctrine
1. Removes an oral agreement to pay the debt of another from the statute of fraud wherever
the main purpose and object of the promisor is not to answer for another but to subserve
some purpose of his own.
2. Factors
a. Did promisor intend to become primarily liable for the debt?
b. Was there consideration?
c. Was the consideration given for the promise primarily for the promisors use and
benefit?
vii. Langman v. Alumni Association of the University of Virginia
1. D received Ferdinands Arcade as a gift from P.

23

2. When the donors bought the property, they incurred a debt & granted a mortgage on the
property.
3. P incurred debt b/c the property was not making enough profit to cover the mortgage &
then sued the D
4. D accepted deed that said they would assume the obligation of the donors.
5. D argued that this agreement was a suretyship, that the deed was never signed, & the
contract is not enforceable.
6. The court held that the agreement was not a suretyship & did not have to be in writing to
be enforceable.
7. Was the D bound under mortgage assumption clause under Statute of Frauds?
a. Yes-Statute of Frauds does not bar enforcement of the mortgage assumption
clause.
b. Had to be in writing AND signed
8. The court held that the Alumni Assn received a direct benefit, agreed to become the
primary obligator & therefore under the main purpose doctrine, the oral contract is
enforceable.
viii. Central Ceilings v. National Amusements
1. OwnerPrimeSubOwner
2. Facts
a. At conference, Ps man said to Ds man you have to guarantee me the payment
i. Guaranteed
b. P continued work, been promised that National would pay what Old Colony
owed
c. D found out it didnt owe any more money to Colony, resisted paying P
d. P sued D for breach and won
e. AFFIRMED
3. Issue
a. Whether enforcement of the oral agreement is barred by Statute of Frauds
4. Holding
a. CONCLUDE evidence was sufficient to warrant a finding that Ds promise was
given to secure Ps continued performance and that satisfaction of any obligation
on the part of Old Colony was merely incidental to that promise
5. Leading Object Exception
a. Third party indebted
b. No novation
c. Third partys duty to the creditor will be terminated by the performance promised
by D
d. Oral agreement that does not effect a novation ma nonetheless be enforceable I
the facts and circumstances of the transaction show that the promise was given
primarily or solely to serve the promisors own interests
g. The One-Year Clause
i. Promises that are not to be performed within one year of the agreement must be in writing.
ii. There must be a reasonable possibility of performance within a year in order for the agreement
not to fall under the statute of frauds.
iii. Courts focus on the performance agreed upon.
iv. Employment agreements
1. An agreement to employ someone for 5 years does not fall under the statute of frauds.
2. An agreement to employ someone for as long as needed has a reasonable possibility of
fulfillment within one year, so it falls under the statute of frauds.
v. Restatement 131 General Requisites for a Memorandum
1. A contract within the statute of frauds is enforceable if it is evidenced by any writing,
signed by or on behalf of the party to be charged, which
a. Reasonably identifies the subject matter of the contract

24

vi.
vii.

viii.

ix.

x.
xi.

xii.

b. Is sufficient to indicate that a contract with respect thereto has been made
between the parties or offered by the signer to the other party, and
c. States with reasonable certainty the essential terms of the unperformed promises
in the contract
Restatement 132 Several Writings
1. The memorandum may consist of several writings if one of the writings is signed & the
writings in the circumstance clearly indicate that they relate to the same transaction.
UCC 2-201 Statute of Frauds
1. A contract for the sale of goods for $500 or more is not enforceable unless
a. There is some writing
b. Sufficient to indicate a contract
c. Signed by the party to be charged
d. Not insufficient because it omits or incorrectly states a term
e. Not enforceable beyond the quantity shown in the writing
UCC 2-201 (2)
1. Between merchants if within a reasonable time a confirmation in writing of the K and
sufficient against the sender is received and the party receiving it has reason to know its
contents, subsection1 requirements are satisfied against such party unless:
a. Written notice of objection to its contents it given within ten days after it is
received
b. Recipient of message let 10 days pass without responding, or if response was
made within 10 days, it was not a written notice of objection to the contents
i. These 10 days begin with the receipt of message
c. Recipient had reason to know contents of message
d. Message was a writing in confirmation of the K
e. If recipient were to bring an action to enfore K against sender, action would not
fail under sub 1
i. writing is sufficient and signed
f. message sent within reasonable time
g. both sender and recipient were merchants
St. Ansgar Mills v Streit
1. P appeals order of DC who granted summary judgment to enforce an oral K for sale
based on written K
2. DC= oral K unenforceable bc written confirmation not delivered within reasonable time
3. P relies on farmers who purchased grains to accept delivery at agreed price
4. D has entered into numerous contracts with P
a. Routine of D
i. Always accepted delivery, always stopped by office to pay within 10
days, usually failed to sign/return K
5. D refused delivery because of price drop in corn, P said this was a breach of K and D
entered motion of summary judgment
a. K unenforceable
b. Doesnt satisfy statute of frauds bc
i. D is not a merchant
ii. Confirmation not received withn a reasonable time
6. REVERSED
Issue
1. Was the written confirmation received within a reasonable time to satisfy UCC 2-201(2)
Holding
1. Yes because of the normal conduct between parties did not make confirmation
unreasonable
2. REVERSED
Reasoning

25

1. Course of dealings, usage of trade or course of performance are material in determining a

reasonable time
2. UCC relies upon course of dealings between parties to help interpret their conduct
3. All relevant circumstances, including custom and practice of parties, must be considered
in determining what constitutes a reasonable time under UCC 2-201(2)
h. UCC 2-201(3)
i. (a) Either party can enforce an oral agreement for the sale of custom/specialty goods, once the
seller has passed a certain point in their production or procurement.
ii. (b) if there is an admission that K was made
iii. (c) with respect to goods that payment has been made and accepted or which have been received
and accepted
i. Ameliorating the Operation of the Statute
i. Monarco v. Lo Greco
1. Facts
a. Natale & Carmela (Christies [D] mother & stepfather) promised to will their
land to him if he stayed home to work on the farm.
b. D relied on Natales promise by staying home & by turning down the opportunity
to acquire his own land.
c. The agreement fell under the statute of frauds because it was an agreement not to
be performed within the promisors lifetime.
d. Natale changed his mind & willed the land to his grandson.
e. TC: D, found that P had been unjustly enriched.
2. Issue
a. Was P estopped from relying upon Statute of Frauds to defeat enforcement of the
oral K
3. Holding
a. Yes-Christie was allowed to recover under the theory of detrimental reliance.
b. D gave up opportunities based on promise
c. A party not only seriously changed his position in reliance upon, or performance
of, the K that he would suffer an unconscionable injury if the K werent enforced,
BUT also the other may have reaped the benefits of the K so that he would be
unjustly enriched if he could escape its obligations
4. Reasoning
a. Not representation that the K will be put in writing or that the statute will not be
invoked, but the promise that the K will be performed that a party relies upon
when he changes his position because of it
b. A party will be unjustly enriched if accepted the oral K if K is not enforced
whether his representations related to the requirements of the statute or were
limited to affirmations that the K would be performed
5. Detrimental reliance can be an exception to the requirement of consideration & as
an exception to the statute of frauds.
ii. Exceptions to the Statute of Frauds Not recognized by all jurisdictions
1. Complete performance Restatement 130
2. Part performance of contract to sell land (possession plus improvements or substantial
payment of price) Rest. 129
3. Restitution Restatement 375
4. Detrimental Reliance Rest. 139
5. UCC 2-201 Statute of Frauds Listed Exceptions
a. Specially manufactured goods
b. Party against whom enforcement is sought admits in his pleading, testimony or
otherwise in court that contract was not enforceable beyond the quantity of goods
in writing
c. Payment has been made and accepted or goods have been received & accepted.

26

6. Some court recognize detrimental reliance, equitable estoppel, and/or restitution (citing
UCC 1-103) while others think that the list in 2-201 is exclusive.
XIV.

Policing the Bargain

a. Although a contract may meet the formal requirements for enforceability, there are cases where the law
may refuse to enforce the bargain.
b. Three types of concerns
i. Status of the parties
ii. Behavior of the parties
iii. Substance of the bargain
c. UCC 2-302 Unconscionable Contract or Clause
i. Contract can be unconscionable in procedure or substance
ii. Test: Whether in light of the general commercial background and the commercial needs of the
particular trade or case, the clauses involved are so one-sided as to be unconscionable under the
circumstances
iii. Principle: Prevention of oppression & unfair surprise and not of disturbance of allocation of risks
because of superior bargaining power.
d. Restatement 208 Unconscionable Contract or Term
e. Restatement 12 Capacity
i. Person has full legal capacity to contract unless
1. Under guardianship
2. An infant
3. Mentally ill or defective
4. Intoxicated
a. The person must be so intoxicated as to have drowned reason, memory,
judgment & have impaired mental faculties to an extreme extent.
ii. Only the protected person can get out of the contract, the other party cant.
iii. Once the lack of capacity is removed, the protected party may ratify the agreement to make it
enforceable.
f. Duress
i. Duress by Physical Compulsion Restatement 174
ii. Mutual Assent
1. Duress by Threat of Physical Compulsion Restatement 175
a. If a partys assent is induced by an improper threat- 176
b. That leaves the victim no reasonable alternative,
c. The contract is voidable by the victim/causation
iii. + Consideration
1. Legal value and Bargain for Exchange
g. Alaska Packers Assn v. Domenico
i. Facts
1. involves a contract modification to a services contract where the workers demanded
increased compensation to perform the same duties as specified in the original contract.
2. P entered into K with D on a fishing excursion to Alaska, prior to leaving for Alaska
a. Terms: D pay each P $50 for fishing season and an additional 2c for each red
salmon he helped catch
3. Once there, P stopped working and demanded $100
a. Threatened to stop work and return to San Francisco
4. Because D couldnt find any other workers, signed K on Ps terms
5. On return, P demanded payment and sued D to recover additional compensation
6. Judgment=P
7. REVERSED
ii. Issue
1. Is a K modification which seeks to increase wages being paid for the same duties as
stated in original contract valid?

27

iii. Holding
1. No- a demand for increase wages where there is a preexisting duty to perform certain
obligations is not supported by consideration
iv. Rule
1. When one is contractually obligated to perform certain duties, a demand for
increased compensation to perform these same duties is not supported by sufficient
consideration.
v. UCC 2-209
1. An agreement modifying a K within this Article needs to consideration to be binding
vi. Improper Threats Restatement 176
1. What is threatened is a crime or tort
2. What is threatened is criminal prosecution
3. Use of civil process & threat is made in bad faith
4. Threat to breach duty of good faith and fair dealing
vii. Three elements of duress by threat
1. Improper threat
2. No reasonable alternative
3. Some element of causation
viii. Undue Influence Restatement 177
1. If a partys manifestation of assent is induced by undue influence by the other party, the
contract is voidable by the victim.
h. Rescission & Modification
i. Restatement 283 Rescission
1. An agreement of rescission is an agreement under which each party agrees to discharge
all of the other partys remaining duties of performance under an existing contract
ii. Schwartzreich v. Bauman-Basch, Inc. Modification
1. The parties entered into an agreement.
2. They tore their signatures off the agreement (rescission).
3. They entered into a third contract, which was enforceable because of the earlier
rescission.
4. An existing K is terminated by consent of both parties and a new one executed in its
place
iii. Restatement 89 Modification of Executory Contact
1. A promise modifying a duty under a contract not fully performed on either side is binding
2. If the modification is fair and equitable in view of circumstances not anticipated b the
parties when the contract was made.
3. Enforces promise even though there was no consideration
iv. Watkins & Sons v. Carrig Modification
1. Facts
a. Owner agreed to pay contractor to excavate his basement.
b. Contractor encountered rock (which was unexpected by both parties).
c. The parties agreed to modify the existing contract.
d. The court modified the common law & said that the parties could modify the
contract because there was no improper threat because there was a good faith
dispute & that there was an implied rescission when the parties entered into the
new agreement.
2. Issue
a. Was original K superseded by subsequent oral agreement?
3. Holding
a. Yes- parties rescinded written K and entered into oral one as though it were the
sole agreement
4. Contract changed to meet changes in circumstances and conditions is valid.
5. No duress, no consideration, no good faith dispute
v. Avoiding Pre-Existing Duty Rule

28

i.

j.

1. Any consideration for the new undertaking satisfies pre-existing duty rule
2. Restatement 73
vi. Partial Payment
1. Consideration is only a test of the enforceability of an executory promise, one that has
not been fully performed
vii. Foakes v. Beer
1. Payment of a lesser sum on the day on or after the due date of a money debt cannot
be satisfaction of the whole.
viii. Improper Threat
1. Restatement 176
2. The threat of a party not to perform its contractual duty is not, of itself, an improper
threat
3. The threat is improper if it amounts to a breach of the duty of good faith and fair dealing
imposed by the contract.
4. A market shift which makes performance come to involve a loss may provide such a
reason not an improper threat
Performance of a Legal Duty
i. Performance of a Legal Duty Restatement 73
ii. Performance of a pre-existing legal duty owed to promisor which is neither doubtful or the
subject of an honest dispute is not consideration
iii. De Cicco v. Schweizer
1. Facts
a. Blanche promised to marry Count & Count promised to marry her.
b. Father promised Count an annuity if he married Blanche.
c. There is no duress engagement was already made.
d. Consideration The Count had a pre-existing legal obligation to marry Blanche,
but he could still enter into a mutual agreement with Blanche not to get married.
e. There is consideration.
2. Issue
a. Whether the rule applies in cases where a contractual duty pre-exists but is
owed not to the promisor, but to a third party?
3. Holding
a. It was a promise to induce the Count not to join with Blanche in a voluntary
rescission of their engagement
b. Together they were to terminate engagement or postpone marriage- consideration
was that they did not do so
iv. McDevitt v. Stokes
1. Jockey promised owner to enter race & exert his best efforts to win.
2. Stokes promised to pay $1,000 to win the race.
3. There was no consideration for the agreement with Stokes because Jockey had a preexisting legal duty to exert his best efforts.
4. There was no consideration for the agreement.
Performance or Acceptance Under Reservation of Rights
i. UCC 1-308 Reservation of Rights
1. A party who performs or accepts & explicitly reserves his rights does not prejudice the
rights reserved
2. Does not apply to accord & satisfaction
ii. UCC 3-311 Accord & Satisfaction by Use
1. Claim is discharged if the person against whom the claim is asserted proves that the
instrument or an accompanying written communication contained a conspicuous
statement to the effect that the instrument was tendered in full satisfaction of the claim.
a. Person in good faith tendered an instrument to the claimant as full satisfaction of
the claim
b. The amount of the claim was unliquidated or subject to a bona fide dispute

29

c. And the claimant obtained payment of the instrument

2. Claim not discharged if subsection (c) or (d) apply.
k. Public Policy
i. Restatement 178 When a Contract is Unenforceable b/c Public Policy
1. Contracts can be unenforceable by statute or on grounds of public policy
2. See factors in weighing the public policy concerns.
X.

Determining Parties Obligations

a. Starting point for determining obligations is their language
b. Cant focus solely on words
Determining the Subject Matter to be Interpreted
c. Gianni v. R. Russel & Co.
i. Facts
1. Gianni was a tenant in an office building where he had a store.
2. He claimed he agreed to pay higher rent in exchange for the exclusive right to sell soft
drinks in the building.
3. The contract stipulated that he could not sell tobacco but no statement as to Ps exclusive
right to sell soft drinks
4. Gianni sued for breach b/c another vender in the building was selling soft drinks.
5. That provision was not included in the written contract.
6. The soft-drink term was not inconsistent, but it was additional.
7. D= says K was complete and exclusive, cant introduce any evidence of any other term
(second part of parol evidence rule at issue)
8. Judgment for P, D appeals
9. REVERSED
ii. Issue
1. Is there an enforceable oral agreement?
iii. Holding
1. No- under parol evidence rule where parties without any fraud or mistake have
deliberately put their engagements in writing, law declares writing to be not only the best,
but the only evidence of their agreement
iv. Reasoning
1. Any preliminary negotiations and verbal agreements are superseded by written
2. Under the parol evidence rule, evidence of prior verbal agreements that are inconsistent,
additional, or varying from the written agreement is not admissible.
3. In order for parol evidence to be excluded, written K must be entire K between parties
4. When the contract is not silent on a particular issue, the entirety of the issue should
have been included in the written contract.
5. In the absence of fraud or mistake, a written agreement is the only evidence of the
agreement between two parties
d. Parol Evidence Rule Restatement 210-218, UCC 2-202
i. Not limited to oral agreements but operates to exclude writings such as letters or emails
ii. Nor is it a rule of evidence that bares use of certain types of evidence to prove an ultimate matter
of fact
iii. Applies only to documents, which are integrations, final expressions of the agreement
iv. Rule of substantive law that precludes any proof that the terms of the K are other than as
expressed in writing
v. Partially integrated agreement (final expression of the agreement)
1. Final but not complete & exclusive expression of one or more terms of the agreement
Restatement 210
2. Inconsistent prior agreements are discharged (Rest. 213)
3. Contradictory prior agreements are discharged (Rest. 215, 216)
vi. Completely integrated agreement
1. Final, complete & exclusive expression of the terms of the agreement

30

a. Prior agreements are discharged whether they are consistent or inconsistent

b. Evidence of prior agreements of negotiations is not admissible to add to, vary, or
contradict the exclusive writing (cannot add/vary terms)
e. Masterson v. Sine
i. Facts
1. P brought action for declaratory relief to establish their right to enforce a K option against
D
2. Husband & wife sold ranch to husbands sister & her husband.
3. Husband & wife had right to repurchase the ranch.
4. Husband went bankrupt & trustee tried to buy the property.
5. Husband said there was an oral agreement to keep the property in the family & that the
trustee should not be able to buy the ranch.
6. Judgment= D
7. REVERSED
8. The court allowed extrinsic evidence to be introduced to explain the meaning of the
contract evidence is not allowed to contradict or vary the terms in the original contract.
9. The court found that because this was a family transaction & they would not have known
that it had to be in writing, extrinsic evidence is allowed.
ii. Issue
1. Whether parties intended their writing to serve as the exclusive embodiment of their
agreement
iii. Holding
1. Parol testimony shouldve been admitted since the limitation term would not necessarily
be included
2. When partys to a written K agree to an integration, parol evidence cannot be used to add
or vary terms
iv. Reasoning
1. Option clause does not explicitly provide that it is a complete agreement and the deed is
silent on assignability
v. Rule
1. When only party of an agreement is integrated parol evidence may be used to prove
elements of the agreement not in the writing
2. Family gets to keep property
f. Integration
i. A writing is integrated if it is adopted by the parties as a final expression of one or more of the
terms of an agreement 2-209
1. A writing is partially integrated if the parties did not intend for it to include all the terms
of the agreement
2. A writing is completely integrated if the parties intended it to include all the terms of the
agreement.
g. Bollinger v. Central Pennsylvania Quarry Stripping & Construction Co.
i. Facts
1. Owner gave defendant permission to deposit waste on his property.
2. Contractor promised to remove the top layer of the land & deposit the waste under that
top layer.
3. The written contract said nothing about depositing the waste under the top layer of the
land.
4. However, originally the contractor removed the topsoil before depositing waste.
5. The plaintiff alleged mutual mistake because he never read the contract.
6. Extrinsic evidence was allowed because the writing was shown to be invalid under Rest.
214 mutual mistake.
7. DC= granted P request
8. AFFIRMED
ii. Issue

31

1. May a K be reformed to include a paragraph that was omitted yet orally mutually agreed
on by the parties?
iii. Holding
1. Yes- court has power to reform written evidence of a K and make it correspond to
understanding of parties
2. The fact that one of the parties denies that a mistake was made does not prevent a finding
of mutual mistake
iv. Notes
1. Since parol evidence rule proceeds on assumption that there is a written agreement, it
does not bar extrinsic evidence to show that the written agreement is not valid
2. Parol evidence rule does not preclude use of extrinsic evidence to show fraud in
inducement of K
3. Parol evidence not bar evidence of oral testimony
h. Restatement 214 Evidence of Prior Agreements
i. Prior agreements & negotiations are admissible to establish
1. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating clause.
i. No Oral Modification Clauses
i. Any prior agreement, including the no-oral-modification clause can be modified by a later
agreement
ii. A party that seeks to escape effect of the clause can often do so by showing reliance on oral
modification
iii. As long as there is a manifestation of mutual assent, you can always agree to modify prior
agreements (common law).
iv. UCC 2-209 Modification, Rescission, & Waiver
1. An agreement of modification needs no consideration to be binding
2. A signed writing that excludes oral modifications cannot be otherwise modified or
rescinded.
3. (4) what may fail to be effective as a modification or recission may nevertheless be
effective as a waiver
4. (5) a material change of position in reliance on the waiver my prevent its retraction
j. Use of Extrinsic Evidence of the Parties Intent
i. Plain Meaning Rule
1. As a whole:
a. Ambiguous on its face
b. If not its face- latent ambiguity
2. Only type of extrinsic evidence that court will allow is surrounding circumstances
a. subject matter, relationship, breach of performance, trade usage, course of
performance, course of dealings
b. plain meaning jurisdiction exclude statements regarding partys intent
3. Two-step processes generally used only for completely integrated agreements, often
regarded as a corollary of the parol evidence rule
4. First stage
a. Judge determines whether language in written agreement admits of only one
plausible meaning or rather, is ambiguous
b. Language not ambiguous=extrinsic evidence as to its meaning will be excluded
5. Second stage
a. Court determines meaning of the K language
b. If in the first stage, language was ambiguous extrinsic evidence to its meaning
will be admitted to inform courts determination of meaning of the K language
k. Pacific, Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
i. Facts
1. GW entered agreement to repair/replace the upper metal cover of the steam turbine.
2. GW agreed to indemnify the plaintiff against all loss, expense, & liability resulting from
injury to property.

32

a. Promise to provide liability insurance

3. During the repair, the cover fell & damaged the turbine.
4. Plaintiff sued for $25,000 in damages spent repairing the turbine.
5. The trial court found that the plain meaning of the indemnity provision was that the
insurance would cover damage to 3rd parties property.
6. Defendant claimed that he was not liable for damage to 3 rd parties property.
7. REVERSED FOR D
ii. Issue
1. Even though at face value the K seems to have plain stated language, should extrinsic
evidence be allowed to enforce the meaning of the indemnity K to the court?
iii. Holding
1. Yes- the court erroneously refused to consider extrinsic evidence offered to show that the
indemnity cause in the K was not inteded to cover injures to Ps property
2. Helpful so that the court can place itself in the same situation which the parties found
themselves at the same time of contracting
3. Judges understand may be different from parties
4. Rational interpretation requires at least a preliminary consideration of all credible
evidence offered to prove intention of the parties
iv. CA court said the rule is fairly susceptible
1. The court said there must be a preliminary consideration of all credible evidence offered
to prove the intention of the parties.
2. If the court determines that the language is fairly susceptible to either of the two
meanings that the parties attached, extrinsic evidence can be introduced to the trial court.
v. NY plain meaning rule
1. There must be a latent ambiguity on the face of the document before extrinsic evidence is
allowed.
2. Surrounding circumstances could reveal an ambiguity that is not apparent in the contract
is allowed Two ships Peerless.
3. Does not include intent of the parties if it is not included in the contract
l. Delta Dynamics Inc v. Arioto
i. Facts
1. P made exlusive agreement to D to supply trigger locks to them for 5 years if they sold a
specific number of them in the first year and then in the years subsequent
2. If there was a breach of K, the agreement was subject to termination and prevailing party
entitled to reasonable atty fees
3. D didnt sell required amount and P sued for damages
4. D= Ps exclusive rememdy was to terminate K
5. TC= excluded extrinsic evidence offered by D to prove this
6. REVERSED
ii. Issue
1. Should D get to provide extrinsic evidence in order to explain the meaning of the
termination clause?
iii. Holding
1. Yes
m. GreenField v. Philles Records, Inc
i. Facts
1. CA LAW- Divorce
2. NY LAW- Ronetts
3. P agreed to perform specifically for D and in exchange, D acquired ownership right to
records of P musical group Ronettes
4. Agreement also set forth royalty schedule
a. Other than initial royalty, group never received anything else

33

5. P and Spector married, as part of divorce agreement executed mutual general releases to
resolve all past and future claims that existed between them, well as between their
companies
6. D began remastering old songs and making money
a. No royalties from this paid to Ronettes
7. P= breach of K action alleging that agreement did not provide D with right to license the
master recordings for synchronization and domestic redistribution, demanded royalties
8. D=agreement granted them absolute ownership rights to master recordings and permitted
use of recordings in any format, subject to only royalty rights
9. TC and AD= found for P and award money in damages and interest
ii. Issues
1. Whether artist transfer of full ownership rights carried with it unconditional right of
produces to redistribute those performances in any technological format?
2. Does the K silence on synchronization and domestic licensing create ambiguity which
opens the door to the admissibility of extrinsic evidence to determine the intent of the
parties?
iii. Holding
1. Yes
2. No- because there is no ambiguity in the terms of the Ronettes agreement, D are entitled
to exercise complete ownership rights, subject to payment of applicable royalties due
iv. Reasoning
1. P entitled to her share of damages assessed against D
2. Written agreement that is complete, clear and unambiguous on its face must be enforced
according to plain meaning of terms
3. Extrinsic evidence of parties intent may be considered only if the agreement is
ambiguous
n. WWW Associates, Inc. v. Giancontieri
i. NY LAW
ii. Court first gives weight to what was in the K then looks at evidence
iii. Look to contract first, then go to extrinsic evidence but only if it doesnt add ambiguity
iv. Contract for the sale of real estate that had a reciprocal cancellation clause.
v. The clause was included b/c there was a separate suit against the seller & buyer was worried
about getting a clear title.
vi. The buyer was willing, but the seller declined to sell, invoking the cancellation clause.
vii. The buyer wanted to show that the cancellation clause was only meant for him He was not
allowed to present evidence.
viii. Extrinsic & parol evidence is not admissible to create an ambiguity in a written agreement
which is complete & clear & unambiguous upon its face.
ix.
o. Trident Center v. Connecticut General Life Insurance Ins. Co.
i. Facts
1. CA LAW
2. P and D negotiated commercial loan
3. P sought and obtained financing for the project from D
4. P brought suit in state court seeking declaration that it was entitled to prepay the loan
now
5. D removed to federal court and brought motion to dismiss, saying documents clearly
stated precluded prepayment during first 12 years
6. P argues that it is entitled to extrinsic evidence that the K means somewhat other than
what is says
7. DC=dismissed Ps complaint
a. Also sanction P for filing for a frivolous lawsuit
8. REVERSED
ii. Issues

34

1. Is the language of the K ambiguous and proffers a construction that it believes supports
its position
2. Under CA law, even seemingly unambiguous K are subject to modifications by parol or
extrinsic evidence
iii. Holding
1. No- not ambiguous
2. Yes- in order to give P an opportunity to present extrinsic evidence as to intention of the
parties in drafting the K
3. The court finds that the debtor's interpretation contradicts the clear terms of the
agreement, but holds that California law permits even seemingly unambiguous contracts
to be modified by parol or extrinsic evidence.
p. Purpose interpretation
i. Examination of the law before enactment of statute
ii. Ascertainment of the mischief or defect for which the law did not provide
iii. Analysis of the remedy provided by the legislature to cure the disease
iv. Determination of the trust reason of the remedy
v. Application of the statute so as to suppress the mischief and advance the remedy
q. Maxims
i. Contract is to be interpreted against its author or profferer
r. Function of Judge and Jury
i. Clear that the meaning of language is strictly speaking a question of fact
ii. Interpretation of written agreements has often been withdrawn from jury by calling it a question
of law for the judge, than that a question of fact for the jury
Interpreting Contract Language
s. Frigaliment Importing Co. v. B.N.S. International Sales Corp.
i. Chicken case what does chicken mean?
ii. The buyer was allowed to introduce evidence of prior negotiations as well as standard usage of
the word chicken.
iii. The buyer was not trying to add to, vary, or contradict the agreement & therefore could
present extrinsic evidence.
iv. The buyer had the burden of proof to show that chicken meant only young birds- didnt prove
this
v. United States District Court, New York, 1960. The parties agreed to the sale of a quantity of
chicken, and then disagreed whether this meant broiling chickens or any variety of chickens.
After considering various sources of interpretation, the court holds that the party contending for a
narrow meaning of "chicken" (broilers) had failed to carry its burden of proof.
t. Hurst v. W.J. Lake & Co.
i. Facts
1. P contracted with D to sell 350 tons of horse meat scraps at $50/ton
a. K specifications:
i. Minimum 50% protein and if any of scraps analyzes >50% D was to
have discount of $5/ton
2. D only paid $45/ton
3. P sued to recover balance of $5/ton alleging both parties were members of a group of
traders in horse meat scraps and that D was aware of usage, prevalent among that group,
under which terms required buyer to accepts all scraps containing 49.5% protein< and
pay for them at the rate provided
4. TC= D
5. REVERSED
ii. Issue
1. Were the words used in a specific trade enough to show that the contract was
unambiguous?
iii. Holding

35

1. Yes- none of the reasons appeals to us as sufficient to exclude evidence of custom and
assign to words their common meaning only, even though the instrument is
nonambiguous upon its face
iv. Reasoning
1. Language of various trades and localities has assigned to it meanings quite different from
that just mentioned
v. Contract was for the sale of horse meat.
vi. There was a discount for any meat that is less than 50%.
vii. Seller wanted to introduce evidence of understood rule that any meat with greater than 49.5%
protein was acceptable as 50%.
viii. The court said that trade usage is the dictionary for parties entering into these types of
transactions.
ix. Trade usage is so prevalent that it need not be put in the contract Extrinsic evidence of
this type will be allowed.
x. Definition of agreement in UCC includes trade usage, course of performance.
u. UCC and the Commercial Context
i. UCC 1-303
1. course of performance is a sequence of conduct between the parties to a particular
transaction that exists if
a. agreement of the parties with respect to transaction involves repeated occations
for performance by a aprty
b. other party with knowledge of nature of the performance and opportunity for
objection to it, accepts the performance or acquiesces in it without objection
2. course of dealing is a sequence of conduct concerning previous transactions between
parties to a particular transaction that is fairly to be regarded as establishing common
basis of understanding for interpreting expressions and other conduct
3. usage of trade any practice or method of dealing having regularity of observance in a
place, trade, vocation to justify expectation that it will be observed with respect to
transaction in question
ii. UCC 2-202
1. Final expression of agreement with respect to terms included may not be contradicted by
evidence of any prior agreements but may be explained by
a. Course of performance, course of dealing, usage of trade
b. Evidence of consistent additional terms
v. Use of Extrinsic Evidence to Supplement or Qualify Agreement: Course of Dealing, Usage of Trade,
and Course of Performance
w. Nanakuli Paving & Rock v Shell Oil
i. Brief Fact Summary.
1. Plaintiff, Nanakuli Paving & Rock Co., sued Defendant, Shell Oil Co., for breach of a
supply contract when Defendant failed to provide price protection on a delivery of
asphalt as it had done in the past.
2. Defendant raised its price for asphalt, but protected Plaintiff from the price increase for
several months after each announced increase.
3. Defendant raised its price for asphalt with one day notice to Plaintiff, and did not offer
price protection.
4. Plaintiff sued for breach of its 1969 contract with the Defendant.
5. The jury returned a verdict in favor of the Plaintiff, which was set aside by the trial judge.
6. Plaintiff appealed, and the Court of Appeals reversed.
ii. Synopsis of Rule of Law.
1. Under the Uniform Commercial Code, a trade usage or course of dealing may be used to
explain or supplement the express terms of a written contract. A trade usage will be
binding on a person who is either a member of the trade or is a person who knows or
should know of the trade usage.
iii. Issue

36

1. Whether a trade usage or course of dealing can be used to modify or supplement the
express terms of a written commercial contract?
2. How broad is the trade? Should Defendant be bound to the usages of trade of the entire
asphaltic paving industry in Hawaii or of only trade in asphalt?
3. Did the price protection offered by Defendant to Plaintiff in 1970 and 1971 constitute
waivers of the price provision of the contract as a matter of law, or were they a course of
performance?
4. Was it possible for the jury to find that a trade usage or course of performance providing
for price protection was consistent with an express price provision in the parties written
contract?
5. As an alternative theory of recovery, did Defendant have a good faith obligation to
provide advance notice of the price increase or some form of price protection to Plaintiff?
iv. Holding
1. Yes. There was sufficient evidence for the jury to find that a usage of the asphaltic trade
in Hawaii required Defendant to provide price protection to Plaintiff.
2. The trial court did not err in defining the relevant trade as the entire asphaltic paving
industry.
3. A person will be bound by a trade usage if he/she is a member of the trade at issue or is a
person who knows or should know of the trade usage.
4. A person should know of a trade usage if he/she has regular dealings with members of
the specific trade.
5. A person should also know of a trade usage if he/she is a member of another trade that
has some dealings with the relevant trade (e.g., farmers should know something of seed
selling). Although Defendant did not deal in all asphaltic materials, it regularly dealt with
Plaintiff, who was a major asphaltic paving contractor. Therefore, Defendant should have
known of the practice of price protection in Plaintiffs industry.
6. Whether an act is ambiguous is a question for the jury. In commercial contracts, if acts
are ambiguous, there is a preference to interpret them as a waiver of a contract term
rather than as a course of performance if it is necessary to prevent surprise or hardship, or
to protect the flexible nature of the contract.
7. If the jury finds that an act is unambiguous, it may also decide whether an act is a course
of performance or a waiver. One instance of conduct will not constitute a course of
conduct, but how many more occurrences are required will depend on the circumstances.
In this case, Defendant previously raised its prices under the contract with the Plaintiff
only twice, and offered price protection both times. The jury could find that those two
instances constituted a course of performance.
8. Under the UCC, a commercial contract is broader in scope than its express provisions,
and will also include trade usages, courses of dealing, and actual performance of the
contract. Whenever it is reasonable, express terms will be read as consistent with courses
of dealing and trade usages; otherwise, an express term will control.
9. There must be evidence of a definite trade usage in order for it to be allowed to modify an
agreement. In this case, price protection was a prevalent trade usage in the asphaltic
paving industry, and the jury could reasonably find that this exception was consistent
with the posted price provision of the agreement.
10. Contracts governed by the UCC carry a duty of good faith in performance and
enforcement. For merchants, this duty requires following commercially reasonable
standards of fair dealing within that trade. In this case, there was evidence that advance
notice of price increases for asphalt was a well-established practice in the paving
industry. Therefore, a reasonable jury could find that Defendant breached its duty of fair
dealing to Plaintiff when it provided only one days notice.
11. Concurrence. Juries should be allowed to add a specific term to commercial contracts on
a good faith theory only when it is based on evidence of a well-established usage or
custom, or some other objective standard.
x. Restatement 201 Whose Meaning Prevails

37

XI.

i. If both parties have attached the same meaning, the contract is interpreted in accordance to that
meaning.
ii. If parties have attached different meaning, it is interpreted in accordance with the meaning
attached by one of them if
1. That party did not know of any different meaning attached by the other, and the other
knew the meaning attached by the first party.
2. That party had not reason to know of any different meaning attached by the other, & the
other had reason to know the meaning attached by the first party.
iii. Except as otherwise stated, neither party is bound by the meaning attached by the other.
y. Raffles v. Wilchenhaus
i. The parties made a contract for cotton to arrive on the ship Peerless.
ii. The seller meant the Dec. Peerless, but the buyer meant the Oct. Peerless.
iii. The buyer was allowed to present extrinsic evidence.
iv. Under the parol evidence rule, extrinsic evidence is allowed to clarify a latent ambiguity in
the contract.
v. Court found no K
z. Oswald v. Allen
i. The buyer thought he was buying all of the sellers Swiss coins.
ii. Seller thought she was selling her Swiss coin collection.
iii. No K exists- when any of the terms used to express an agreement is ambivalent and the parties
understand it in different ways, there cannot be a K unless one of them should have been aware of
the others understanding
iv. Under Rest. 201, the contract failed b/c neither party knew or shouldve known of the
meaning attached by the other party.
aa. Colfax Envelope Corp v Local No. 458-3M
i. Facts
1. Colfax is an envelope manufacturer. Its president signed a summary of changes to a
collective bargaining agreement. The summary listed the manning requirements for
printing presses as 4C 60 Press3 Men. Colfax believed this meant that four-color
presses printing sheets 60 inches and over were to be manned by 3 men, while the union
believed that it applied to presses printing sheets 60 inches and under.
2. The court holds that a reasonable person in Colfaxs position would have realized that the
term was ambiguous, so the dispute should be resolved by interpretation and not
rescission of the contract.
ii. Holding
1. No meeting of minds, does 40 C 60 press with 3 men mean 60 and lower or 60 and
higher
Supplementing Agreement with Terms supplied by Law: Gap Fillers, Warranties, and Mandatory
Terms
a. Filling Contractual Gaps
i. Implication
1. Actual expectations of the parties
b. Filling Gaps by Statute
i. Off-the-rack
1. Default terms that courts imply in the absence of agreement between the parties to
address issues that parties sometimes omit
c. Gap Filling with Respect to Product Quality-Implied Warranties
i. Buyer Beware
1. if agreement is silent as to product quality, the K does not impose any minimum standard
2. if buyer wishes to contract only for goods that meet a particular standard, he or she must
contract for that result
ii. a contacting partys performance must fulfill even when the parties agreement could easily be
interpreted and enforced without such terms
1. implied terms are default terms bc parties can contract to the contrary

38

2. implied warranties
a. contract terms implied by law
b. most common use appears in sale of goods contracts governed by UCC Art. 2
c. Two most important rules of implied warranties
i. Those that provide for an implied warranty of merchantability (UCC 2314)
ii. Implied warranty of fitness for particular purpose (UCC 2-315)
iii. UCC 2-312 provides for a warranty of title and a warranty against
infringement
d. Implied Warranty of merchantability
i. UCC 2-314(1)
1. A warranty that the goods shall be chantable is implied in a K for their sale if the seller is
a merchant with respect to goods of the kind
2. Qualifies the term merchants by requiring that all the seller be a merchant with respect
to goods of the kind that are being sold
ii. Merchantibility
1. If the seller is a merchant with respect to goods of the kind, the K for their sale contains a
warranty that the goods shall be merchantable.
2. UCC 2-314(2)
a. Fit for ordinary purpose for which such goods are used
b. That the item sold be reasonably fit for its ordinary uses, not that it be perfect
e. Koken v. Black & Veatch Construction
i. The plaintiff used a fire blanket a commercial product to protect the area beneath his
welding operation.
ii. A fire occurred and the fire blanket melted. T
iii. he plaintiff alleged breach of implied warranty of merchantability.
iv. The court upholds summary judgment against the plaintiff because the plaintiff failed to produce
evidence that the ordinary user reasonably expected a fire blanket to contain a fire without
melting.
v. The curious reader would like to know what fire blankets are used for, if not to contain fires. To
be fair, there is some suggestion that the fire blanket might be used to prevent small fires but not
large (hot?) ones
f. Implied Warranty of Fitness for Particular Purpose
i. Some circumstances provides the protection for a buyer who intends to put goods to non-standard
use
ii. UCC 2-315
1. Describes the situations in which implied warranty of fitness for particular purpose arises
and indicates the content of that warranty
iii. Lewis v. Mobil Oil Corporation
1. Lewis installed a hydraulic system in his sawmill and requested the proper operating fluid
from a local oil dealer that sold Mobil oil, a brand Lewis had used before.
2. The dealer sold Lewis a straight mineral oil with no additives. The system repeatedly
broke down. Mobils engineer later inspected the system and recommended a different
kind of oil with additives.
3. Lewis sued Mobil and the local dealer for damages to his hydraulic system caused by
using the wrong oil.
4. The court holds that a warranty of fitness existed, because Lewis made it clear to Mobil
that the oil was being purchased for his specific hydraulic system, that he didnt know
what kind of oil was necessary, and that he was relying on Mobil to supply the proper
product.
g. Express Warranties
i. Differ from implied warranties in that they are the product of bargaining between the parties
rather than implication by law
ii. Rest on dickered aspects of individual bargaining

39

XII.

iii. May be considered merely terms of agreement between parties

iv. UCC 2-313(1)
1. Express warranty may be created in any of three ways
a. Affirmation of fact or promise made by seller with respect to the goods creates a
warranty that they will conform to that affirmation/promise
b. Description of goods creates a warrant that they will conform to description
c. Sample or model of goods creates a warranty that the whole of the goods will
conform to sample or model
2. No requirement that the buyer have relied on affirmation of fact, promise, description,
sample or model in order for it to be part o the K but must have been part of the basis of
bargain
3. Not necessary to creation of an express warranty that seller use formal words or that he
have a specific intention to make a warranty
4. An affirmation merely of the value of the goods or a statement purporting to be merely
sellers opinion or commendation of the goods does not create warranty
a. puffing or sales talk exception
v. Supplementing the K with Mandatory Terms- Good Faith
1. Good faith
a. Honesty in fact and the observance of reasonable commercial standards of fair
dealing
b. Mandatory term of a K
h. Restatement 212 Interpretation of an Integrated Agreement
i. Restatement 221 Usage Supplementing Agreement
Party has to show other party knows or has reason to know of usage
i. AND
neither party knows or has reason to know the other party has an intention inconsistent with the
usage
Performance & Breach
a. Express Conditions
i. Luttinger v. Rosen
1. Seller promised to sell his house to the buyer.
2. Buyer promised to buy the house on the condition that he obtained a mortgage for
$45,000 at 8.5% interest.
3. The buyer was only able to get a loan at 8.75% interest, but the seller offered to make up
the difference.
4. The court found that this was an express condition & since it was not met, there was no
obligation to perform.
5. There was no breach because the promise was conditional on the loan & interest
rate of 8.5% & the condition was not met.
6. The court said that the buyers promise was fulfilled b/c he exercised due diligence in
finding the loan.
7. Seller has to return the $8,500 earnest money
ii. Restatement 224 Definition of Condition
1. Performance of a duty subject to a condition cannot become due unless the condition
occurs or its non-occurrence is excused.
iii. Restatement 227(1)
1. If language of contract is unclear, a court will prefer an interpretation that imposes a duty
rather than a condition.
iv. Peacock Construction Co. v. Modern Air Conditioning, Inc.
1. There were subcontracts for an air conditioning system & a rooftop pool.
2. There was a provision that subcontractors would be paid within 30 days after the
completion of the work & full payment of the owner.
3. Subcontracting work was completed, but the owner refused to pay because the owner had
not paid him.

40

b.

c.

d.

e.

4. This provision was not a condition but an absolute promise to pay, fixing payment
by the owner as a reasonable time for when payment to the sub-contactor was to be
made.
5. The parties are free to make it clear that the provision was an express condition of
payment. Otherwise, the court will interpret the provision as a promise, not a condition.
v. Gibson v. Cranage
1. Painter called the plaintiff & asked if he could make a portrait of his deceased daughter.
2. Plaintiff said that if the portrait was perfectly satisfactory to him in every way, he would
buy it.
3. The painter returned & the buyer said it was not satisfactory.
4. If youve created an express condition, the court will strictly construe that condition.
vi. Restatement 228 Satisfaction as a Condition
1. If the contract is not clear on the standard of satisfaction to the buyer, the court will prefer
the reasonably prudent person standard.
Third Party Satisfaction
i. Some of the risk inherent on making the other partys duty conditional on its own satisfaction can
be eliminated by making its duty conditional on the satisfaction of an independent third party.
(Architects certificate).
Mitigating Doctrines
i. Prevention
1. If a party whose performance is conditional prevents a condition from happening, the
court will find a way to enforce the contract.
ii. Waiver, Estoppel
1. A party can waive the occurrence of a condition & then choose to go through with the
contract despite the non-occurrence of the condition.
iii. Election
1. Party waives non-occurrence, acts as election once time for occurrence has passed.
iv. Rest. 84 Promise to Perform a Duty in Spite of Non-Occurrence, Condition
1. Promise to perform all or part of a conditional duty under an antecedent contract in spite
of the non-occurrence of the condition is binding unless
a. Occurrence of the condition was a material part of the contract & promise was
under the duty that it occur
b. Uncertainty of the occurrence of the condition was an element of the risk
assumed by the promisor.
Mitigating Doctrines
i. Pg 708
ii. McKenna v. Vernon
1. McKenna takes on construction project, Vernon will make payments upon the certificate
of architect
a. Clearly stated in K that certificate has to be received in order to pay
2. However, Vernon makes several payments w/o a certificate, paid $6000, now need to pay
remainder
3. P asks for final payment, D will not pay bc of no certificate
4. P sues for BOC
5. P wins, due to the consistent conduct of D to waive the need for certificate
a. Ds consistent waiver of the need of the certificate mitigates the occurrence of the
condition in the contract.
Constructive Conditions
i. Dependent promises
1. The court says the ordinary expectation is that one party must only perform or pay upon
the other partys completion of his duty.
ii. Kingston v. Preston
1. Defendant was a silk merchant & the plaintiff was an apprentice.
2. The buyer agreed to give good & sufficient security approved by the seller.

41

f.

3. The buyer sued the seller when he did not transfer the business, but the court found that
the security was a constructive condition of the contract.
4. The court found that even though the condition was not express, this was a case of
dependent promises that required sufficient security in order for the seller to
transfer the business to the buyer; over turns old rule
5. There is no express conditions as in Gibson.. this is a constructive contition,
although has same effect as express condition (discharges)
6. Still a BOC
iii. Example:
1. Fedex promises to deliver nov. 23, customer promises to pay on nov. 24
2. Fedex can sue for not keeping promise customer can bring counterclaim for not
delivering but they would still have to pay since there was no express condition; logically
it doesnt make sense that they have to pay if no delivery, but that is the early rule of
law didnt change till Kingston!
3. Independent v dependent
iv. Restatement 232 Exchange of Performances
1. Presumption that all the performances to be rendered by each party taken collectively are
treated as performances to be exchanged under an exchange of promises, unless a
contrary intention is clearly manifested.
v. Restatement 237
1. It is a condition of each partys remaining duties to render performances to be exchanged
under an exchange of promises, unless a contrary intention is clearly manifested.
vi. Stewart v. Newbury
1. Builder contracted to do excavation work for a new building.
2. The builder said he would expect payments in the usual manner.
3. Builder submitted the bill & owner refused to pay.
4. The builder then quit working.
5. The builder claimed that under trade rules, he was to receive 85% of all work done.
6. Where a contract is made to perform work & no agreement is made as to payment,
the work must be substantially performed before payment can be demanded.
7. If one promise will take a period of time & the other promise can be rendered
instantaneously, the doing must precede the giving.
8. Builder has to perform first
9. Because the K is silent in regards to when payment is due, it is due when project
completed
10. Restatement 234 Order of Performance
vii. Concurrent conditions & tender
1. Restatement 238 Tender
a. An offer to perform with the ability to do so is considered tender.
Mitigating doctrines
i. Substantial performance
1. The rule of substantial performance applies to constructive, not express conditions.
2. Willful deviation from the terms of the contract always precludes a finding of substantial
performance.
3. Restatement 241 Determining Whether a Failure is Material
a. Extent to which the injured party will be deprived of the benefit he reasonably
expected
b. Extent to which the injured party can be adequately compensated for part of that
benefit of which he will be deprived.
c. The extent to which the party failing to perform or to offer to perform will suffer
forfeiture
d. Likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable
assurances

42

4.

5.

6.

7.

e. The extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith & fair dealing. (This is like willful
breach in Jacob & Youngs v. Kent).
Jacob & Youngs v. Kent
a. Plaintiff contracted to build a house for the defendant.
b. One of the provisions was to use Reading pipe.
c. Builder accidentally used Cohort pipe & owner kept last payment.
d. The only difference between the two pipes was where they were made.
e. Court found that Reading pipe was a constructive condition of the contract
applied rule of substantial performance.
f. The test for a constructive condition is substantial performance.
g. Factors to Consider
i. The purpose to be served
ii. The desire to be gratified
iii. The excuse for deviation from the letter
iv. The cruelty of forced adherence
v. The significance of the default
vi. Was the breach willful? Court said no, dissent said it doesnt matter
h. To make an express condition in the contract, say payment conditional on
i. Compare to luttinger v rosen, on express conditions
j. Standard of express condition is strict performance
k. Standard of constructive condition is substantial performance
Restatement 237 Constructive Condition
a. It is a constructive condition of each partys remaining duties to render
performances to be exchanged under an exchange of promises that there be no
uncured material failure by the other party to render any such performance due at
an earlier time.
Plante v. Jacobs
a. Contractor agreed to build a house for the defendants according to the plans.
b. A dispute arose & Jacobs refused to continue payment, alleging faulty
workmanship & incomplete construction.
c. Plante did not furnish kitchen cabinets, gutters, downspouts, sidewalks; Living
room wall was one foot off mark.
d. Court found that there was no uncured material failure.
e. For substantial performance, the plaintiff should recover the contract price
less the damages caused the defendant by the incomplete performance.
f. If there is a express condition the standard it strict compliance
g. If there is not substantial performance than the other party does not have to
pay
h. Constructive condition standard is substantial performance
The perfect tender rule
a. UCC 2-601: Buyers Rights on Improper Delivery
i. If the goods or the tender of delivery fail in any respect to conform to the
contract, the buyer can
1. Reject the whole
2. Accept the whole
3. Accept any commercial units & reject the rest.
b. UCC 2-608 Revocation of Acceptance
i. The buyer may revoke his acceptance of a commercial lot whose nonconformity substantially impairs its value to him.
c. UCC 2-508 Improper Tender
i. Where a tender/delivery by the seller is rejected b/c non-conformity &
the time for performance has not yet expired, the seller may seasonably

43

notify the buyer of his intention to cure & may within the time of the
contract make a conforming delivery.
ii. Where the buyer rejects non-conforming goods the seller had
reasonable grounds to believe would be acceptable, the seller may
seasonably notify the buyer & have further reasonable time to substitute
a conforming offer.
ii. Divisibility
1. Gill v. Johnstown Lumber Co.
a. Gill agreed to drive logs down a river.
b. Johnstown agreed to pay $1/1,000 feet of driving logs.
c. There was a huge flood & only some of the logs made it to the lumber company.
d. There was not substantial performance, but the court found that the contract was
divisible.
e. Plaintiff is entitled to freight in proportion to the extent of his delivery.
f. If the part to be performed by one party consists of sever & distinct items, &
the price to be paid by the other is (1) apportioned to each item to be
performed, or (2) is left to be implied by law, such a contract will generally
held to be severable.
g. First Issue: was there an express condition? NO, because in express condition
there has to be strick performance, which there was not
h. Second Issue: was there a constructive condition? Yes, b/c there was an exchange
of promises then parties meant to exchange performances too; standard is
substantial performance (factors for determing sub. Performance 241/237)
i. Driver not claiming that he substantially performed he is arguing that he
should be compensated for what he did deliver
i. in regards to 237 the lumber co.s duty was discharged
ii. Is contract divisible? Divisible means being able to apportion the
performances, compensation based on part performance
1. Driver argues that the contract is divisible based on the pricing
terms ($1/1000) applied to 2 million feet instead of 4 million
feet
j. COURT SAYS THAT THE CONTRACT IS DIVISIBLE
k. Driver also tries to argue that going part of the distance then losing the logs
should be compensated for the distance he drove them
l. COURT SAYS THAT THE CONTRACT IS NOT DIVISIBLE IN THAT
REGARD AND THAT IT IS NOT APPORTIONABLE IN REGARDS TO
DISTANCE THAT THE LOGS WERE DRIVEN
2. Restatement 240 Part Performance as Agreed Equivalents
a. If the performance to be exchanged under an exchange of promises
i. Can be apportioned into corresponding pairs of part performances
ii. So that the parts of each pair are properly regarded as agreed equivalents
b. A partys performance of his part of such a pair has the same effect on the others
duties to render performance of the agreed equivalent as it would have if only
that pair of performances had been promised.
3. Pennsylvania Exchange Bank v. US
a. US made contract with local company to take four steps (the fourth of which will
only be activated in time of emergency)
b. US compensated for the first three steps but not for the fourth because it had not
been activated yet
c. Company goes into bankruptcy and the rep tries to sue US for the remainder of
the contract and tries to argue that contract is divisible; contract is not divisible
bc the main point of the first three steps were in prep of the fourth the most
important step

44

d. COURT HOLDS that it cannot be compensated for the part of the contract that
was not completed. The whole purpose of the contract was to have the company
on standby in case of a national emergency; they are no longer on standby and
therefore are not able to recover
e. Express Condition? NO; Constructive Condition? Yes, but there was not
substantial performance (actually US can sue for breach...)
iii. Restitution
1. Britton v. Turner
a. Britton entered into contract w Turner to work for an year for $120
b. Britton quit after 9.5 months; sues for payment of labor completed
c. NO express condition (no specific performance)
d. NO constructive condition (no substantial performance
i. -> discharge of duty
e. Not divisible The total consideration was to be paid for the total work
specified in the contract. The fact that a schedule of payments was set up
based on the progress of the work does not change the character of the
agreement
f. Court said that employer is in a better position than he was previous to the
employment of Britton and there for should compensate based on restitution
g. Restitution The builder can recover based on the reasonable value of the
work done, less whatever damage the other party has suffered.
i. Benefit? Yes
ii. At expense of P? yes
iii. Retention of benefits w/o compensation is unjust? Yes
2. Restatement 374 Restitution When the Other Party is in Breach
a. If a party justifiably refuses to perform on the ground that his remaining duties of
performance have been discharged by the other partys breach
b. The party in breach is entitled to restitution for any benefit that he has conferred
by way of party performance or reliance in excess of the loss that he has caused
by his own breach
3. Kirkland v. Archbold
a. Builder makes contract w owner; supposed to use rock lath, and owner makes
payments once a month
b. Builder does not use rock lath, BOC; owner refused to let him finish work since
he was not using the correct materials
c. Builder sues for not being paid
d. Just because there are progress payments does not mean that it is divisible
e. No claim for BOC, but does have a claim for restitution because of builder has
conferred some benefit on owner and should be compensated for it, BUT minus
any damages that were caused by the breach owner will recover damages
caused by breach (minus $800 which she has already paid)
f. where a builder has supplied work and labor for the erection or repair of a house
under a lump sum contract, but has departed from the terms of the contract, he is
entitled to recover for his services and materials, UNLESS:
i. the work that he has done has been of no benefit to the owner
ii. the work he has done is entirely different from the work which he has
contracted to do
iii. he has abandoned the work and left it unfinished
g. HOWEVER, if builder is not acting in good faith then some courts will have a
tough time granting restitution; this court said he could not be granted restitution
g. Suspending Performance & Terminating the Contract
i. Walker & Co. v. Harrison
1. Walker(lessor) leased sign to Harrison(Lesee).
2. Walker promised to manufacture, install, & maintain the sign.

45

3. The lessee promised to pay $148.50 per month.

4. A tomato was thrown on the sign, there was rust, & small cobwebs in the corners of the
sign.
5. The renter quit paying because the lessor did not clean up the sign quickly enough.
6. Lessor brings suit; there was a breach just not a material breach, should have cleaned up
tomato sooner (material breach based on following factors 241
a. The extent to which the injured party will obtain the substantial benefit which he
could have reasonable anticipated
b. The extent to which the injured party may be adequately compensated in
damages for lack of complete performance
c. The extent to which the party failing to perform has already partly performed or
made preparations for performance
d. The greater or less hardship on the party failing to perform in terminating the
contract
e. The willful, negligent or innocent behavior of the party failing to perform
f. The greater or less uncertainty that the party failing to perform will perfom the
remainder of the contract
7. The payments were constructive conditions for maintenance.
8. The court found that there was no material failure from lessor, so the lesee was not
justified in repudiating the contact He was in breach.
ii. K & G Construction Co. v. Harris
1. Harris subcontracted to do excavation work in a workmanlike manner & to carry
liability insurance.
2. General contractor agreed to make progress payments, less a 10% retainer.
3. One of Harriss men drove a bulldozer too close to the house & knocked down a wall.
4. The insurance co. refused to pay & the general withheld a progress payment. Harris quit
working.
5. There was an express condition to carry liability insurance & that condition was met.
6. There was a constructive condition to perform in a workmanlike manner & this was not
met.
7. However, general treated this as a partial breach by allowing Harris to continue working.
8. When Harris breached again by stopping work, the general treated it as a total breach.
9. General was allowed to repudiate the contract under 243 because Harriss breach
of walking off the job was an uncured material failure.
iii. Restatement 235 Effect of Performance as Discharge
1. Full performance of a duty under a contract discharges that duty.
2. When performance of a duty under a contract is due any non-performance is a breach.
iv. Restatement 236 Claims for Damages for Total & Partial Breach
1. A claim for damages for total breach is one for damages based on all of he injured partys
remaining rights of performance.
2. A claim for damages for partial breach is one for damages based only part of the injured
partys remaining rights to performance.
v. Restatement 243 Breach by Non-Performance Claim for Total Breach
1. A party can claim damages for total breach if it discharges the injured partys remaining
duties to render such performance.
2. A partys duty is discharged if there is an uncured material failure.
vi. Hindrance & Prevention
1. Also applies to constructive conditions.
h. Prospective Nonperformance
i. Anticipatory Repudiation
1. Restatement 250 Definition of Repudiation
a. A statement by the obligor to the oblige indicating that the obligor will commit a
breach that would of itself give the oblige a claim for damages for total breach
(uncured material failure).

46

2.

3.

4.

5.

1.

6.

b. A voluntary affirmative act which renders the obligor unable or apparently

unable to perform without such a breach.
Restatement 253 Effect of Repudiation
a. Where an obligor repudiates a duty
i. Before he has committed a breach by non-performance
ii. Before he has received all of the agreed exchange for it
iii. Repudiation alone gives rise to a claim for damages for total breach.
b. Where performances are to be exchanged under an exchange of promises
i. One partys repudiation of a duty to render performance
ii. Discharges the other partys remaining duties to render performance.
UCC 2-610 Anticipatory Repudiation
a. When a party repudiates the contract with respect to performance not yet due the
loss of which will substantially impair the value of the contract to the other, the
aggrieved party may
i. For a commercially reasonably time await performance by the
repudiating party
ii. Resort to any remedy for breach
iii. In either case, suspend his own performance or proceed.
Hochster v. De La Tour
a. Traveler hired courier to work for 3 months.
b. Courier agreed to work for $10/month.
c. The traveler changed his mind & the courier sued for breach before the time for
performance.
d. The courier got another job.
e. Where there is a contract to do an act on a future day, there is a relation
constituted between the parties in the meantime by the contract, and they
impliedly promise that in the meantime neither will do anything to prejudice
the other inconsistent with that relation.
Exception for One-Sided Contracts
a. Where one party has fully performed, he may not bring a claim for total breach
under the Restatement 253 because he has received all of the agreed exchange
for it.
b. You must not have received all of the agreed exchange under the contract in
order to sue for total breach.
Phelps v. Herro Exception for one-sided contract
o Restatement 243(3) & 253
If the other side has fully performed, he does not have a claim for total
breach He has to sue as each payment is due.
Parties often make sure there is an acceleration clause in the contract so
they can sue for total breach when one payment is not made
o No exception in the UCC for one-sided contract
i. UCC 2-610 Anticipatory Repudiation
Kanavos v. Hancock Bank & Trust Co.
a. Kanavos had option to buy stock before it was sold to anyone else.
b. The bank paid him $40,000 for that option to purchase & gave him option to buy
stock before it was sold on the same terms.
c. Bank sold stock without notifying Kanavos.
d. Kanavos argued that the bank prevented the constructive condition (buying
stock) from occurring by not notifying him that they were selling it to someone
else.
e. Kanavoss ability to pay is material in determining damages & he has the
burden to prove that he was able to pay.
f. If you voluntarily engage in some activity that makes it impossible for you to
perform, you have repudiated.

47

7. Restatement 244 Partys Duty to Pay Damages for Total Breach

a. A partys duty to pay damages for total breach by non-performance is discharged
if it appears after the breach that there would have been a total failure by the
injured party to perform his return promise.
8. Restatement 254 Effect of Subsequent Events on Duty to Pay Damages
a. A partys duty to pay damages for total breach by repudiation is discharged if it
appears after the breach that there would have been a total failure by the injured
party to perform his return promise.
9. McCloskey & Co. v. Minweld Steel Co.
a. Minweld agreed to supply steel & erect all structural steel for two buildings.
b. General asked for adequate assurances that they would perform.
c. Minweld wrote back, saying they could not procure steel & asking for the
generals help.
d. General considered Minwelds letter an anticipatory repudiation & canceled the
contract.
e. The contract did to require Minweld to give adequate assurances & they
never repudiated the contact.
f. Whoever repudiated first, will not recover damages.
10. Cosden Oil & Chemical Co. v. Karl O. Helm
a. Seller agreed to sell plastics.
b. Buyer had contracts #4-7 to buy plastics.
c. There was a shortage of plastics.
d. Seller delivered part of contract #4 & seller cancelled contracts #5-7.
e. Buyer claimed that the seller repudiated prior to the time that the buyer owned
the payment. The buyer did not owe payment for the partial shipment.
f. The jury found that the seller did repudiate prior to the time that the buyer owed
the payment. Buyer has a claim for total damages.
g. Problem with how to calculate damages.
h. Three possible interpretations of the phrase learned of the breach
i. When he learns of the repudiation
ii. When he learns of the repudiation plus a commercially reasonable time;
or
iii. When performance is due under the contract
i. Court said in order to avoid conflict between 2-610 & 2-713 measurement
of damages should be after a commercially reasonable time (as written in 2610 Repudiation).
j. If it was a failure to perform (deliver goods), then the buyer learns of the breach
when the seller never delivers on day expected
k. What if buyer was one who repudiated contract, what remedies would seller
have? UCC 2-703(d)
i. Seller would be able to resell and recover damages
ii. Can recover damages for non acceptance UCC 2-708
1. Difference between market price at the time and place of tender
and the unpaid contract price together with any incidental
damages
11. UCC 2-708(1) Sellers Damages for Non-acceptance or Repudiation
a. Damages based on the difference between the unpaid contract price together with
any incidental damages provided in this article but less expenses saved in
consequences of the buyers breach.
12. UCC 2-713 Buyers Damages for Non-delivery or Repudiation
a. Damages is based on difference between market price at time when buyer
learned of the breach & the contract price together with any incidental &
consequential damages provided in the article but less the expenses saved in
consequences of sellers breach.

48

13. United States v. Seacoast Gas Co.

a. Contract for sale of gas from Seacoast.
b. Seacoast said US repudiated, but US said that if Seacoast did not start performing
again within 3 days that US would advertise for other bids.
c. US advertised & gave Seacoast notice that if they did not retract repudiation, that
US would accept another bid.
d. US accepted a bid from Trion (owned by same man as seacoast) & Seacoast said
they retracted before contract was formed.
e. The repudiator has the power of retraction prior to any change of position
by the other party, but not afterwards.
f.
14. Restatement 256 Nullification of Repudiation or Basis for Repudiation
a. A retraction nullifies repudiation unless
i. other party materially alters its position
ii. Non-repudiating party gives notice that it considers the repudiation to be
final
15. UCC 2-611 Retraction of Anticipatory Repudiation
a. Repudiating party can retract repudiation unless aggrieved party
i. Has materially changed his position
ii. Or has otherwise indicated that he considers the repudiation final
b. Retraction may be by any method which clearly indicates to the aggrieved party
that the repudiating party intends to perform
c. Retraction reinstates the repudiating partys right under the contract with
allowance to the aggrieved party for any delay occasioned by the repudiation
ii. Assurance of Due Performance
1. UCC 2-609 Adequate Assurance of Performance
a. (1) When reasonable grounds for insecurity arise with respect to the
performance of either party, the other may in writing demand adequate
assurances of due performance
b. AND until he receives such assurances may if commercially reasonable
suspend any performance for which he has not already received the agreed
return.
c. (2) Between merchants, the reasonableness of grounds for insecurity & adequacy
of any assurance offered shall be determined according to commercial standards.
d. (3) Acceptance of any improper delivery or payment does not prejudice the
aggrieved partys right to demand adequate assurances of future performance
e. (4) After receipt of a justified demand, failure to provide within a reasonable
time not exceeding thirty days such assurance of due performance as is
adequate under the circumstances of the particular case is repudiation of the
contract.
2. Restatement 251 Adequate Assurances
a. Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the oblige a claim for damages for
total breach (uncured material failure), the oblige may demand adequate
assurances of due performance and may, if reasonable, suspend any performance
for which he has not already received the agreed exchange until he receives such
assurance.
b. The obligee may treat as repudiation the obligors failure to provide within a
reasonable time such assurance of due performance as in adequate in the
circumstances of the particular case
3. Pittsburgh-Des Moines Co. v. Brookhaven Water Co.
a. PDM was supposed to build a water tower for Brookhaven & Brookhaven was to
pay.

49

b. When Bs loan did not go through, PDM asked for adequate assurances & a
personal guarantee of payment. However, original contract stated payment not
due till completion of performance
c. Court said that reasonable grounds for insecurity did not arise because
Brookhavens position had not changed since the contract was made.
d. PDM could not ask for adequate assurances.
4. Norcon Power Partners v. Niagara Mohawk Power Corp.
a. Seller was selling electricity to buyer with a complicated pricing mechanism.
b. At the end of the 2nd pricing period, seller owed buyer $610M & buyer asked for
adequate assurances of performance.
c. Seller did not want to give adequate assurances & took buyer to court.
d. Court said that reasonable grounds for insecurity had arises b/c buyers position
had changed dramatically during the meantime.
e. Court adopted a common law concept of demand for adequate assurances in
contracts which are sufficiently similar to contracts for the sale of goods
like long-term contracts for sale of utilities.
XIII.

Remedies
a. Specific Performance
i. Court prefers to award monetary damages if those damages will put the party in the same position
he would have been in had there been no breach.
ii. Court will not enforce specific performance where performance is personal in nature.
b. UCC 2-716 Buyers Right to Specific Performance or Replevin
i. Specific performance may be decreed where the goods are unique or in other proper
circumstances.
ii. Other proper circumstances are when money damages will not put you in the same position you
would have been if specific performance was allowed.
c. Campbell Soup v. Wentz
i. D: Farmers entered into a contract w P: Campbell soup for the sale, at a specified price of all the
Chantenay red cored carrots grown on their land during the 1947 season.
ii. At the time of delivery, the price of the carrots had more than tripled, and the farmers refused to
deliver at the contract price.
iii. The court holds that Campbell was entitled to specific performance because the reputation of its
products was dependent on the use of Chantenay carrots, it had contracted for them long in
advance in anticipation of its needs, and it was virtually impossible to obtain them in the open
market.
d. Restatement 359: Effect of Adequacy of Damages
i. Specific performance will not be ordered if damages would be adequate to protect the expectation
interest of the injured party
ii. The adequacy of the damage remedy for failure to render one part of the performance due does
not preclude specific performance to the contract as a whole
iii. Specific performance will not be refused because there is a remedy for breach other than
damages.
e. Pepsi Co. v. Klein
i. Broker was supposed to buy jet from Pepsi & Klein was to buy jet from broker.
ii. Pepsi & broker negotiated & court found that there was a contract (condition was satisfied
through inspection & when Pepsi agreed to make the required repairs.)
iii. Court said both Klein & broker could cover because there were other similar jets & Klein had
actually bid on a couple.
iv. Klein was not entitled to specific performance because jet did not pass unique test & this
was not an other proper circumstance.
f. Morris v. Sparrow
i. Sparrow agreed to work at Morris ranch in exchange for $400 and, if his work was satisfactory, a
horse named Ken.

50

ii. The horse was practically unbroken when Sparrow arrived, and Sparrow trained it to be a roping
horse.
iii. Morris paid Sparrow the $400, but refused to deliver the horse, arguing Sparrow had not done a
good job.
iv. Court affirms a lower court finding that Sparrow had done a good job and orders the horse
delivered to him.
v. Sparrow is entitled to delivery of the horse, and not (just) its market value in dollars, because the
horse had a peculiar and unique value.
g. Laclede Gas v. Amoco Oil
i. Amoco agreed to sell Laclede sufficient propane to satisfy Laclede's needs over a period of years.
ii. Amoco breached, and Laclede asked for specific performance of the contract.
iii. The court grants the request. It rejects an argument that because Amoco could not have gained
specific performance had Laclede breached, Laclede should not be entitled to specific
performance.
iv. It was not clear that substitute propane was available, and the court is of the opinion that a longterm contract to supply propane would not have been found.
h. Northern Del. Industrial Development Corp. v. E.W. Bliss
i. Delays in the defendant's performance of a substantial construction contract caused the plaintiff to
sue, inter alia, to compel defendant to employ 300 more employees to work night shifts.
ii. The court holds that, unless special circumstances or the public interest are involved, it is not the
role of courts to supervise complex projects or add terms to imprecise construction contracts.
i. The Standard Measure of Expectancy Damages
i. Laredo Hides v. H & H Meat
1. An exporter of hides contracted for the entire output of a meat processor's hides for a
fixed period at a fixed price.
2. When the processor breached, the exporter bought hides on the spot market, the quantity
measured by the processor's output.
3. The court allows recovery of the difference between the spot market prices and the
contract price under UCC 2-712.
ii. Facts: (P) a hide company is appealing after (D) a meat company won a take nothing

judgement. A written contract was signed by the two companies which promised that (D)
would deliver its entire hide production within a specified period of time to (P). At a
point in time during the time of the contract, (D) failed to receive payment from (P) due
to a mail delay of some sort. (D) immediately ceased to fulfill the rest of the contract.
Due to this lack of fulfillment by (D), (P) had to purchase hides at a significantly higher
market rate, in order to satisfy its contract with a Mexican tannery. While (P)
demonstrated its monetary damages, (D) did not refute them.
iii. Issue: Is (D) required to pay (P) for the damages incurred as a result of the market change
in price?
iv. Holding: Yes. According to statute 2.712 of the Texas Business and Commerce Code, if
the purchaser made good faith without reasonable delay, he may recover from the seller
the difference between cost and cover.
1. The court allows recovery of the difference between the spot market prices and
the contract price under UCC 2-712.
v. Rule: The actions of (D) were unjustified. Its refusal to deliver the amount of hides
specified in the contract was in itself a breach by repudiation.
j. UCC 1-305 Remedies to be Liberally Administered
i. (a) remedies provided by UCC must be liberally administered to aggrieved party to put
them in a position as if the other party had fully performed
k. UCC 2-703 Sellers Remedies
i. Buyer wrongfully rejects/revokes acceptances of goods/fails to make a payment on or
before delivery/repudiates partially or wholly the seller may:
51

Withhold delivery
Stop delivery (2-705)
Resell and recover damages (2-706)
Recover damages for non-acceptance (2-708) or in a proper case the price (2-709)
Cancel
UCC 2-706 Sellers Resale including contract for resale
i. When resale is made in good faith and commercial reasonable manner, seller may recover
difference between the resale price and the contract price with any incidental damages
ii. Must give buyer reasonable notification of intention to sell if resale is at private sale
iii. Resale is a public sale
1. only identifiable goods can be sold except where there is recognized market for
public sale of futures in goods
2. must be made at usual place or market for public sale
3. if goods not in view of those attending notification of sale must state place where
goods are located
4. seller may but
iv. purchaser who purchases goods in good faith is free of any rights of original buyer
v. seller not accountable to buyer for profit made on any resale
UCC 2-708 Sellers Damages for Repudiation(1)
i. Measure to damages for repudiation by buyer is difference between market price at time
and place of tender and unpaid contract price together with any incidental damages
UCC 2-719 Contractual Modification or limitation of Remedy
UCC 2-712
i. (1) after breach B may cover by making good faith and without unreasonable delay any
reasonable purchase of goods in substitution
ii. (2) B can recover diff between cost of cover and K price together with an incidental or
consequential damages (2-715) but less than expenses saved by breach
UCC 2-715
i. (1) incidental damages include commercially reasonable charges in connection with cove
and other reasonable expense incident to delay or other breach
ii. (2) consequence damages include (a) loss seller had reason to know and could not be
prevented by cover and (b) injury to person or property proximately resulting from
breach
UCC 2-712
i. Comment Test is whether buyer acted in good faith a reasonable manner and is
immaterial that hindsight my later prove.
1.
2.
3.
4.
5.

l.

m.

n.
o.

p.

q.

ii. R.E. Davis Chem. v. Diasonics

1. Davis contracted to purchase a piece of medical equipment from Diasonics.
2. Davis breached by refusing to take delivery.
3. Diasonics resold the equipment to a third party.
4. Diasonics argued that it would have made two sales had Davis not breached, and thus
was entitled to a recovery of its profits on the lost sale.
5. The court agrees, applying UCC 2-708(2).
iii. UCC 2-708 (2)
1. If the measure of damages provided in subsection (1) in inadequate to put the seller in as
good a position as performance would have done then the measure of damages is the
profit (including reasonable overhead) which the seller would have made from full
performance by the buyer, together with any incidental damages provided in the Article
( 2-710), due allowance for costs reasonably incurred and die credit for payments or
proceeds of resale.
iv. UCC 2-718: Liquidation of Limitation of Damages; Deposits

52

r.

1. Damages for breach by either party may be liquidated in the agreement but only at an
amount which is reasonable in the light of the anticipated or actual harm caused by the
breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated
damages is void as a penalty
2. Where the seller justifiably withholds delivery of goods because of the buyers breach,
the buyer is entitled to restitution of any amount by which the sum of his payments
exceeds:
a. The amount to which the seller is entitled by virtue of terms liquidating the
sellers damages in accordance with subsection (1), or
b. In the absence of such terms, twenty per cent of the value of the total
performance for which the buyer is obligated under the contract or $500,
whichever is smaller
3. The Buyers right to restitution under subsection (2) is subject to offset to the extent that
the seller establishes
a. A right to recover damages under the provisions of this article other than
subsection (1), and
b. The amount or value of any benefits received by the buyer directly or indirectly
by reason of the contract
4. Where a seller has received payment in goods their reasonable value or the proceeds of
their resale shall be treated as payments for the purposes of subsection (2); but if the
seller has notice of the buyers breach before reselling goods received in part
performance, his resale is subject to the conditions laid down in this article on resale by
an aggrieved seller (2-706)
v. U.S. v. Algernon Blair
1. A prime contractor breached its contract with a subcontractor.
2. The subcontractor sued in quantum meruit for the value of its labor and equipment
already furnished.
3. The court allows the recovery, rejecting the argument that recovery should have been
foreclosed by the fact that the subcontractor would have lost money had the general
contractor not breached.
Avoidability
i. Virtue v. Bird
1. Carrier waiting for customer who was late (breach)
2. While waiting, horses of carrier died
3. Loss in value is zero if paid, costs saved is zero, other losses is the dead horse
4. Court denied recovery since death of the horse was avoidable, could have take horses off
cart
5. Cant be sued for failure to mitigate damages. Just cant recover for damages you should
have mitigated.
ii. Rockingham Co. v. Luten Bridge Co.
1. Luten contracted to build a bridge for the county.
2. The bridge was partially completed when the county announced that it was breaching the
contract.
3. Luten finished the bridge.
4. The court holds that Luten should have stopped its work when the county announced it
no longer wanted the bridge.
iii. Tongish v. Thomas
1. Tongish, a farmer, contracted to deliver sunflower seeds to Decatur Coop Association at a
set price.
2. Coop had a contract to resell the seeds to a third party at the same price it paid Tongish
plus a handling fee.
3. At the time of the delivery date, the price of seeds had risen to double the price in the
contract, and Tongish notified Coop that he would not make deliveries.

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4. It may have been that Coop was not liable to the third party for failure to deliver beans or
that the third party had released Coop from liability.
5. The issue was whether Tongish should be liable only for the lost handling charges profits
or for the market price-contract price differential.
6. The court holds that the market contract price differential is the appropriate measure of
damages.
iv. Parker v. 20th Century-Fox
1. Actress Shirley MacLaine contracted to act in a motion picture titled "Bloomer Girl." The
movie was a musical.
2. Defendant decided not to make "Bloomer Girl" and offered MacLaine the starring role in
"Big Country, Big Man," a western.
3. When MacLaine sued for damages, defendant claimed an offset for the monies MacLaine
would have made from "Big Country, Big Man."
4. The court holds that the movies were so dissimilar that the actress had no duty to accept
the role offered her in substitution for "Bloomer Girl."
5. FACTS:
a. Actress contracts with studio for 750k to make film
b. Film is cancelled, offer actress same compensation to make difference movie
c. She denies the other role and sues for her unpaid compensation
d. Loss in value (750k) Costs Saved (0); summary judgment for 750k affirmed
e. Rule for employment contracts in this case is inferior employment is not
comparable. Even though same compensation she lost right in director approval.
The Rule is has earned or in reasonable effort might have earned. Qualification
on might have earned (must have had similar employment) comparable
(different or inferior)
s. Cost to Remedy v. Diminution
i. Jacob & Youngs v. Kent
1. The Kents contracted to have an expensive summer home built for them.
2. The contractor installed Cohoes pipe instead of the Reading pipe called for by the
contract.
3. The brands of pipe were of equivalent value.
4. The court holds that the installation of Reading pipe was not a condition precedent to the
Kents' duty to pay the contract price.
5. The court measures the damages by the difference in value between the promised
performance and the actual performance--here, zero.
ii. Groves v. John Wunder
1. Groves owned 24 acres of industrial property in Minneapolis.
2. He leased it for seven years to Wunder for the excavation and screening of gravel.
3. Wunder agreed to leave the property "at a uniform grade."
4. Wunder deliberately breached, leaving the property "broken, rugged, and uneven."
5. The court holds that the trial court erred in limiting plaintiff's recovery to the difference
in market price of the land had it been graded and the price of the land in its ungraded
condition.
6. According to the court, it is proper to award the costs to correct the condition, especially
since the breach was willful.
iii. Peevyhouse v. Garland Coal
1. Plaintiffs owned a farm containing coal deposits and leased the premises to defendant for
a period of five years for coal mining purposes.
2. It was understood that the coal would be taken from pits on the surface of the ground and
that defendant would perform restorative and remedial work at the end of the lease.
3. The defendant failed to restore the land, and the question was the remedy.
4. The court chooses between the cost of restoring the land and the difference in value
between the land as promised and the land as delivered.

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XIV.

5. The court holds that because the restoration promise was incidental to the main purpose
of the contract and because the economic benefit of restoring the land would be grossly
disproportionate to the cost of performance, damages are limited to the diminution of
value.
t. Foreseeability
i. Hadley v. Baxendale
1. A crank shaft broke, shutting down a mill.
2. The shaft was delivered to defendant carrier for transportation to a manufacturer, who
was to make a duplicate.
3. The carrier delayed delivery, and the mill owners sued for profits lost while the mill could
not operate.
4. The court holds that the defendant would not have known under ordinary circumstances
that the mill was closed for want of the shaft, nor was this fact communicated to the
defendant.
5. Therefore, the lost profits cannot be recovered.
u. Emotional Distress, Certainty, Liquidated Damages
i. Fera v. Village Plaza
1. Defendant breached a contract to lease space in a new shopping center to plaintiffs for
use as a "book and bottle" shop.
2. The court allows recovery of lost profits, rejecting the argument that lost profits for a new
business are necessarily too speculative for recovery.
ii. Wassermans Inc. v. Middletown
1. Plaintiff leased commercial property from the city.
2. The lease provided that if the city cancelled the lease, it would pay plaintiff a pro-rata
reimbursement for any improvement costs and damages of 25% of the plaintiff's average
gross receipts for one year.
3. The city cancelled and challenged the damages clause as an unenforceable penalty.
4. The court expresses doubt as to whether the gross receipts measurement bears a
reasonable relationship to lost profits and remands for further exploration of the issue.
Mistake, Impracticality & Frustration
a. Strict Liability
i. Stees v. Leanard
1. Contractor agreed to construct a building on owner's property.
2. After building three floors, the building collapsed.
3. The contractor tried again, but the building collapsed again after three stories.
4. The property contained too much quicksand to support the building.
5. The court finds the contractor to have breached.
6. The contractor made an unconditional promise to perform an act that, however costly,
was possible and "[n]o hardship, no unforeseen hindrance, no difficulty short of absolute
impossibility, will excuse him. . . ."
ii. Wood v. Boyton
1. Wood sold a small stone to Boynton jewelers for a dollar.
2. Unknown to either buyer or seller, the stone was in fact a diamond, worth about $700.
3. When this was discovered, Wood attempted to recover the stone on the ground of mutual
mistake, but the court denies her relief.
4. The court finds that the seller had the stone in her possession for a considerable period of
time and had made some inquiry as to its nature and qualities.
5. Nevertheless, she sold the stone without further investigation as to its intrinsic value.
iii. Sherwood v. Walker
1. Walker, a cattle breeder, sold Rose 2d of Aberlone, a cow of good pedigree, to Sherwood,
a banker.
2. The price was $80 and was premised on Rose being sterile. When Walker discovered that
Rose was pregnant, and thus worth between $750 and $1,000, he refused to deliver.

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3. The court holds that the agreement is not enforceable, distinguishing between a
misapprehension as to the quality or value of the thing to be sold and a misapprehension
as to its substance. "A barren cow is substantially a different creature than a breeding one.
. . . She was not in fact the animal, or the kind of animal, the defendants had intended to
sell or the plaintiff to buy."
b. Impract. Of Performance, Force Mejuere, Frustration of Purpose
i. Mineral Park Land Co. v. Howard
1. Plaintiff Howard owned land in a ravine in Los Angeles County.
2. Howard and Mineral Park entered into a written contract in which Howard granted
Mineral Park the right to haul gravel and dirt from plaintiff's land, Mineral Park agreeing
to take from the land all of the gravel and earth necessary for the construction of a public
bridge they had contracted to build for the county.
3. The required estimated amount was 114,000 cubic yards, and Mineral Park agreed to pay
five cents per cubic yard for the first 80,000 yards, the next 10,000 for free, and the
balance at the rate of five cents per cubic yard.
4. Mineral Park only took 50,000 cubic yards and paid plaintiff only for this amount.
5. Howard sued, contending that substantially more earth and gravel were available from
the land than Mineral Park had taken.
6. In fact, Mineral Park had taken all of the earth and gravel above water level.
7. The only way to have taken more was by use of a steam dredger, which would have
imposed an expense of 10 or 12 times as much as the usual cost per yard.
8. The court finds that taking additional earth and gravel was impossible and discharges
Mineral Park.
ii. Taylor v. Caldwell
1. Plaintiff rented from defendant a music hall and outdoor dining area for four separate
days at a fixed per-day rent.
2. Plaintiff planned to use the music hall to stage music events and spent substantial sums
on advertising.
3. Before the events took place, the hall burned to the ground.
4. Plaintiff claimed defendant had breached a promise to make the hall available.
5. The court holds that in the absence of any provision in the contract to cover the
contingency, the existence of the music hall must be regarded as a condition "by law
implied."
6. The contract is discharged.
iii. Krell v. Henry
1. The coronation procession of Edward VII was planned to pass along Pall Mall on June 26
and 27.
2. Krell, the owner of a flat overlooking the procession route, rented his flat to Henry for
two daytime periods.
3. Edward got sick--appendicitis--and the coronation was postponed. Henry refused to pay
the balance of the rent.
4. The court holds that the purpose of the contract is frustrated, the foundation of the
contract eliminated, and the contract discharged.
iv. Swift Canadian v. Banet
1. An American buyer contracted with a Canadian seller for a quantity of lamb pelts to be
delivered in Toronto.
2. Seller claimed frustration when the United States government tightened import
regulations of the goods.
3. The court holds there is no frustration.
4. While the buyer planned to ship the goods to Philadelphia, the purpose of the contract
was a commercial disposition of the pelts and there were many other destinations
available.

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