Contracts Outline

Professor Greene
Fall 2015

 Introduction to Contracts (Ch. 1)

o Contracts contain (R2C 1)
 Promise(s)
 Legally enforceable
o Remedies
 Damages, injunctions, liquidated damages
o * Policy Issues
 Equity, Consistency, Predictability (stability), and Freedom of Contract
o Contract law sources
 State laws mainly
o Freedom of contract
 Free to bargain terms without state interference
o Freedom from contract
 No obligation to sign contract (must have intentionality and can’t be
forced into contract)
o * Why have contracts law?
 Equity concerns (justice, fairness)
 Efficiency concerns (good for economy/good for society)
o R.R. v. M.H.- surrogacy agreement case
 No contract
 Surrogacy agreements that compensate the birth mother directly,
provide compensation in excess of expenses, and obtain the birth
mother’s consent to a custody agreement prior to birth violate public
policy as evidenced in the adoption statutes and are unenforceable
 Agreements don’t always mean there is an enforceable contract
o R2C 1
 Definition of a contract
o R2C 2
 Promises
o R2C 3
 Agreement defined
o R2C 4
 How a promise is made
o R2C 41
 Lapse of time
 Contract Formation (Ch. 2)
o Mutual Assent
 Black letter rule: When dealing with formation issues, courts rely on
objective tests, not subjective tests.

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 Objective Theory of Assent
 Two components (only one of which is purely objective):
o Would a reasonable person in the position of the offeree
understand from the offeror’s words and conduct and
intend to be bound? AND (more subjective than objective)
o Did the offeree in fact so believe?
 Lucy v. Zehmer- drinking friends make a contract but one claimed he was
joking
 Enforceable contract
 Uses objective theory of assent
o To determine valid offer, words and actions of the party
are interpreted on a reasonable person standard (not
hidden/real intents)
 Leonard v. Pepsico, Inc.- harrier jet ad case
 No offer
 Objective theory- no reasonable person would believe Pepsi was
selling a harrier jet
 Policy concern- what would this do for ads?
 The general rule is that an advertisement does not constitute an
offer. It’s either a notice soliciting offers or just a notice that
goods will be offered.
o Exception: where the advertisement is clear, definite,
explicit, and leaves nothing open for negotiation.
 R2C 17
 Bargain must have mutual assent
 Except as stated in subsection 2, the formation of a contact
requires a bargain in which there is a manifestation of mutual
assent to the exchange and a consideration
 Whether or not there is a bargain a contract may be formed
under special rules
 R2C 21
 Manifestation of mutual assent only needed; no real intention
actually necessary for formation of contract
 R2C 22
 (1) The manifestation of mutual assent to an exchange ordinarily
takes the form of an offer or proposal by one party followed by an
acceptance by the other party or parties.
 (2) A manifestation of mutual assent may be made even though
neither offer nor acceptance can be identified and even though
the moment of formation cannot be determined.

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o Offers
 General Rule: A statement will be considered an offer if a reasonable
person would think that they can complete the deal by simply giving their
assent. (R2C 24)
 Offers can be explicit or, in certain situations, implicit.
 Whether a reasonable person would find an offer has been made
will depend on a lot of circumstantial information!
 Lonergan v. Scolnick- ad to sell land (sells to a third party- was there an
offer to sell to P? No)
 Must be a manifestation of contractual intent and it must be clear
and show parties intended to create a binding agreement
 No offer when reasonable person would view it as merely an
invite to make an offer
 Maryland Supreme Corp. v. Blake Co.- contractor and subcontractor
relations for cement
 Valid offer
 Look to context and past deals between parties to determine if
offer (totality of circumstances and industry customs)
 Defines offer as: 1) "necessarily looks to the future" and 2) must
be "definite and certain”
 Sateriale v. R.J. Reynolds Tobacco Co.- cigarette ad (C notes) case
 Valid offer
 General rule: advertisements of goods by display, sign, handbill,
newspaper, radio or television are not ordinarily intended or
understood as offers to sell
o EXCEPT for offers of a reward (where the advertisement is
clear, definite, explicit, and leaves nothing open for
negotiation)- as in this case
 RJR had control- controlled how many notes were circulated and
the product sold
 R2C 24 (offer definition)
 The manifestation of willingness to enter into a bargain, so made
as to justify another person in understanding that his assent to
that bargain is invited and will conclude it.
 R2C 26
 Preliminary negotiations
 Both objective and subjective
 Applies to Lonergan
 R2C 27
 Manifestations of assent that are in themselves sufficient to
conclude a contract will not be prevented from so operating by

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 the fact that the parties also manifest an intention to prepare and
adopt a written memorial thereof; but the circumstances may
show that the agreements are preliminary negotiations.
 UCC 1-103
 General info for UCC
 UCC 2-102
 UCC only applies to the sale of goods
 UCC 2-204
 Formation of a contract for the sale of goods
 Actions and words matter (not hidden intention)
 UCC 2-206
 Offer and acceptance
 Destroying an Offer
 Rejection
o Rule: once an offer is rejected or if the offeree makes a
counter offer (indirect rejection) it is terminated for good
o Counter offers count as a rejection
 Revocation
o Can be direct or indirect
 Direct: offerors right to revoke her offer comes
from fact that until acceptance, offeror has full
control over her offer including the right to modify
or terminate offer
 Indirect: must be meeting of the minds at time of
acceptance or there is no contract; does not need
to be express revocation
 Dickinson v. Dodds
o If third party giving info about revocation, the third person
must be credible
 Lapse
o Rule: An offer lapses after the period stated in the offer
or, if no duration is stated, after a reasonable time.
o Courts look at the circumstances surrounding the offer to
determine what constitutes a reasonable time.
 Death/Incapacity
o Rule: an offeree’s power of acceptance terminates when
the offeree or offeror dies or is deprived of legal capacity
to enter into the proposed contract (R2C 48)
 This is true even if the still-living party didn’t know
of the offeror’s death!
 Goes against the objective theory of
contracts
o Davis v. Jacoby

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  Dickinson v. Dodds- agent tells of revocation to P but he still tries
to accept
o No contract
o Indirect revocation
o Open offer to sell ends when offeree learns that offeror
has already agreed to sell to someone else
 Minnesota Linseed Oil Co. v. Collier White Lead Co.- oil prices
fluctuate so much (industry custom) so shorter lapse of time for
offer’s acceptance is reasonable
o Offer had lapsed
o Whether offer is made for a time certain or not, the
intention or understanding of the parties is to govern
o Looks at market conditions (oil prices fluctuate a lot)
 R2C 30
o Offeror is king when determining mode of acceptance
 R2C 33
o Certainty- terms of offer must be certain
 R2C 36
o Modes of terminating an offer
 Preserving an Offer
 Common Law Option K rule (as in Burgess): recital of
consideration creates a rebuttable presumption that
consideration was actually given, but no contract exists if party
can prove that consideration didn’t change hands. (i.e. – can say
actually, consideration didn’t happen therefore no K)
 R2C 87 Rule on Option Ks: written statement that consideration
was given (recital) ACTUALLY COUNTS as consideration as long
minimal equitable standards are satisfied.
 UCC View on Option Ks: UCC § 2-205: written signed option offer
does not need consideration if offeror is a merchant and option is
for 3 months or less.
 Reliance and option Ks
o Rule: all offers are revocable, even when stated to be
irrevocable unless the promise of irrevocability is
supported by independent consideration (perhaps the
mere recitation in some places or made enforceable by
statute)  REVOKABLE UNLESS CONSIDERATION  If
consideration, then it is irrevocable.
 * Boiler plate contracts (templates)
o Pro: efficiency, there is some language that is required by
statute, if you have many of the same contract, it is faster.
o Con: no one actually reads them, they are long and not fair
to consumers, take as they are

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 Beall v. Beall- option contract renewal (no consideration) with
widow
o There was an offer (remanded to determine if binding
contract- determine if revoked before acceptance)
o Option contract without consideration was no longer
binding but was a mere offer to sell which the optionor
could withdraw at any time before acceptance
 Board of Control of East Michigan University v. Burgess- university
wanted to buy D’s land but D never paid the $1 consideration
o No contract
o Doesn’t follow R2C 87
o Simple offer may be revoked for any reason by offeror at
any time prior to the acceptance by offeree
o Common law rule: recital of consideration creates a
rebuttable presumption that consideration was actually
given, but no contract if party can prove that consideration
didn’t change hands
o Option contracts must be supported by consideration (not
all jurisdictions follow this, some follow R2C 87)
 R2C 25
o An option contract is a promise which meets the
requirements for the formation of a contract and limits the
promisor's power to revoke an offer.
 R2C 87 (Option Contract)
o (1) An offer is binding as an option contract if it
 (a) is in writing and signed by the offeror, recites a
purported consideration for the making of the
offer, and proposes an exchange on fair terms
within a reasonable time
o (2) An offer which the offeror should reasonably expect to
induce action or forbearance of a substantial character on
the part of the offeree before acceptance and which does
induce such action or forbearance is binding as an option
contract to the extent necessary to avoid injustice.
o Written statement that consideration was given (recital)
ACTUALLY COUNTS as consideration as long as minimal
equitable standards are satisfied.
o Not all courts have accepted this
 UCC 2-205
o Written signed option offer does not need consideration if
offeror is a merchant, written consent, and option is for 3
months or less.

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o Acceptance
 Black Letter Rule: The offeror dictates the terms of acceptance and can
revoke anytime before acceptance.
 Offeror’s Control Over Manner of Acceptance
 * Strict Restatement vs. Reasonable Standard
o Strict Rule
 Certainty (coherence)
 Efficiency
 Predictability
 Reduce bias in system
 Uniformity
o Reasonable Standard
 Accounts for little errors
 Fluid
 Less loopholes (like LaSalle, Burgess, Blake)
 Helps the little guy (can’t afford big time lawyers)
 Spirit of the contract
 Content based (look at circumstances)
 Change with the times
 Technicalities
 LaSalle National Bank v. Vega- trust case (trustee must sign but
didn’t)
o No acceptance
o Another mode of acceptance may not be substituted when
an offer requires a written acceptance
o Unless the offeror gives the offeree the ability to create a
K with their acceptance, then no offer exists.
o Strictly embraces the traditional common law rule:
 Where an offer specifies the time, place, or manner
of acceptance, to be effective, the purported
acceptance must comply without variation to the
terms of the offer.
 Courts are beginning to look at circumstances now
 Ever-Tite Roofing Corp. v. Green- loading truck with rocks case
o No time is specified for termination of offer= offer expires
at the end of a reasonable time (look at circumstances)
(lapse)
o Performance begins when the work begins (here
performance was when they loaded the truck)
 Davis v. Jacoby- suicide case (niece and the will)
o Here promise was enough to constitute acceptance (didn’t
need performance)

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 o When offer is ambiguous if bilateral (promise) or unilateral
(performance) contract, offer is for a bilateral contract
o Reasonableness standard (not the stricter R2C 32)
 Maryland Supreme Corp. v. Blake Co. (again)-
contractor/subcontractor case
o Offer is: 1) "necessarily looks to the future” and 2) must be
"definite and certain"
o UCC 2-206
o Conduct of parties (circumstances) determines mode of
acceptance (look to industry standards)
o Verbal acceptance was reasonable in this case
 R2C 30
o Offeror dictates mode of acceptance
 R2C 32
o Ambiguous offers can be accepted by performance or
promise (choice of offeree)
o Modern view of acceptance (contrary to Davis v. Jacoby
somewhat)
 R2C 50
o Defines acceptance
 UCC 2-206
o Offeree can accept by any reasonable manner unless the
offeror specifies otherwise
o Also modern view
 Effectiveness of Acceptance
 If a party makes a unilateral offer (acceptance by performance
only), then, unless they specify that they want notice,
performance of the act alone is sufficient for acceptance.
o But you do have to notify them of your performance
within a reasonable time.
 Different rules for promissory acceptances (bilateral contracts)
and performance-based acceptances (unilateral contracts):
o Promissory (bilateral) – effective upon the offeror’s receipt
of the acceptance
 One modification (Minnesota Linseed Oil): an
acceptance communicated via mail is effective on
dispatch (mailbox rule)
 Remember: anything other than an
acceptance, when sent by mail, still only
effective upon receipt.
o Performance (unilateral contracts) – varies under the
common law and the Restatement

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  Common law requires complete performance for
acceptance (and allowed revocation any time
before then);
 R2C § 45 also requires complete performance for
acceptance, but says that when an individual starts
performing, they create an option contract that
makes the offer irrevocable for a reasonable period
of time—so you have time to finish performance
and complete acceptance.
 Silence/Inaction
o General Rule: silence or inaction alone are not sufficient to
constitute an acceptance (EXCEPTION is R2C 69)
 Mailbox Rule:
o If I make an offer to you and you accept by mail, the
acceptance is valid as soon as you mail it out
 This is true, however, only if it is reasonable for you
to accept via mail.
 Doesn’t fit into objective theory
o Mailbox Rule only applies to acceptances!
 Everything other than an acceptance is only
effective upon receipt.
 So a revocation or rejection sent by mail = only
effective on receipt.
o R2C 40 – if a rejection is mailed first, but then there is an
acceptance later (the person rejects then changes mind)
the rule is that the first to arrive there governs
o * Why have this rule?
 Reliance
 Risk has to be placed somewhere- makes sense to
put risk on offeror
 Hendricks v. Behee- D revoked offer after acceptance is signed but
before it is delivered
o No contract
o Contract is not formed until acceptance has been
communicated to offeror
o Uncommunicated intention to accept offer is not
acceptance
o Objective theory- here acceptance was not reasonable
 Carlill v. Carbolic Smoke Ball Co.- smoke ball and flu case
o Enforceable contract
o Unilateral offer for sale of goods through an ad impliedly
waives notification of acceptance if purpose is to sell as
much product as possible

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 o For unilateral offers, the offeror must specify that he
wants notice of acceptance, otherwise acceptance is
contemporaneous with performance. (must notify them of
performance within reasonable time)
 Reasonable time– look to context
o Differs from R2C 54
 Marchiondo v. Scheck- partial performance case
o Offer may not be revocable after performance has begun
(contract has been made)
o Hypo of me walking across a bridge
o R2C 45- partial performance
 R2C 29
o To whom an offer is addressed (who can accept)
o Smoke ball case- anyone who sees the ad can accept
 R2C 45
o (1) Where an offer invites an offeree to accept by
rendering a performance and does not invite a promissory
acceptance, an option contract is created when the
offeree tenders or begins the invited performance or
tenders a beginning of it.
o (2) The offeror's duty of performance under any option
contract so created is conditional on completion or tender
of the invited performance in accordance with the terms
of the offer.
o Requires complete performance for acceptance, but says
that when an individual starts performing, they create an
option contract that makes the offer irrevocable for a
reasonable period of time, so have time to finish
performance and complete acceptance (only for unilateral
contracts)
 R2C 54
o Acceptance by performance
o (1) Where an offer invites an offeree to accept by
rendering a performance, no notification is necessary to
make such an acceptance effective unless the offer
requests such a notification.
o (2) If an offeree who accepts by rendering a performance
has reason to know that the offeror has no adequate
means of learning of the performance with reasonable
promptness and certainty, the contractual duty of the
offeror is discharged unless
 (a) the offeree exercises reasonable diligence to
notify the offeror of acceptance, or

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  (b) the offeror learns of the performance within a
reasonable time, or
 (c) the offer indicates that notification of
acceptance is not required
 R2C 63
o Time When Acceptance Takes Effect
o Mailbox rule
 R2C 69
o Silence/inaction
o (1) Where an offeree fails to reply to an offer, his silence
and inaction operate as an acceptance in the following
cases only:
 (a) Where an offeree takes the benefit of offered
services with reasonable opportunity to reject
them and reason to know that they were offered
with the expectation of compensation.
 (b) Where the offeror has stated or given the
offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree
in remaining silent and inactive intends to accept
the offer.
 (c) Where because of previous dealings or
otherwise, it is reasonable that the offeree should
notify the offeror if he does not intend to accept.
 Imperfect Acceptances
 Mirror Image Rule
o Offer and acceptance must look the same to have a valid
contract (bright line rule)
 BUT this often frustrates the actual intents of the
parties
o Modern trend though towards R2C 59 and 61 (relaxes
rule- suggested modifications and immaterial variations)
 An acceptance which requests a change is NOT a
rejection, unless the acceptance is made to depend
on agreement to the changed term  The contract
is formed on original terms (offeror’s terms)
 Gresser v. Hotzler- material changes in contract (changed dates
and such- counter offer)
o No contract
o Offeror is not to be required to deal other than on the
terms specified in offer
o The mirror image rule- acceptance must be a total assent
on the terms of offer

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  Dorton v. Collins & Aikman Corp.- carpet merchants where the
carpet wasn’t as advertised and arbitration agreement on back of
agreement
o UCC 2-207- offer and acceptance are not always identical
in terms in a battle of forms (look at flowchart to
determine enforceable terms)
 Klocek v. Gateway, Inc.- computer case where the terms came
inside the box
o Shrink-wrap agreement
o Additional terms received with product are not part of the
contract unless the non-merchant buyer expressly agrees
to them
 R2C 59 and 61
o Similar to common law rule
o More liberal view of mirror image rule
o No contract if the addition is conditional (i.e. yes but you
must…)
 R2C 60
o Offeror controls acceptance
 UCC 2-207 (see handouts/flowcharts)
o Battle of the Forms- advantage to person who fires off last
form
o Additional terms are interpreted as proposals for additions
and do not kill a K
o Deficient Agreements
 Rule: Not all agreements are contracts, but all contracts are agreements
 Misunderstood terms (mutual misunderstanding)
 R2C 20 and Peerless case
 Incomplete and indefinite terms
 Postponed agreement (agreements to agree)
 Illusory promises
 A promise is illusory if it does not actually bind the promisor to do
anything  if promise is too vague or not quantifiable, NO K; In
order for a promise to be enforceable, the intention of the parties
must be expressed with a level of certainty sufficient to allow the
courts to determine that intention with a reasonable degree of
certainty.
 Raffles v. Wichelhaus- Peerless case (sale of cotton but arrived on a
different ship at different time that was also named Peerless)
 No contract
 If latent ambiguity, there is no mutual assent and so no contract
(no meeting of the minds)
 Old view

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 Varney v. Ditmars- architect promised profit sharing if continued work
 Here there was no contract (“fair” share of profit was too vague)
 Material terms must be definite and certain for contract to be
enforceable
 Illusory promise case
 Dissent (closer to modern view): contractual (mutual) intent-
terms weren’t inherently too broad and vague
 Old view
 Community Design Corp. v. Antonell- employee promised a bonus if
finished with work by Christmastime
 Contract is enforceable even with indefinite terms if intent is
present
 Look to evidence and custom to determine enforceability and
vague terms
 If one party benefits from the performance of the other, then
courts will likely find the contract enforceable
 Modern view
 R2C 20
 No contract formed if neither party is at fault or if both parties are
equally at fault
 Contract if one party is at fault
 A party may be bound by a negligent manifestation of assent if
the other party is not negligent
 Mutual misunderstanding:
o (1) There is no manifestation of mutual assent to an
exchange if the parties attach materially different
meanings to their manifestations and
 (a) neither party knows or has reason to know the
meaning attached by the other; or
 (b) each party knows or each party has reason to
know the meaning attached by the other.
 Translation: no contract formed if neither party is
at fault (a), or if both parties are equally at fault (b)
o (2) The manifestations of the parties are operative in
accordance with the meaning attached to them by one of
the parties if
 (a) that party does not know of any different
meaning attached by the other, and the other
knows the meaning attached by the first party; or
 (b) that party has no reason to know of any
different meaning attached by the other, and the
other has reason to know the meaning attached by
the first party.

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  Translation: there is a contract if one party is at
fault
 Translation: a party may be bound by a negligent
manifestation of assent if the other party is not
negligent
 R2C 33
 Terms need to be reasonably certain
 R2C 204
 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.
 Court may imply a missing term when there is reasonable basis
for doing so
 UCC 2-204 (gap fillers)
 Only term that a court requires to find a contract enforceable is
quantity (doesn’t mean it must be an actual number though)
 Attempt to reflect actual business practice (politically neutral)
 UCC 2-305
 Default rule on price
 UCC 2-307
 Default rule on delivery
 UCC 2-308
 Default rule on place of delivery
 UCC 2-309
 Default rule on time of delivery
 UCC 2-310
 Default rule on when payment id due
 Consideration (Ch. 3)
o To be enforceable, promises need consideration
o Old rule: Consideration was either a benefit or a detriment.
o Modern rule: Consideration is anything that is sought by one party and that the
other party gives in order to satisfy that party (bargained for) (R2C 71)
 Awareness is necessary
o * Arguments for keeping consideration
 Acts as a seal
 If everything promised was enforceable, there would be a lot of extra
litigation
 Getting rid would deter donors from making promises
 Distinguish between gratuitous and binding contracts
o * Arguments against keeping consideration
 Only formalistic now
 Creates loopholes for contracts intended to enter

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  Takes away free will of agreement
o Court trend: don’t like to find family matters enforceable
 Like to find other things other than consideration missing to invalidate
any kind of contract
 * Don’t like to determine adequacy of consideration (just look if
consideration at all)
 Value is often murky
 Free market ideals
o Bargained for Exchanges
 Pre-Existing Duty Rule:
 A performance which you already agreed to under a contract
cannot constitute consideration for a modification of that
contract. In other words, once you agree to do something under a
contract, you cannot modify the terms without consideration.
 Exception (Murray): If circumstances arise that neither party knew
of (or should have expected) then pre-existing duties can be
consideration.
 * Reason for rule: want to deter hold up behavior by which one
party attempts to take unfair advantage of the other by
threatening not to live up to his obligation
 Reed v. UND- hockey player runs a race for training and is severely
injured
 There was a contract (there was consideration)
 Consideration may be any benefit conferred or detriment suffered
(old view)
 Reed’s surrender of a legal right in exchange for NDAD allowing
him to run (and use their course) during the race constitutes
consideration for the release.
 Kirksey v. Kirksey- Sister-in-law moves to land after requested but is then
evicted
 Promise was only gratuitous (no contract)
 A mere gratuitous promise is without the consideration necessary
for enforcement as a contract.
 Although the Justice writing the opinion would consider Plaintiff’s
inconvenience valid consideration to enforce Defendant’s
promise, the Court finds that the promise is merely gratuitous and
lacks consideration
 Hamer v. Sidway- uncle asks nephew to refrain from drinking in exchange
for paying him
 Enforceable contract
 In general, a waiver of any legal right at the request of another
party is sufficient consideration for a promise (old view)

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  D benefited by having his nephew refrain from certain conduct
and P suffered a detriment by denying himself the enjoyment of
that conduct
 Hooters v. Phillips- sexual harassment and arbitration clause case
 Arbitration clause of contract is not enforceable
 Modern view: consideration is defined as a bargained for
exchange whereby the promisor receives some benefit of the
promisee suffers a detriment (illusory promise is not
consideration)
 Hooters suffered no detriment and Phillips gained no benefit so
there was no consideration
 May have feared she’d lose her job (signed after employment)
 Alaska Packers Association v. Domenico- Once the workers arrived at the
job they demanded higher wages for the same work from the company’s
representative. Because the company was in a situation where it was
impossible to bring in other workers, he agreed to the change in the
compensation. Later the company refused to pay the higher wages
 Pre-existing duty rule: can’t use service already agreed to as
consideration (old view)
 APA gained nothing further with the new contract (no
consideration)
 Differs from R2C 89-modern view
 R2C 17
 Modern view
 Reciprocal relation of motive or inducement between the
consideration and the promise; it is not enough that the promise
induces the conduct of the promisee or that the conduct of the
promisee induces the making of the promise; both elements must
be present
 R2C 71
 Stresses bargaining for consideration
 Types of consideration
o an act other than a promise, or
o a forbearance, or
o the creation, modification, or destruction of a legal
relation
 R2C 75
 Can use a promise as consideration
 R2C 77
 Illusory promises- promise that doesn’t impose anything on
promisor
 Addressed in Hooters case
 Comes down to one-sidedness

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  R2C 79
 Adequacy of consideration
 Turns away from old rule
 Value of consideration generally doesn’t matter
o Courts don’t want to get into value (murky, free market
ideals, want to look at other means to find unenforceable)
 R2C 89
 Modern view of pre-existing duty rule
 Unanticipated circumstances
 A promise modifying a duty under a contract not fully performed
on either side is binding:
o if the modification is fair and equitable in view of
circumstances not anticipated by the parties when the
contract was made; or
o to the extent provided by statute; or
o to the extent that justice requires enforcement in view of
material change of position in reliance on the promise
 Binding if the modification is fair and equitable in view of
circumstances not anticipated by the parties when the contract
was made
 Only enforces those that are
o Agreed to voluntarily
o The promise modifying the original contract was made
before the contract was fully performed on either side
o The underlying circumstances which prompted the
modification were unanticipated by the parties
o The modification is fair and equitable
 UCC 2-209 (pre-existing duty rule)
 An agreement modifying a contract for the sale of goods needs no
consideration to be binding (looser than R2C 89)
 Must meet test of good faith imposed by the UCC (so doesn’t
allow for extortion, duress, coercion)
o Moral Obligation
 Traditional Rule: Moral obligations based on past acts don’t bargain for
anything new, so they aren’t consideration. (Harrington and Mills)
 Modern Rule: Webb v. McGowin and R2C 86 (minority rule)
 Harrington v. Taylor- Taylor assaulted his wife in Harrington’s home.
Taylor’s wife was about to strike Taylor with an axe when Harrington
caught the axe with her hand, saving Taylor. Taylor said he’d pay
 Contract is unenforceable
 Past consideration does not qualify as valid consideration
sufficient to create a binding contract.

17
  A humanitarian and voluntary act followed by a promise is not
valid consideration.
 Moral obligation does not mean legal obligation
 Mills v. Wyman- Levi Wyman returned from a voyage at sea and fell sick
among strangers. Mills (P) gave Levi Wyman shelter and comfort until he
died. After Levi’s death his father Wyman (D) wrote to Mills and told him
he would pay all of the expenses for the care of his son
 No contract (nothing bargained for)
 Past consideration and moral obligation alone are insufficient
consideration to make a promise enforceable
 Moral obligation is sufficient consideration in some cases but not
under these facts
o Moral obligation is sufficient consideration under the
following circumstances: debts barred by the statute of
limitations, debts incurred by infants, and debts of
bankrupts.
 In such cases, enforcing promises based on
preexisting equitable obligations may be enforced
because they merely remove an impediment
created by the law to enforce debts that are due,
but which public policy protects debtors from being
compelled to pay
 Webb v. McGowin- P was in the act of dropping a 75-pound block to the
ground below when he saw McGowin directly underneath the block. The
only way to prevent the block from hitting McGowin was for P to fall with
the block and divert its direction. P was badly crippled for life and unable
to do physical or mental labor. McGowin promised to pay P $15 every
two weeks for the rest of P’s life. McGowin followed through with the
payments until his death eight years later. After McGowin’s death the
payments stopped.
 Enforceable contract (there was consideration- material benefit to
D of not being squished)
 A moral obligation is a sufficient consideration to support a
subsequent promise to pay where the promisor has received a
material benefit (minority rule)
 Here the court distinguishes this case from other cases where the
consideration is a mere moral obligation. In this case, the court
found that the promisor, McGowin, received a material benefit
constituting a valid consideration for his promise
 Even if an individual’s act was unsolicited, the benefitting party’s
subsequent promise can “ratify” the act, such that the promise
relates back in time and creates a presumption that the
individual’s act was requested by the benefitting party.

18
  Upheld by the Alabama Supreme Court
 R2C 86
 R2C 86
 Modern Rule (minority rule)
 (1) A promise made in recognition of a benefit previously received
by the promisor from the promisee is binding to the extent
necessary to prevent injustice.
 (2) A promise is not binding under Subsection (1)
o (a) if the promisee conferred the benefit as a gift or for
other reasons the promisor has not been unjustly
enriched; or
o (b) to the extent that its value is disproportionate to the
benefit.
 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; exceptions subsection
o Promissory Estoppel
 Substitute for consideration (not a form of consideration)
 Allows for un-bargained for reliance
 R2C 90: promise, reliance on promise, the reliance was reasonable and
foreseeable, remedy is limited as justice requires
 Requires actual reliance (so actual action)
 A promise that
 Which the promisor should reasonably expect to induce action or
forbearance on the part of the promise and
 Which does induce such action or forbearance
 Is binding if
o Injustice can be avoided only by enforcement of the
promise.
 Ricketts v. Scothorn- Grandfather offers to pay granddaughter and
implies she should stop working
 Enforceable contract (no consideration but relied on promise)
 Promissory estoppel bars a party from asserting lack of
consideration where reliance was induced by the party asserting
there was no requisite consideration
 Although a promise given without consideration ordinarily does
not create a binding contract, the doctrine of promissory estoppel
prevents a promisee from using lack of consideration as a defense
to breach of contract. Consequently, a promise can be enforced
even though it was given without consideration if the promisee
has reasonably relied on the promise to her detriment

19
  The court considered the magnitude of Scothorn’s good faith
reliance on her grandfather’s promise and held that her actions
were consistent with that reliance
 Dargo case- Promissory estoppel is limited to gratuitous promises, not for
promises bargained for (there can be no consideration when arguing
promissory estoppel)
 Dixon v. Wells Fargo Bank, NA- Ps wanted to get a loan modification, so D
told them to stop paying mortgage, but then they foreclosed on Ps house
 Enforceable contract to enter negotiations for loan modification
(not contract to make a loan modification)
 For purposes of promissory estoppel, an action based on reliance
is equivalent to a contract action, and the party bringing such an
action must prove all the necessary elements of a contract other
than consideration
 Claim for promissory estoppel can be invoked when an actual
contract is precluded by factors other than absence of
consideration when promisor is “stringing along” a promise (i.e.
taking advantage of the promise)
 Court invokes public policy (financial crisis)
 Pavel Enters. v. AS Johnson Co. (Court of Appeals of Maryland)- P solicited
sub-bids from several subcontractors, including D. D responded with an
estimate, and with this information, P submitted bid for the project. P
won the contract, but D cancelled their offer, stating that it was too low,
and was made in error. D neglected to correct the error because it did
not expect to receive the contract.
 No relationship had been formed (no binding contract- no
promissory estoppel)
 In determining a question of detrimental reliance, there must be a
clear and definite promise where the promisor has a reasonable
expectation that the offer will induce action or forbearance on the
part of the promisee which does induce actual and reasonable
action or forbearance by the promisee and causes a detriment
which can only be avoided by the enforcement of the promise
 R2C 90 (four-part test= 1. A clear and definite promise; 2. Where
the promisor has a reasonable expectation that the offer will
induce action or forbearance on the part of the promisee; 3.
Which does induce actual and reasonable action or forbearance
by the promisee; and 4. Causes a detriment which can only be
avoided by the enforcement of the promise)
 R2C 87
 Option contracts
 Used in Pavel case
 R2C 90

20
  Four-part test
 Binding if injustice can be avoided only by enforcement of the
promise
 A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third
person and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as justice
requires.
 A charitable subscription or a marriage settlement is binding
under Subsection (1) without proof that the promise induced
action or forbearance.
 Elements of 90
o promise,
o reliance on promise,
o that the reliance was reasonable and foreseeable, and
o remedy is limited as justice requires
 Enforceability (Ch. 4)
o Statute of Frauds
 R2C 110: no enforcement of the following unless there is a written and
signed doc (limited to these 3 for exam)
 Sale of goods over $500
 Transfer of interest in property
 Can’t be completed in one year (look at whether it is possible with
unlimited resources to complete within one year)
 * Why keep this
 Bright line rule (clear)
 Prevents fraud
 * Why get rid of this
 Frustrates the intention of the parties
 Courts keep finding ways around it anyway
 Falls within Statute of Frauds (terminology)
 If satisfies Statute of Frauds, then it is written and signed and is
enforceable
 Radke v. Brenon (Supreme Court of Minnesota)- D gave his neighbor P a
written offer to sell a piece of property. Radke accepted the terms of the
letter orally (but some written in memo). P did not object when Brenon
later increased the sales price by $50. When P gave D a check for $262 D
revoked the offer to sell
 Enforceable contract
 A writing for the sale of land must contain at least an express
statement of consideration, a description of the land, signed by
the party to be bound, and the intent of parties to the contract

21
  The court held that all of these elements were clearly present in
the letter written by D. The fact that different prices were agreed
upon was not an issue because the letter contained the
mechanism for computing the price by simple division.
 An admission that a contract was made cannot be ignored when
all other evidence submitted supports the same conclusion
 DF Activities Corp. v. Brown (US Court of Appeals, 7th)- a Wright
enthusiast controlled DF Activities Corp. (P) and P sought to purchase the
Willits Chair. P’s art director contends that the parties entered into a
verbal agreement on November 26, 1986 to sell for $60,000 in two equal
installments due on December 31 and March 26. A letter including the
first installment was mailed but it was returned with a note indicating
that the chair had been sold to another party
 No contract (no written proof, P said no contract)
 Once defendant denied the contract under oath, the exception to
the statute of frauds found in UCC § 2-201(3)(b) was closed.
 The statute of frauds prevents a party from conducting additional
discovery once the defense is raised
 Dissent: affidavit should be looked at to determine truth of it
 McIntosh v. Murphy- Murphy (D) made a verbal agreement to hire
McIntosh (P) to work at his auto dealership for one year. The agreement
was never put into writing. McIntosh later sent Murphy a telegram
stating that he would arrive in Honolulu the next day from Los Angeles. P
began work the next day. D fired him two months later
 There was a contract for a year of employment (promissory
estoppel exception to Statute of Frauds)
 An oral promise which the promissor should reasonably expect to
induce either action or forbearance on the part of the promisee is
enforceable when injustice can be avoided only by enforcing the
contract. See Restatement (Second) of Contracts § 217A
 The court held that if a party has relied on an oral promise and
rendered part performance the other party should be estopped
from asserting the Statute of Frauds (R2C 139- softens statute of
frauds)
 This case provides an example of the use of promissory estoppel
to render enforceable a contract that would otherwise fall within
the Statute of Frauds. Promissory estoppel is not being used in
this case as a “consideration substitute”.
 R2C 110
 Requires it to be in writing if
o Contract of executor or administrator to answer for duty
of decedent
o Contract to answer for the duty of another

22
 o Marriage
o Land
o Contract not to be performed within one year from the
making thereof
o Contract for sale of goods for price of $500 or more now
covered by UCC 2-201 instead of Restatement
 R2C 139
 Means of escaping the Statute of Frauds; reliance if purports
justice
 UCC 2-201
 A contract for the sale of goods for the price of $500 or more is
not enforceable by way of action or defense unless there is some
writing sufficient to indicate that a contract for sale has been
made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker.
o Fraud and Material Misrepresentations
 Fraud is an intentional deception (act + intent to deceive) (R2C 162)
 Non-disclosure (non-action + duty to disclose)
 Material misrepresentation is negligent (act + negligence)
 General Rule: If you actively make a material misrepresentation
and the other party reasonably relies on it, then they can get out
of the contract
o Even if you didn’t know that the statement was a
misrepresentation (innocent)
o Contracts can be voidable because of innocent, as well as
fraudulent, misrepresentations.
o Key determination will be whether it was reasonable for
the party to rely on the misrepresentation.
 Test: Misrepresentations of facts, whether intentional or
negligent, make a contract voidable by the party who was misled,
so long as (1) the facts are material, (2) the party relied on the
misrepresentation and (3) the party’s reliance was reasonable.
 Whether a seller’s knowing silence or passive concealment
regarding a material fact provides grounds for rescission is going
to vary by state, but the majority rule is that such silence or
concealment does make the K voidable if it satisfies the
material/reliance/reasonableness elements.
o Weintraub – majority rule, any kind of concealment
(active or passive) is a misrepresentation
o Swinton – minority rule, passive concealment is ok
 Halpert v. Rosenthal (Supreme Court of RI)- P and his agent affirmatively
represented, upon D’s specific inquiry, that the home was termite-free.
After parties executed contract for sale, inspection revealed that home

23
 was infested with termites. D notified P that he did not intend to buy the
home
 Material misrepresentation
 D was entitled to rescind the contract
 Where one induces another to enter into a K by means of a
material misrepresentation, whether innocent or fraudulent, the
latter may rescind
 Regardless of whether the vendor's misrepresentation was
innocent or fraudulent, because the vendee relied upon the
misrepresentation as to a material fact and was thereby induced
to enter into the contract, the vendee was entitled to rescind the
contract even though he offered no proof that the vendor
intended to deceive him
 Misrepresentation is an absolute liability- P may not be at fault
but is still liable
 Swinton v. Whitinsville Sav. Bank (Supreme Judicial Court of Mass.)- D
sold a house to P. Two years later a termite infestation forced P to make
costly repairs to prevent further damage to the house. P’s complaint
alleged that he did not know of the termite infestation when he
purchased the house, he could not observe the condition when he
inspected the house, and that D knew of the infestation and did not
inform him
 Fraud concealment/non-disclosure
 Can’t rescind contract (no duty to disclose)
 A failure to inform the buyer of a house of a termite infestation
does not give rise to a cause of action for recovery of damages
caused by the undisclosed condition
 P’s complaint did not provide sufficient facts to show that D
knowingly made false statements or misrepresentations. The
complaint did not offer proof that the plaintiff had asked whether
there was a termite infestation or whether the defendant had
been aware of one
 A contract cannot be made voidable for mere nondisclosure.
Absent a false statement, the concealment of a known defect is
not actionable (minority rule)
 Parties in arm’s length transactions are under no duty to disclose
material defects about the transaction to one another.
 Weintraub v. Krobatsch (Supreme Court of NJ, 1974)- Prior to closing,
appellants discovered that the house was infested with cockroaches and
promptly attempted to rescind the contract
 Fraud concealment/non-disclosure
 If determined on remand that seller fraudulently concealed a
material fact, then buyer can rescind contract

24
  Court says that the seller has an obligation in terms of justice and
fair dealing to disclose the defect
 Elements in NJ: (1) Was it deliberate concealment or
nondisclosure? (2) Was the information easily discoverable by the
victimized party (which is not likely if the other party is hiding the
fact)? (3) The concealment or nondisclosure is of a significant
nature (material) so as to justify rescission and restitution.
 “If either party to a contract of sale conceals or suppresses a
material fact which he is in good faith bound to disclose then his
silence is fraudulent.” (majority rule)
 R2C 159
 Defines misrepresentation (can be innocent, negligent, or known
to be true)
 R2C 160
 When action is equivalent to an assertion (concealment)
 R2C 161
 Majority rule
 When non-disclosure equals an assertion
 R2C 162
 Halpert case
 “material”: “if it would have influenced a rational person’s
decision to go through with the deal” (when it would likely change
conduct)
 Misrepresentation can be fraudulent
 R2C 163
 When misrepresentation prevents the formation of contract
 R2C 164
 When misrepresentation makes a contract voidable
o Capacity, Duress, and Undue Influence
 Capacity
 Ex: age limit and mental capacity
 Only incapacitated party can void contract
o * no meeting of the minds
 R2C 12
o Exception: if a person is incapacitated because of their
voluntary actions (drinking, drug intoxication), then K is
only voidable if other party has reason to know that they
are intoxicated to a point where they cannot understand
the deal.
 Duress
 Two major types of duress:
o Physical compulsion (R2C § 174) (no contract)
o Threat (R2C § 175 and 176) (voidable)

25
 o There is also economic (R2C 175)
 Diminishes the capacity to bargain (consideration)
 VERY HARD TO PROVE- doesn’t normally work
 * Should threat be included?
o Every contract is entered with pressure (what is too much
pressure?)
o But if forced, no mutual assent. And we don’t want bad
actors to benefit from their bad acts
 Undue Influence
 This defense is more about unfair methods of persuasion /
“softer” control over a party.
 Whereas duress requires compulsion or threats, undue influence
involves a milder form of pressure
 Only voidable at victim’s (persuadee’s) request
 If third party unduly influences victim and D should know it’s
happening, then contract is voidable (R2C 177)
 Two key elements (must have both)
o “undue susceptibility in the servient person”- can be
either permanent state (age, senility, etc.), temporary
(psychological, physiological) or due to the nature of the
relationship between the parties (e.g., doctor/patient)
o “excessive pressure of the dominant person”- basically
the strong party’s will must overpower the weaker party’s
will
 Procedural aspects of negotiations matter a lot. (7 characteristics
of unfair bargains) (Odorizzi)
o Discussion of the transaction at an unusual/inappropriate
time
o Consummation of the transaction in an unusual place
o Insistent demand that the business be finished at once
o Extreme emphasis of untoward consequences of delay
o Use of multiple persuaders versus a single servient party
o Absence of third-party advisers to the servient party
o Statements that there’s no time to consult financial
advisers or attorneys
 Kiefer v. Fred Howe Motors, Inc. (Supreme Court of Wisconsin, 1968)-
Minor purchases car saying he’s 21 but then has problems with the car
and wants to return it
 P didn’t have capacity to enter contract
 The contract of a minor, other than for necessaries, is either void
or voidable at his decision
 When someone is considered a minor is up to the legislature to
determine

26
  Emancipation of a “minor” is not part of the rule of law
 Dissent: The magical age of 21 as an indication of contractual
maturity should be abandoned, as it does not have a basis in fact
or public policy. Further, the vehicle must be considered a
necessity to a working father.
 Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Serv. Co. (Supreme
Court of Alaska, 1978)- After many problems and having to ship more
material than expected, P loses job and sends invoice to D. P was close to
bankruptcy so needed money so settled for much less.
 Economic duress
 Contract voidable
 Economic Duress exists where (1) one party involuntarily accepts
the terms of another, (2) circumstances permitted no other
evidence, and (3) such circumstances were the result of coercive
acts of the other party
 Adopts R2C 175- coercive act must be deliberate (bad faith)
 Odorizzi v. Bloomfield School Dist. (Court of Appeals of CA, 2nd, 1966)- Gay
teacher is forced to resign after he is arrested and questioned
 Undue Influence
 Contract voidable
 Key fact: the agreement took place in his apartment after he was
sleep deprived and such (inappropriate place, time, and
circumstances)
 A party may rescind an agreement by showing such agreement
was the result of undue influence
 The Court defined undue influence as “taking advantage of
another’s weakness of mind; or taking grossly oppressive and
unfair advantage of another’s necessities or distress.” The Court
held that, like the case at hand, undue influence usually involves
someone in a dominant position taking advantage of someone in
a servient position
 Does not meet duress, fraud, or mistake
 R2C 12
 lack capacity if: under guardianship, an infant, mentally ill or
defective, intoxicated (unless exception stated above)
 R2C 174 (physical compulsion)
 R2C 175 and 176 (threat)
 one party involuntarily accepted the terms of another,
 circumstances permitted no other alternative, and
 such circumstances were the result of coercive acts of the other
party (not just from plaintiff’s dire state).
 R2C 177 (undue influence)
o Illegality, Public Policy, and Unconscionability

27
 Illegality
 General rule: If contract is illegal, then not enforceable
 There are levels of illegality
o Hypo: hire unlicensed plumber even though law says
plumbers must be licensed (courts won’t necessarily find
this unenforceable)
 Public Policy
 Contract is voidable (by either side)
 R2C 178 and 181
 Adhesion contracts: majority view: most states uphold adhesion
Ks releasing recreational operators from future liability for person
injuries caused by their own negligent conduct
 Non-compete agreements:
o * Why would a non compete be against public policy:
 Restraining trade
 Deprive consumers of making choices
o Makes sense for employer to have a strict none compete
because may be struck down
o Some jurisdictions enforce them, some don’t (substantial
difference)
o Some courts reform covenants excessive in time and space
 Usually involves family relations (?)
 Unconscionability
 Courts will not enforce a contract that is fundamentally unfair,
due to both procedural and substantive defects.
o Minority of courts also refuse to enforce contracts due to
one of these defects, but most require both.
 Procedural unconscionability- Focuses on the process that led to
contract formation and asks whether there was “an absence of
meaningful choice” for the disadvantaged party. Look for:
o Gross inequality of bargaining power
o Reasonable opportunity to understand terms of K
 Substantive unconscionability- Looks at the terms of the
agreement and asks whether the terms unreasonably favor the
advantaged party.
 Black letter rule: For a contract to be invalid due to
unconscionability, it must be both procedurally unconscionable
(absence of meaningful choice) and substantively unconscionable
(unreasonably favorable terms).
o BUT, where there is clearly an “abundance” of one of the
factors, courts will settle for a relatively smaller amount of
the other factor.

28
 Hanks v. Powder Ridge Rest. Corp. (Supreme Court of CT, 2005)- Snow
tubing case. P signed a well-written, clear agreement that held that he
would not hold the resort operator liable for any injuries he suffered
 Contract is void because of public policy reasons (no bargaining)
 The law does not favor contract provisions that relieve a party
from negligence (undermines the policies governing tort system)
 The resort was open to the public-anyone age six and above could
go snow tubing, which creates the impression that it is a safe
recreational opportunity. P paid a fee and expected to have safe
recreation that was under the control of the resort operator. P
could have no knowledge of the safety of the resort but, like other
members of society, expected it to be safe
 Minority rule
 RR v. MH (first case)- also dealt with public policy
 Valley Med. Specialists v. Farber (Supreme Court of Ariz., 1999)- Covenant
non-compete case
 Covenant violates public policy
 While a term in an agreement may not be facially unconscionable,
it may still be regarded as contra bonos mores, and be considered
unenforceable as such
 A restriction is unreasonable and thus will not be enforced 1) if
the restraint is greater than necessary to protect the employer’s
legitimate interest; or 2) if that interest is outweighed by the
hardship to the employee and the likely injury to the public
 Court held that the public policy implications (i.e. restriction on
the practice of medicine) outweighed the Plaintiff’s protectable
interest the restrictive covenant. Particularly, any covenant
restricting the practice of a physician also has a negative impact
on a patient who is depending on that physician. Therefore, while
a restrictive covenant may protect the interest of an employer, it
will not be upheld to the extent that it prejudices the interest of a
patient
 Blue pencil rule: allows employers to write really oppressive
contracts knowing they can just be written to fit (keeps
employees from bringing issues to court)
 Williams v. Walker-Thomas Furniture Co. (US Court of Appeals, DC, 1965)-
P made installment contracts with D, which said that if P defaulted on
payment, D would have the ability to repossess each item, regardless of
how much had actually been paid off, because each item would have an
outstanding balance due until all items were paid off
 The Court remanded the case to determine whether, considering
the lack of bargaining power held by P, coupled with the
commercially unreasonable terms in the contract, the installment

29
 contract was so extreme as to appear unconscionable and render
the contract unenforceable
 Where the element of unconscionability is present at the time a
contract is made, the contract should not be enforced
 Unconscionable contracts are not void, but rather, the party who
benefits from the unconscionable contract is only entitled to the
remedies that equity demands
 The Court held that where there is an absence of meaningful
choice on the part of one of the parties together with contract
terms which are unreasonably favorable to such party, such
contract may be set aside.
o Meaningful choice can be determined by the equality of
bargaining power and a reasonable understanding of
contractual terms that each party has when entering into
the contract.
 UCC §2-302 specifically provides that a court may refuse to
enforce a contract which it finds to be unconscionable at the time
it was made
 R2C 178
 If legislation provides that it is unenforceable or the interest in its
enforcement is clearly outweighed in the circumstances by a
public policy against the enforcement of such terms
 When weighing interest in the enforcement of a term, account
taken of
o Parties’ justified expectations
o Any forfeiture that would result if enforcement were
denied
o Any special public interest in the enforcement of the
particular term
 When weighing interest against enforcement, account taken of
o The strength of that policy is manifested by legislation or
judicial decisions
o The likelihood that a refusal to enforce the term will
further that policy
o The seriousness of any misconduct involved and the extent
to which it was deliberate
o The directness of the connection between that misconduct
and the term
 UCC 2-302
 Court can enforce rest of contract without enforcing any
unconscionable parts
o Mistake

30
  Differs from mutual misunderstanding (never a contract)- mistake
acknowledges there was a contract but it should be void
 Black letter rule: R2C 152, 153, and 154
 Sherwood v. Walker- barren cow case
 If mutual mistake, then contract is voidable
o Mistake must materially differ the contract
 Test: K cannot be enforced if:
o the whole substance and the very nature of the
merchandise sold is different then that which the parties
bargained for,
o if the mistaken identification was mutual
o and if the dollar consequences to the disadvantaged party
are significant
 Old view
 Estate of Nelson v. Rice (Court of Appeals of Ariz., 2000)- P had estate
appraised by someone who doesn’t appraise fine art then sold two art
pieces not knowing they were original (fine art case)
 Can’t rescind contract
 R2C 154(b) comment a) says that party bears risk of mistake when
he is aware at the time the K is made that he has only limited
knowledge with respect to the facts to which the mistake relates
but treats his limited knowledge as sufficient (conscious
ignorance)
o Peerless case is an example of mutual mistake which
voided contract
 Where an estate didn’t check to see if the paintings were fake
before selling them at a cheap price, they bore risk of mistake that
they were actually expensive originals
 P was a victim of its own folly, and it was reasonable for trial court
to allocate to it the burden of its mistake
 While the results of the transaction may have seemed
unconscionable to plaintiff in hindsight, the terms of the contract
were not
 R2C 152 and 154 (modern view)
 R2C 152, 153, 154
 Modern view
 Mistaken belief relates to a basic assumption of the parties upon
which the contract is made, and which materially affects the
agreed performance of the parties. Rescission is not available to
relieve a party who has assumed the risk of loss, in connection
with a mistake
 Can be unilateral or both mistake
 What are the Terms of the Deal? (Ch. 5)

31
o What do the actual terms of the K mean?
 Look to contract language first – Is the language ambigious?
 If not ambiguous, enforce terms by clear meaning (unless in
California, then allow extrinsic evidence as to meaning anyway—
Trident)
 If ambiguous, allow lots of different types of evidence to establish
intended meaning (see: Frigaliment)
o What do we do when the contract is missing a term?
 If K is not fully integrated and the specific term is not integrated, then
allow parol evidence that the parties did agree to a term
 Fill the gap with trade custom, course of dealing, course of performance
(knowing the Restatement’s preference ordering between the three)
 Imply a term based on parties’ intent (either presumed or established
through extrinsic evidence, Duff Gordon) or public policy (Warner
Brothers)
 Fill the gap with a default term supplied by statute (UCC defaults, other
statutory defaults)
o What do we do when parties allege they agreed to additional/different terms
than the K?
 First, determine if K is completely integrated. If K has a merger clause:
 Some courts (Town Bank majority) end their discussion there and
do not look further
 Others (Town Bank dissent) would still take evidence about
whether the parties meant the writing to be the final and
complete agreement between the parties
 If contract is completely integrated (parties meant for writing to be full
and final agreement)
 Cannot introduce any evidence as to additional or different terms.
 If contract is only partially integrated (not intended to be full and final
agreement either b/c no merger clause or b/c of intent of parties)
 Can only introduce pre-K evidence of additional terms, not
different terms.
o Trade Custom and Usage
 Rule: to be binding upon a party, a trade usage must be sufficiently
general so that the parties could be said to have contracted with
reference to it, but in order for a trade custom to be binding upon a
person who has not expressly agreed to be bound by it, it must be
reasonable. (Reasonable here means person in position should have
known, meaning not illegal or against public policy).
 Both parties need actual or constructive (you don’t know but you
should have) knowledge of the trade usage
 Threadgill v. Peabody Coal Co. (CoA CO)- probing device is lost while coal
mining

32
  D is liable because custom puts responsibility on D
 To be binding upon a party, a trade usage must be sufficiently
general so that the parties could be said to have contracted with
reference to it
 In order for a trade custom to be binding upon a person who has
not expressly agreed to be bound by it, it must be reasonable
o The Parol Evidence Rule
 General Rule: when you have a final written agreement, court will not
consider extrinsic evidence to contradict or add terms to the agreement
 If a contract is fully integrated, then parol evidence is barred as a
whole.
 If a contract is only partially integrated, then the parol evidence
only bars evidence concerning terms that are inconsistent with
the contract. It does not bar additional consistent terms.
o If a contract is partially integrated and one of the
integrated terms is quantity (5 apples), then parol
evidence cannot be introduced that the parties agreed to a
different term (10 apples).
 Fully integrated agreement
 Agreement contains all of the terms agreed to by the parties
 The parties have not agreed to any terms that are not in the
writing
 Intent by both parties was to make this the final written
agreement
 Has a merger clause
 Partially integrated agreement
 The agreement contains some of the terms agreed to, but there
are terms that the parties agreed to that are not in the written
agreement
 Almost never has a merger clause
 Some individual terms themselves may be fully integrated (i.e.,
agreement discusses all of the terms relevant to “shipping”).
 Exceptions
 Evidence of communications occurring after formation (not parol
evidence at all)
 Evidence that the contract was procured by fraud,
misrepresentation, or mistake (Traders Bank case)
 Evidence concerning the proper interpretation of an ambiguous
term (Frigaliment case)
 Evidence regarding whether the agreement was intended as the
final written agreement. (Courts are split on this)
o Some, like the majority in Town Bank, stop when they find
a merger clause and don’t look any further.

33
 o Others (majority), like the dissent, allow extrinsic evidence
to determine whether the parties intended the written
document to constitute the entire agreement (R2C 214)
 R2C 213
 Common Law
 Town Bank v. City Real Estate Development, LLC (Wisconsin 2010)-
The case involved a renegotiated loan agreement between the
Bank and the LLC. Originally, the Bank had signed a commitment
letter which obligated it to advance $9 million towards a
condominium development, subject to certain financing
conditions, which the LLC apparently failed to satisfy. The parties
later entered into a "term credit agreement," under which the
Bank loaned only $2.5 million and encouraged the LLC to seek
alternative financing for the rest
o The TCA was an unambiguous and fully integrated
agreement, with which Town Bank fully complied
o If want to ascertain true intentions of parties as expressed
by contractual language, best indication of parties’ intent
is the language of the contract itself
o A court cannot look outside of a contract to resolve the
parties' intent if the contract language is unambiguous.
Once it is determined that a contract is unambiguous, the
parol evidence rule applies. The rule states that when the
parties to a contract embody their agreement in writing
and intend the writing to be the final expression of their
agreement, the terms of the writing may not be varied or
contradicted by evidence of any prior written or oral
agreement in the absence of fraud, duress, or mutual
mistake
o Dissent: should include the commitment letter in
determinations
 Traders Bank v. Dils (WV 2010)- In November of 1999, bank
entered into a $2 million "floor plan" financing agreement with
father of car dealer owner to supply the necessity financing to
operate a car dealership that he owned
o D has standing to assert a claim of fraudulent inducement
o D, note maker, relied upon the lender's oral promise,
which the lender had no contemporaneous intention of
fulfilling
o Fraud is an exception to the parol evidence rule
 UCC
 Apex LLC v. Sharing World, Inc. (CoA 4th district CA)- P and D
entered into 12 contracts for the sale of cottonseed. D says to P

34
 that they knew D never wanted to take a financial risk, they were
just a middleman to bring the cottonseed to the third party
o Ruling for P
o A parol term conditioning Sharing World's obligation to
accept delivery of the cottonseed on its receipt of letters
of credit from parties over whom Apex had no control
would have been inconsistent with the written sales
contracts calling for an unconditional sale of cottonseed in
the quantity and at the price specified
o The court adopts the broader definition of inconsistency
from Snyder
o UCC 2-202- basically same as the common law rule of
parol evidence
 Using to Discover Meaning of Terms Used in Written Contract
 General Rule: Courts will look, initially, at the language of the
contract itself
o If this doesn’t resolve the issue, then the court will
consider extrinsic evidence as to the language’s meaning.
 This includes evidence that would otherwise be
barred by the parol evidence rule.
 What is an ambiguous term?
o When considered in isolation or in the context of the
greater contract, is the term susceptible to more than one
reasonable interpretation?
 Frigaliment Importing Co., Ltd. v. BNS International Sales Corp.
(USDC SD NY)- chicken case
o Ruling for D
o A party who seeks to interpret a contract’s ordinary terms
in a narrower sense than is used in everyday trade has the
burden of proof to establish that meaning.
o Parol evidence is admissible to show the meaning of an
ambiguous term and its usage in a contract
o After looked to K and found it ambiguous, the court looked
to negotiations
 Ambiguity in Terms
o Random House, Inc. v. Rosetta Books LLC (USDC SD NY)-
eBooks case
 Ruling for D
 Relying on the language of the contracts and basic
principles of contract interpretation, the court
found that the right to "print, publish and sell the
works in book form" did not include the right to
publish the works in a digital format
 Court looked to outside evidence

35
  Burden on P to prove ambiguity
o Maxims for contracts on pg. 554
 Terms Added by the Court
o Rule: Courts will sometimes read an implied promise into a
contract so that the contract will no longer be illusory 
likely to do so if it will effectuate the clear intent of the
parties
o Wood v. Lucy, Lady Duff-Gordon (CoA NY 1917)- D makes
contract with P to sell her clothes and split the profit
 Ruling for P
 A promise to use reasonable efforts may be implied
from the entire circumstances of a contract
 An implied promise to use best efforts in contract
performance can be considered valuable
consideration
 The duty of good faith can compensate for
vagueness in an agreement to avoid invalidation of
a contract clearly intended by the parties
 Mutuality or a return promise may be implied from
the circumstances surrounding the contract and
the nature of the whole writing
 Looks within the “Four Corners of Contract”
 R2C 205
 R2C 205
 Every contract imposes upon each party a duty of good faith and
fair dealing in its performance and its enforcement
 R2C 213
 Parol Evidence Rule
o (1) A binding integrated agreement discharges prior
agreements to the extent that it is inconsistent with them.
o (2) A binding completely integrated agreement discharges
prior agreements to the extent that they are within its
scope.
 R2C 214
 Agreements and negotiations prior to or contemporaneous with
the adoption of a writing are admissible in evidence to establish
o (a) that the writing is or is not an integrated agreement;
o (b) that the integrated agreement, if any, is completely or
partially integrated;
o (c) the meaning of the writing, whether or not integrated;
o (d) illegality, fraud, duress, mistake, lack of consideration,
or other invalidating cause;
o (e) ground for granting or denying rescission, reformation,
specific performance, or other remedy

36
  UCC 1-303
 Same as R2C 203
 (e) Except as otherwise provided in subsection (f), the express
terms of an agreement and any applicable course of performance,
course of dealing, or usage of trade must be construed whenever
reasonable as consistent with each other. If such a construction is
unreasonable:
o (1) express terms prevail over course of performance,
course of dealing, and usage of trade;
o (2) course of performance prevails over course of dealing
and usage of trade; and
o (3) course of dealing prevails over usage of trade.
 UCC 1-304
 Every contract or duty within the Uniform Commercial
Code imposes an obligation of good faith in its performance and
enforcement.
 UCC 2-202
 Parol evidence rule
 When is Someone Who Made an Enforceable Deal Excused from
Doing What She Agreed to? (Ch. 6)
o Difference between Contractual Excuses and Defenses
 Defenses to enforcement look to pre-contract acts/events, excuses look
to post-contract acts/events.
 Excuse where post-formation events can excuse a party from performing
under a contract
o Conditions
 As far as contractual excuses go, a condition essentially
 (1) identifies an event/occurrence and
 (2) says that if that event doesn’t occur, somebody doesn’t have
to perform
 When will courts excuse a condition?
 (1) when enforcing the condition will cause an undesirable
forfeiture;
 (2) when the party trying to escape performance due to a
condition is responsible for the non-occurrence of the condition
(aka “prevention”); and
o Courts will refuse to allow a party to escape their
performance obligations when that party intentionally
caused the non-occurrence of the condition.
 (3) when the party trying to escape performance due to a
condition previously waived the condition
o “Waiver” – voluntary relinquishment of a known right
 Occurrence of Express Conditions and Strict Compliance

37
  Luttinger v. Rosen (CT 1972)- The contract was “subject to and
conditional upon the buyers obtaining first mortgage financing on
said premises from a bank or other lending institution in an
amount of $45,000 for a term of not less than twenty (20) years
and at an interest rate which does not exceed 8 1/2 per cent per
annum.” P couldn’t meet all requirements
o Ruling for P
o A contract is not binding where a condition precedent to
performance of the agreement was not met
o P used due diligence to obtain best loan possible
o K is not binding
o Strictly construed the conditions here
 Recognizing Language of Express Condition
 National Fuel Gas Distribution Corp. v. Hartford Dire Insurance Co.
(NY 2006)- Iroquois got extensions for payment then didn't pay D,
but D owed P. D did not give notice to P upon Iroquois's default
and as a result the condition in the bond was not met through D's
own fault
o Ruling for D
o An express condition precedent must be literally
performed or satisfied (strictly construed) before the other
party is obliged to perform its obligations
o R2C 226
 Excusing Conditions
 1) Forfeiture: when enforcing the condition will cause an
undesirable forfeiture;
o R2C § 229 Comment (b): “’forfeiture’ is used to refer to the
denial of compensation that results when the obligee loses
his right to agreed exchange . . .”
o R2C § 227 gives us the “standards of preference with
regards to conditions.” - It says that when faced with an
ambiguous provision that could be a condition, courts
should favor interpretations that will prevent a party from
forfeiting payment.
 UNLESS the condition that will cause him to forfeit
payment is within his control or he assumed the
risk.
 2) Prevention: when the party trying to escape performance due
to a condition is responsible for the non-occurrence of the
condition (aka “prevention”); he caused it himself.
o Courts will refuse to allow a party to escape their
performance obligations when that party intentionally
caused the non-occurrence of the condition.

38
  3) Waiver: when the party trying to escape performance due to a
condition previously waived the condition
o Here we’re talking about waiving a condition—foregoing
the benefit of the condition.
o Only the person who can get the benefit can waive it.
 Acme Markets, Inc. v. Federal Armored Express, Inc. (PA 1994)-
armored car case (“the bags have been accepted and receipted
for by its employees”)
o The receipt provision was a condition precedent, but it
could be excused if it is determined to be not a material
part of the contract
o To the extent that the non-occurrence of a condition
would cause disproportionate forfeiture, a court may
excuse the non-occurrence of that condition unless its
occurrence was a material part of the agreed exchange.
(R2C 229)
 R2C 224
 A condition is an event, not certain to occur, which must occur,
unless its non-occurrence is excused, before performance under a
contract becomes due
 R2C 225
 (1) Performance of a duty subject to a condition cannot become
due unless the condition occurs or its non-occurrence is excused.
 (2) Unless it has been excused, the non-occurrence of a condition
discharges the duty when the condition can no longer occur.
 (3) Non-occurrence of a condition is not a breach by a party unless
he is under a duty that the condition occur.
 R2C 227
 Give us the “standards of preference with regards to conditions.”
 It says that when faced with an ambiguous provision that could be
a condition, courts should favor interpretations that will prevent a
party from forfeiting payment.
o UNLESS the condition that will cause him to forfeit
payment is within his control or he assumed the risk.
 R2C 229
 Disproportional and material aspects
 Uses the term “forfeiture” and explains it in Comment (b):
“’forfeiture’ is used to refer to the denial of compensation that
results when the obligee loses his right to agreed exchange . . .”
o Waiver, Estoppel, and Modification
 Waiver: Voluntary relinquishment of a known right.
 Can’t reinstate it if the other party relied on the waiver.
 Modification: Takes two parties to effectuate.

39
  Also takes two parties to reinstate (take back)
 Takes consideration to modify a non-goods K (not so with waiver)
 Estoppel: Operates in the same way as modification and waiver.
 Courts sometimes analyze modification and waiver arguments as
estoppel argument
 The biggest difference is that with estoppel the focus is on
justifiable reliance.
 Elements
o (1) statements or actions of one party
o (2) that indicate it would not assert contractual right and
o (3) justifiable reliance by the other party
 Alderman v. Davidson (Oregon 1998)- buyer is late on her payments from
the beginning and seller didn’t say anything for awhile
 Seller waived right to insist on timely payment and estopped from
proceeding with foreclosure
 Waiver involves both knowledge and intention; estoppel may
arise when there is no intention to mislead
o Waiver depends upon what one himself intends to do,
estoppel depends upon what he caused his adversary to
do
 Zwick v. Lodewijk Corp. (CoA Texas 1993)- P leased most of a floor in an
office building owned by D and managed by Miller Company. P collected
rent from sub-lessees and paid it to Miller Co. She maintained that Miller
Co. allowed her to pay rent anytime before the month was up. In April,
Miller Co. served notice that her lease was terminated because she didn’t
timely pay her lease
 Ruling for P
 While a non-waiver provision may be some evidence of non-
waiver, it may itself be waived like any other contractual provision
 Post-formation actions speak just as loudly as actual terms of
original contract
 Wisconsin Knife Works v. National Metal Crafters (USCoA 7th 1986)-
National Metal crafters accepted a condition of "No modification is
binding unless in writing." However, NMC missed delivery dates. W.K.W.
did not immediately declare breach, or cancel - instead they issued new
Purchase Orders
 Ruling for WKW
 UCC 2-209
 Posner: In order for there to be a waiver there needs to be
reliance (minority opinion)
o Absent a writing, an attempted modification of a contract
that contains a clause forbidding modifications other than

40
 in writing is effective as a waiver only when it is reasonably
relied on
 Dissent (Easterbrook): no reliance needed because a written
waiver would be a successful modification
o Majority opinion among jurisdictions
o Closer to UCC 2-209
 UCC 2-209
 (1) An agreement modifying a contract within this Article needs
no consideration to be binding.
 (2) A signed agreement which excludes modification or rescission
except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requirement
on a form supplied by the merchant must be separately signed by
the other party.
 (3) The requirements of the statute of frauds section of this
Article (Section 2-201) must be satisfied if the contract as
modified is within its provisions.
 (4) Although an attempt at modification or rescission does not
satisfy the requirements of subsection (2) or (3) it can operate as
a waiver.
 (5) A party who has made a waiver affecting an executory portion
of the contract may retract the waiver by reasonable notification
received by the other party that strict performance will be
required of any term waived, unless the retraction would be
unjust in view of a material change of position in reliance on the
waiver.
o Impossibility, Impracticability, Frustration of Purpose
 Impossibility- older standard
 Parties are excused if performance is actually impossible from an
unforeseen consequence
 Impracticability- new standard
 Parties excused if performance is extremely difficult/expensive
(R2C 261)
o Neither party can be at fault
o Can’t be something contemplated when K was made
 Frustration of Purpose
 R2C 265
 Value of performance is destroyed
 Taylor v. Caldwell (England 1863)- music hall fire case
 Ruling for D
 If contract performance depends on the continued existence of a
person or thing, and that person or thing ceases to exist,
performance may be excused for impossibility of performance

41
  If the nature of the contract is such that the parties must have
known at the time of contracting that it could not be fulfilled
unless some specified thing continued to exist, it is not a positive
contract, and there is an implied condition that the parties will be
excused from performance if that thing ceases to exist without
fault of the parties.
 However, if a party gives an express or implied warranty that that
thing will continue to exist, that party is liable for breach if it
ceases to exist
 R2C 263
 Hewitt v. Biscaro (CoA Texas 2011)- Hewitt and Biscaro were doing
business dealings in oil and gas, and Hewitt was told verbally by an agent
for the SEC to stop making payments to Biscaro
 Ruling for Biscaro (Hewitt’s performance was not impracticable)
 A party's duty to perform under a contract is discharged if
performance is made impracticable by the occurrence of an event
that the parties assumed would not occur when the contract was
made
 R2C 261 (Where, after a contract is made, a party’s performance
is made impracticable without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on
which the contract was made, his duty to render that
performance is discharged, unless the language or the
circumstances indicate the contrary)
 R2C 264 (If the performance of a duty is made impracticable by
having to comply with a domestic or foreign governmental
regulation or order, that regulation or order is an event the non-
occurrence of which was a basic assumption on which the
contract was made)
 Route 6 Outparcels, LLC v. Ruby Tuesday, Inc. (NY 2011)- economic
downturn case
 Ruling for P (D’s performance wasn’t impracticable)
 In order to use a force majeure clause as an excuse for non-
performance, the event alleged as an excuse must have been
beyond the party's control and not due to any fault or negligence
by the non-performing party. Economic factors not unforeseeable
in business transactions
 Economic risks are inherent to business dealings and so are not
unforeseeable
 D still had control over own funds (chose to pay debts over
building a restaurant)
 Mel Frank Tool & Supply, Inc. v. Di-Chem Co. (Iowa 1998)- hazardous
chemical storage case

42
  Ruling for P (D could have used space for other purpose)
 This case stands for the proposition that a contract can only be
avoided under the idea of frustration of purpose, when an
obligee’s entire purpose for entering into a contract is frustrated
 When a party asserts the defense of frustration of purpose, they
must also be able to prove that their particular purpose was
encompassed in the making of the agreement
 R2C 265
 R2C 261
 Impracticability
 Where, after a contract is made, a party's performance is made
impracticable without his fault by the occurrence of an event the
non-occurrence of which was a basic assumption on which the
contract was made, his duty to render that performance is
discharged, unless the language or the circumstances indicate the
contrary.
 R2C 263
 If the existence of a specific thing is necessary for the
performance of a duty, its failure to come into existence,
destruction, or such deterioration as makes performance
impracticable is an event the non-occurrence of which was a basic
assumption on which the contract was made.
 R2C 265
 Frustration of Purpose
 Where, after a contract is made, a party's principal purpose is
substantially frustrated without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on
which the contract was made, his remaining duties to render
performance are discharged, unless the language or the
circumstances indicate the contrary.
 Death/Incapacity
 R2C 262
 Rule: generally, courts don’t excuse performance because K can
be broken down to money value
o Anticipatory Repudiation
 R2C 250- must be unequivocal and unambiguous
 R2C 253
 R2C 256
 If acceptance is only through performance, then performance must be
completed to have K
 Only deals with post-formation
 Courts like to find acceptance through promise though
 Can be done orally or through conduct (must still be unambiguous)

43
  Can’t retract repudiation if other party materially changes position
(material reliance)
 Statement as Anticipatory Repudiation
 Hochester v. De La Tour (England 1853)- courier case
o Ruling for P
o If two parties enter into a contract to be performed at a
designated time in the future, and one party refuses to
perform the contract before the designated time the
parties agreed to perform, the other party may sue before
the contract was to be performed. That party need not
wait until the time for performance has passed.
o Implied promise that parties can’t do anything to prejudice
the other (like keeping one from finding other
employment)
 Repudiation Based on Conduct
 Conduct must still be unequivocal and unambiguous
 Typically, must come from party (i.e. not news outlet)
 Failure to Give Adequate Assurance of Future Performance as
Repudiation
 Adequate Assurance
o When unclear by a party’s conduct if a party will
repudiate, the other party can demand adequate
assurance
o R2C 251 and UCC 2-609
 Norcon Power Partners, LP v. Niagara Mohawk Power Corp. (NY
1998)- anticipating that the Plaintiff would not be able to satisfy
the daily escalating credits, the Defendant demanded that the
Plaintiff provide adequate assurance that it will perform its
repayment obligations
o P initiated this suit to have declared that D had no right to
demand adequate assurance under New York State law
o At common law in New York, as in the Uniform
Commercial Code (UCC), where reasonable grounds arise
to believe a party will breach a contract, the other party
may demand adequate assurances of performance
o The right to demand adequate assurances of performance
applies equally to contracts formed under the UCC and
contracts formed at common law
o Material Breach
 R2C 234- if performance can be done all at once, it must be
 R2C 237- if A breaches, B doesn’t have to perform
 R2C 241- determining when breach is material
 Constructive Conditions

44
  Implied in law- courts read it into K
o If there’s an “express” condition, it has to be met
completely (“strict compliance”) unless the other party
waives the compliance.
o If the condition is “implied/constructive” then it only
needs to be “substantially performed.”
 Difference between implied and express conditions
o express condition – has to be met completely with strict
compliance unless other party waives compliance
o implied/constructive – only need to be substantially
performed; If there has been substantial performance of a
constructive condition, there is no material breach
 Brinton v. Haight (CoA Idaho 1994)- cashier check and
reconveyance fee case
o Ruling for D (adequate tender was made and was kept
good)
o P offered to pay in full and manifested that intention to do
so, requiring simultaneous exchange of performance does
not breach
o R2C 238
 What Constitutes a Material Breach
 Jacob & Youngs, Inc. v. Kent (NY 1921)- not using Reading pipe
when it was specified in K (defect could only be repaired at a
substantial expense, as it would require demolition of substantial
parts of the home)
o Ruling for D (damages should only be difference in value of
pipes)
o Where a contract has been substantially performed and
the cost of replacement would be grossly out of
proportion to the difference in value, the correct measure
of damages is the difference in value
o Here breach was not material so damages are the
difference in values of the two pipes (here was $0)
 Cost was too high to redo
o Dissent: P should get what they contracted for
 Walker & Co. v. Harrison (Michigan 1957)- ad sign that rusted and
damaged
o Ruling for P
o A party who wrongfully repudiates an agreement will be
found to be in material breach of the contract
o A party may only repudiate an agreement when there has
been a material breach of the contract by the other party
 Here not a material breach, so D breached first
when he stopped performing

45
 o Whether there has been a material breach that justifies
repudiation is a determination for the courts
o R2C 241
 Divisible Contracts
 R2C 240
 Courts like to find as much as possible enforceable
 Perfect Tender
 UCC 2-601- way different than the Restatement
o Must have perfect performance
o Any breach will excuse performance (no substantial
performance)
 Alaska Pacific Trading Co. v. Eagon Forest Products, Inc. (CoA
Washington 1997)- contract to buy and sell raw logs was made.
After months of communications between the parties,
the delivery date passed with no shipment. The purchaser
canceled the contract, alleging that the seller had breached. The
seller brought an action for breach
o Ruling for Eagon (buyer ?)
o Under the “perfect tender” rule of the UCC, delivery
failure in any respect to conform to the contract means
the seller has breached and the buyer is released from
duty to accept the goods.
o This was a material breach
 R2C 240
 If the performances to be exchanged under an exchange of
promises can be apportioned into corresponding pairs of part
performances so that the parts of each pair are properly regarded
as agreed equivalents, a party's performance of his part of such a
pair has the same effect on the other's duties to render
performance of the agreed equivalent as it would have if only that
pair of performances had been promised.
 R2C 241
 In determining whether a failure to render or to offer
performance is material, the following circumstances are
significant:
o (a) the extent to which the injured party will be deprived
of the benefit which he reasonably expected;
o (b) the extent to which the injured party can be
adequately compensated for the part of that benefit of
which he will be deprived;
o (c) the extent to which the party failing to perform or to
offer to perform will suffer forfeiture;

46
 o (d) the 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;
o (e) the extent to which the behavior of the party failing to
perform or to offer to perform comports with standards of
good faith and fair dealing.
 UCC 2-601
 Buyer’s rights on improper delivery
 Remedies (Ch. 7 & 8)
o Election of Remedies Doctrine
 Basic idea is that, when faced with another party’s material breach, a
non-breaching party has to choose between two remedies:
 (1) terminate the K and recover damages for total breach OR
 (2) continue under the K and recover damages for partial breach.
 Once a party chooses one of these two things, then it cannot change its
mind (for that same breach)
o When can you sue for total breach?
 Only when the other side has materially breached and you’ve elected to
terminate the contract.
o When can you sue for partial breach?
 If there’s been substantial performance and you’re suing for the
imperfect performance.
 If there’s been a material breach but you’ve elected to continue with the
contract and sue for the part you didn’t get
o Election of remedies v. waiver
 Waiver comes in when a party excuses a non-performance
 When you have a waiver, then there is no breach
 Election of remedy comes in where you have a breach and no waiver
 But they are related
o Available Remedies
 specific performance - make a party comply with the terms of the K (also
see: injunction)
 liquidated damages - award damages as set forth in the contract
 expectation damages - figure out the total damage done to a party due
to contract not going through and award that
 reliance damages - figure out how much money a party lost due to
entering into the contract (and partially performing) and award that
 restitution - figure out how much the party’s (partial) performance was
actually worth and award that
 unjust enrichment (equitable) - figure out how much the breaching party
benefited from non-breaching party’s partial performance and award it
o * Some factors that may influence what damage is awarded (R2C 360)
 uncertainty of damages

47
  availability of substitutes for the bargained for item
 difficulty of policing the injunctive order
o Efficient breach- no moral idea behind breaching
o Consequential vs. Incidental damages:
 R2C 347 comment c:
 Incidental losses include costs incurred in a reasonable effort, whether
successful or not, to avoid loss, as where a party pays brokerage fees in
arranging or attempting to arrange a substitute transaction.
 Consequential losses include such items as injury to person or property
resulting from defective performance
o Specific Performance
 General Rule: Specific performance / injunctive relief is only used when
awarding money damages would be inadequate.
 Typical cases where specific performance is awarded
 Contracts for the sale of art / heirlooms (“unique” goods...also
includes a “MLB baseball franchise”)
 Contracts regarding licenses/patents/copyrights (but see i.Lan)
 Contracts re: purchase of land (although this is challenged more
these days)
 * Why is specific performance not common?
 Policing – Difficult for courts/government to manage (good opera
singer?)
 Efficiency – Allowing parties to breach and pay money damages
allows for a more efficient allocation of resources
 Liberty–don’t want the government to have the power to compel
people to do certain types of things
 Paternalism – don’t want to force people to be bound by their
former bad decisions (think of a K for indentured servitude)
 Ash Park, LLC v. Alexander & Bishop, Ltd. (Wisconsin 2010)- sale of land
contract with clause allowing parties to sue for specific performance
 P awarded specific performance
 R2C §359: Specific performance is granted when damages are an
inadequate remedy and specific performance would be possible
and practical
 Wisconsin law: does not require sellers to show the inadequacy of
other remedies to be awarded specific performance (like many
other states)
 i.Lan System, Inc. v. Netscout Service Level Corp. (Mass. 2002)- contract
for software
 P not awarded specific performance
 UCC 2-716: Specific performance may be decreed where the
goods are unique or in other proper circumstances
 The goods must be unique, not the contract

48
  R2C 357
 specific performance of a contract duty will be granted in the
discretion of the court against a party who has committed or is
threatening to commit a breach of the duty
 an injunction against breach of a contract duty will be granted in
the discretion of the court against a party who has committed or
is threatening to commit a breach of the duty if
o (a) the duty is one of forbearance, or
o (b) the duty is one to act and specific performance would
be denied only for reasons that are inapplicable to an
injunction.
 R2C 359
 Specific performance or an injunction will not be ordered if
damages would be adequate to protect the expectation interest
of the injured party.
 UCC 2-716
 (1) Specific performance may be decreed where the goods are
unique or in other proper circumstances.
 (2) The decree for specific performance may include such terms
and conditions as to payment of the price, damages, or other
relief as the court may deem just.
 (3) The buyer has a right of replevin for goods identified to the
contract if after reasonable effort he is unable to effect cover for
such goods or the circumstances reasonably indicate that such
effort will be unavailing or if the goods have been shipped under
reservation and satisfaction of the security interest in them has
been made or tendered.
o Liquidated Damages
 Rule: to be enforceable:
 1) cannot be a penalty
 2) should be a reasonable, actual calculation of damages
 Attorney fees are NOT penalties- so courts will likely enforce them
because it just puts the non-breaching party back in the position they
would have been in (make them whole)
 Carr-Gottstein Properties, Ltd. Partnership v. Benedict (Alaska 2003)-
covenant said that any construction on a lot had to be completed within
one year and contained a liquidated damages clause assessing a $25 daily
fine for any breach of the covenant
 Awarded liquidated damages (meets both prongs)
 Liquidated damages clauses are proper (1) where it would be
difficult to ascertain actual damages and (2) where the liquidated
amount is a reasonable forecast of the damages likely to occur in
the event of breach. R2C § 356(1)

49
  Aesthetic damage is hard to determine
 Nohe v. Roblyn Development Corp. (NJ 1997)- sale of land falls through
and P wants deposit back
 Deposit is returned
 Courts generally disfavor liquidated damages clauses, particularly
when they are unreasonable in that they are disproportionate to
the harm to the non-breaching party. If it is clear that the non-
breaching party sustained no loss and the liquidated damages
clause the party is seeking to enforce fixes a substantial sum as
damages, the clause is unenforceable. R2C § 356(1)
 The Court recited case law to the effect that if the damages
provided for in the contract are grossly disproportionate to the
actual harm, the party’s original expectations were unreasonable
 Liquidation damages test:
o Reasonableness at time of formation
o Reasonableness at time of breach
 Rule: If no loss at all has occurred, a provision fixing a substantial
sum as damages is unenforceable (penalty)
 Kvassay v. Murray (Kansas 1991)- baklava case
 Remanded (if he can show other things to use time, then probably
can use $4.29 amount which is more likely to be considered
reasonable)
 The relevant statute "provides three criteria by which to measure
reasonableness of liquidated damages clauses: (1) anticipated or
actual harm caused by breach; (2) difficulty of proving loss; and
(3) difficulty of obtaining an adequate remedy."
 Since baklava is a good, the UCC governs. The relevant provision,
K.S.A. 84-2-102, reads "(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."
 Don’t need to take into account prior income with UCC
 R2C 356
 (1) Damages for breach by either party may be liquidated in the
agreement but only at an amount that is reasonable in the light of
the anticipated or actual loss caused by the breach and the
difficulties of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy
as a penalty.

50
  (2) A term in a bond providing for an amount of money as a
penalty for non-occurrence of the condition of the bond is
unenforceable on grounds of public policy to the extent that the
amount exceeds the loss caused by such non-occurrence.
 UCC 2-718
 Liquidation or limitation of damages
 More lenient than R2C 356- “in light of” vs. “required”
 UCC 2-719
 Contractual modification or limitation of remedy
o Expectation Damages
 Rule: Default measure of damages (used to make P whole again)
 2 ways to award expectancy
 (1) award the difference in value between promised performance
and actual performance, OR
o [“diminution in value”, Hawkins]
o (Value of the D’s promised performance, which is generally
K price) – (the actual performance, meaning whatever
benefits, if any, the P got from not having to complete his
own performance + incidental damages)
 (2) award the amount it would cost for the non-breacher to
purchase full performance.
o [“cost of completion”, Lewis]
o (value of the original K) – (whatever it costs to have full
performance from another party + incidental damages)
 Attorney Fees
 Whether a party can seek them will depend on the terms of the
contract and on state law.
 Some states have statutes that allow recovery of attorneys fees
by a party who successfully proves breach, other do not.
 Incidental damages
 Idea is that reasonable expenses that you incur due to the breach
(headhunters fees, cost of shipping a defective item back to the
seller, advertising costs to try to resell an item, etc.) will be taken
into account for damages purposes (credited to seller)
 Not attorney’s fees
 Recovery when one party materially breached:
 In a construction case in which the contractor is in material
breach, the non-breaching party may recover the cost of
completing the job, subject to a deduction for the unpaid portion
of the contract price (same as R2C 347).
 Breaching party may recover at most under quantum meruit.
 Hawkins v. McGee (NH 1929)- A surgeon guaranteed that the plaintiffs
hand operation would be 100 percent successful. The plaintiff sued for

51
 breach of warranty when the operation was not successful (hairy hand
case)
 The plaintiff was entitled to expectancy damages plus incidental
losses resulting from the breach. Expectancy damages are
damages sufficient to put the plaintiff in the position he would
have been if the contract had been performed.
 The measure of damages in a breach of contract case is the
difference between the plaintiff’s actual position and the position
he would have been in had the contract not been breached.
 Hawkins was entitled to the difference between what he sought –
a perfect hand, and what he received – a hairy hand. The plaintiff
was also entitled to incidental losses resulting from the breach.
 Couldn’t bring tort claim because no provable negligence
 Lewis Elec. Co. v. Miller (Iowa 2010)- Lewis substantially performed the
electrical contracts, but disputes arose regarding the work that Lewis had
done and Miller failed to pay a portion of the contracts
 Ruling for D
 General rule: that a contractor who substantially performs under
a building or construction contract is entitled to recover the
contract price minus the cost of repairing the defects or
completing the unfinished part of the work so as to bring the
construction up to the level required by the contract.
 Exception: A construction contractor who fails to perform
substantially under the contract can recover at most only in
quantum meruit for the value of the work
 The measure of recovery under this rule, “where the performance
is incomplete but remediable,” is “the unpaid contract price”
minus “the cost of completing any unfinished work and
remedying any defective work,” “plus any other damages suffered
by the owner, not to exceed the benefit actually received by the
owner.”
 R2C 347 and 348
 Groves v. John Wunder Co. (Minnesota 1939)- D intentionally breached
the contract by removing the “richest and best of the gravel” and leaving
the premises not substantially at the grade required by the contract
 P is entitled to damages equal to the reasonable cost to him of
doing the work called for by the contract rather than the
difference between the value of the land at the time of contract
and the value the land would have had D fully performed
o Majority rule
 The proper measure of damages is the reasonable cost of
performing the part of the contract that the defendant willfully
failed to complete

52
  Absent such “economic waste” (as seen in Jacob & Youngs), the
damages awarded must equal the cost of remedying the defect
 Where the breach is willful, damages equal the cost of performing
the contract, not the difference between the value of the
property at the time of contracting and the value the property
would have had if the defendant fully performed.
 R2C 348 and R1C 346
 R2C 344
 Judicial remedies under the rules stated in this Restatement serve
to protect one or more of the following interests of a promisee:
o (a) his “expectation interest,” which is his interest in
having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been
performed,
o (b) his “reliance interest,” which is his interest in being
reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in
had the contract not been made, or
o (c) his “restitution interest,” which is his interest in having
restored to him any benefit that he has conferred on the
other party.
 R2C 346
 (1) The injured party has a right to damages for any breach by a
party against whom the contract is enforceable unless the claim
for damages has been suspended or discharged.
 (2) If the breach caused no loss or if the amount of the loss is not
proved under the rules stated in this Chapter, a small sum fixed
without regard to the amount of loss will be awarded as nominal
damages.
 R2C 347
 the injured party has a right to damages based on his expectation
interest as measured by
o (a) the loss in the value to him of the other party's
performance caused by its failure or deficiency, plus
o (b) any other loss, including incidental or consequential
loss, caused by the breach, less
o (c) any cost or other loss that he has avoided by not having
to perform.
 Subject to the limitations stated in §§ 350-53, the injured party
has a right to damages based on his expectation interest as
measured by:
o the loss in the value to him of the other party's
performance caused by its failure or deficiency, plus

53
 o any other loss, including incidental or consequential loss,
caused by the breach (foreseeability), less
o any cost (avoided cost) or other loss (mitigation) that he
has avoided by not having to perform
 R2C 348
 Previously was R1C 246
o The cost of remedying the defect is the amount awarded
as compensation for failure to render the promised
performance unless the defects in a completed structure
cannot be physically remedied without tearing down and
rebuilding, at a cost that would be imprudent and
unreasonable
o Limitations on Monetary Damages
 First: avoided costs
 Costs you would have expended under the contract to do your
performance but now you get to avoid because of the breach; the
cost avoided is to be subtracted from the loss in value covered by
the breach in calculating his damages.
 R2C 347 (comment d)- Sometimes the breach itself results in a
savings of some cost that the injured party would have incurred if
he had had to perform *** the cost avoided is to be subtracted
from the loss in value covered by the breach in calculating his
damages
 Subtract the money from the damages you get that you didn’t
have to spend from you not having to perform the contract
 Tip: figure out what it would cost the non-breacher to finish
performance and deduct this amount from K price.
o Generally, it is best to focus on raw materials and similar
expenditures (gas, permit fees, etc.)
 Second: avoided losses
 Losses you could have avoided (or did avoid) because you entered
into a different contract or in some other way mitigated your
damages
 Duty to mitigate: if the non-breacher has an opportunity to
mitigate their losses and fails to do so, courts will reduce their
damages by the amount of loss they could have prevented
 The breaching party has the burden of proving that the non-
breaching party did not mitigate
 Also prevents you from incurring additional costs post-breach
 The law only requires them to exercise “reasonable, practical
care, and diligence” when avoiding costs
 Parker case
 Third: foreseeability/consequential damages

54
  The breaching party is liable for damages that are foreseeable at
the time of formation.
o Test:
 Could a reasonable person could have foreseen it?
 If they are remote consequences, did the D have
actual notice?
o When special circumstances are known and
communicated, the measure of damages is the amount of
injury which the breaching party could have anticipated
given knowledge of the special circumstances
 Contract can waive these kinds of damages; most do
 R2C 351- breachers will be held liable for these consequential
damages if they are foreseeable or they were explicitly warned
 Hadley case
 Fourth: certainty
 Damages for breach are recoverable only to the extent that the
injured party’s loss can be established with reasonable certainty
 Parties must be able to provide evidence substantiating their
damage claims.
 If a party cannot support part of its damages claim with evidence,
damages for that part will not be awarded.
 If can’t get expectation because of uncertainty, non-breaching
party will often seek reliance damages
 Manouchehri case
 ESPN case
 Argentinis v. Gould (CT 1991)- D built a house for P but the construction
was incomplete and had defects
 Court subtracts $43,000 from cost to repair (only make party
whole, not be enriched)
 Generally, when a builder breaches a bilateral construction
contract by an unexcused failure to render substantial
performance, he cannot maintain an action on the contract to
recover the unpaid balance of the contract price because
substantial performance, a constructive condition of the owner's
duty to pay the balance, has not been satisfied.
 R2C 237, comment (d)
 Avoided costs case
 Parker v. Twentieth Century-Fox Film Corp. (CA 1970)- female lead actress
in musical vs. in drama case
 D didn’t prove employment was comparable
 The measure of damages owed to a wrongfully discharged
employee is the amount of salary agreed upon for the period of
employment reduced by the amount the employer proves the

55
 employee has earned or with reasonable effort may have earned
from other employment.
 A wrongfully discharged employee is entitled to his lost salary, but
he must mitigate damages by seeking alternative employment.
However, he does not need to accept different or inferior
employment.
 The employer must show that the other employment was
comparable or substantially similar to that employment of which
the employee was deprived. The employee’s rejection of or failure
to seek a different or inferior kind of employment may not be
considered
 Probably not the majority rule
 Dissent: this is an issue for the jury to decide
 Avoided loss case
 Hadley v. Baxendale (England 1854)- P’s steam engine broke and they
tried to get a new one from D but it came late
 D is not liable to P from damages suffered by lost profit
 An injured party may recover those damages reasonably
considered to arise naturally from a breach of contract, or those
damages within the reasonable contemplation of the parties at
the time of contracting.
o * Encourages parties to bring up special circumstances at
formation so you can decide on ultimate price that makes
sense initially
 A non-breaching party is entitled damages arising naturally from
the breach itself or those that are in the reasonable
contemplation of the parties at the time of contracting.
 Foreseeability case
 Manouchehri v. Heim (NM 1997)- bad X-ray machine case
 P awarded direct and consequential damages
 Damages should represent the difference between the value of
the goods at the time of acceptance and value they should have
had if they had not been defective.
o Plus amount of money he lost waiting for machine to be
fixed
 UCC 2-715
 R2C 350 (and comment g) and 355
 Certainty case
 ESPN, Inc. v. Office of the Commissioner of Baseball (USDC SD NY 1999)-
ESPN didn’t air six baseball games and baseball sued for damages
believed to exceed millions of dollars
 P not awarded damages (P failed to make any requisite showing
of compensatory damages)

56
  Under New York law, a party seeking compensatory damages had
the burden of proof and should present to the court a proper
basis for ascertaining the specific damages it seeks to recover.
 Consequential damages: Loss is foreseeable, but not enough
evidence to show how much damages (must be foreseeable and
certain)
 In particular, damages for loss of goodwill, business reputation,
and future profits must be proven with reasonable certainty in
amount (higher standard)
 Certainty case
 R2C 350
 (1) Except as stated in Subsection (2), damages are not
recoverable for loss that the injured party could have avoided
without undue risk, burden or humiliation.
 (2) The injured party is not precluded from recovery by the rule
stated in Subsection (1) to the extent that he has made
reasonable but unsuccessful efforts to avoid loss.
 R2C 351
 Unforeseeability and related limitations on damages
 (1) Damages are not recoverable for loss that the party in breach
did not have reason to foresee as a probable result of the breach
when the contract was made.
 (2) Loss may be foreseeable as a probable result of a breach
because it follows from the breach
o (a) in the ordinary course of events, or
o (b) as a result of special circumstances, beyond the
ordinary course of events, that the party in breach had
reason to know
 (3) A court may limit damages for foreseeable loss by excluding
recovery for loss of profits, by allowing recovery only for loss
incurred in reliance, or otherwise if it concludes that in the
circumstances justice so requires in order to avoid
disproportionate compensation
o Reliance Damages
 Rule: reliance damages are used when you can’t prove expectation
damages or entered in losing contract
 This is the amount that can be recovered due to out-of-pocket expenses
for performance of the contract
 It cannot exceed the full contract price
 Reliance Damages = Expenditures – avoided loss (burden on breaching
party)
 It is often case that reliance damages are “second best” to expectancy.

57
  If expectancy can be established, this will usually benefit the non-
breaching party and it will be the preferred remedy.
 This is not always the case though. When non-breacher entered
into a losing contract, they may want to seek reliance damages.
 Start-ups: often better to argue for reliance damages
 The court will award reliance damages if it benefits the non-breaching
party more than expectancy.
 But the breaching party will have the opportunity to show that
the non-breacher was going to lose money on the contract and, if
the breacher can prove this, the court will reduce the reliance
award by the loss on the contract.
 Reliance damages cannot exceed the contract price
 Hollywood Fantasy Corp. v. Gabor (5th Circuit 1998)- D bailed on P’s
fantasy Hollywood package which led to P going out of business
 P awarded less damages (D liable because there was a binding
contract)
 Not enough information to award expectancy damages
 Money spent, if not enough to substantiate expectation damages
 R2C 349
 As an alternative to the measure of damages stated in § 347, the
injured party has a right to damages based on his reliance
interest, including expenditures made in preparation for
performance or in performance, less any loss that the party in
breach can prove with reasonable certainty the injured party
would have suffered had the contract been performed.
 Comment a: If the injured party's expenditures exceed the
contract price, it is clear that at least to the extent of the excess,
there would have been a loss. For this reason, recovery for
expenditures under the rule stated in this section may not exceed
the full contract price.
 R2C 352
 Damages are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty.
 UCC 2-714
 Buyer’s damages for breach in regard to accepted goods
 UCC 2-715
 Buyer’s incidental and consequential damages
o Restitution
 Restitution measures the value of the benefit conferred on the other
party and any unjust enrichment
 “Net benefit rule” from Britton has enormous viability still including in
construction services and independent contractor arrangements

58
 Money you may be entitled to as (1) reimbursement, or (2) even though
you breached or (3) even though there was never a contract
 Restitution damages can provide an appropriate measure of relief where
the injured party’s ability to recover is clouded or otherwise not feasible
 2 ways courts talk about restitution
 It can refer to a certain way of measuring a party’s damages in a
breach of contract case.
 It can refer to an equitable claim for recovery that is not based on
a contractual breach.
 Because restitution is an equitable remedy, courts will apply it in a
flexible manner, ensuring that it is only used to advance “fairness and
justice” (courts have a lot of discretion)
 This also means that it might be available, even if there isn’t an
actual contract
 Goal of restitution
 To give the non-breaching the party an amount equal to the
benefit their performance conferred to the breacher
 To disgorge any unjust enrichment (to either breaching or non-
breaching party)
 Sometimes a restitutionary calculation of damages will exceed the
contract price (if non-breaching party is seeking it)
 United States v. Algernon Blair, Inc. (4th Circuit 1973)- P rented cranes in
order to fulfill its contractual obligations, but D refused to pay for the
crane rental
 P awarded damages
 Recovery for quantum meruit is equal to the reasonable value of
performance and is not diminished by any loss that would have
been sustained by complete performance.
 The court found that precluding P from recovering would allow D
to be unjustly enriched
 Doesn’t matter if non-breaching party would have been at a loss
 R2C 371
 Can be measured (as justice requires) by (a) reasonable value to
the other party of what he received in terms of what it would
have cost him to obtain it from a person in the claimant's position,
or (b) the extent to which the other party's property has been
increased in value or his other interests advanced.
 R2C § 373
 (1) Subject to the rule stated in Subsection (2), on a breach by
non-performance that gives rise to a claim for damages for total
breach or on a repudiation, the injured party is entitled to
restitution for any benefit that he has conferred on the other
party by way of part performance or reliance.

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  (2) The injured party has no right to restitution if he has
performed all of his duties under the contract and no
performance by the other party remains due other than payment
of a definite sum of money for that performance.
 Governs how much non-breacher gets – amount of benefit
conferred and if contract is completed, must use
expectancy/reliance damages. Can exceed contract value non-
breacher
 R2C § 374
 (1) Subject to the rule stated in Subsection (2), if a party justifiably
refuses to perform on the ground that his remaining duties of
performance have been discharged by the other party's breach,
the party in breach is entitled to restitution for any benefit that he
has conferred by way of part performance or reliance in excess of
the loss that he has caused by his own breach.
 (2) to the extent that *** a party's performance is to be retained
in the case of breach, that party is not entitled to restitution if the
value of the performance as liquidated damages is reasonable in
the light of the anticipated or actual loss caused by the breach
and the difficulties of proof of loss.
 Governs how much breacher gets – can get amount of benefit
conferred minus any loss to non-breaching party. Cannot exceed
contract value for breacher

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