Chapter 1: Remedies for Breach: A.

The Expectations Damages Principle Holmess definition of common law duty to keep contract: prediction one must pay damages for not keeping. Translate as Expectations Damages Principle: - with a legally binding promise, one can either perform or pay damages - damages measured by amount of $ to make breachee indifferent to whether I perform or not. Enough $ to place breachee in same position as would have been if promised been performed and no more. - Rationale: forces party who thinks about breaching take into account others possible losses. Also normative claim that breacher should bear costs fr breach. Alternatives: Specific Performance: establishes starting point for negotiation. Reliance damages: putting breachee in same party he was before he received promise. Tort-like remedy. Lacks sharpness of expectation damages. Value of lost time and opportunities hard to monetize. Best proxy for lost opps and time is often expectancy damages. Reliance damages correctly measured often same recovery as expectation damages.

Rep case: Hawkins v. McGee guarantee statement + acts (solicitation, pressure, etc.) held to be a contract. Analogy to machine warranties. Damages held to be: difference between hand after operation versus perfect hand. Recuperation, pain & suffering, etc dont count. Valuation Problems: Key question for expectation damages not What did I promise to do? but What did I promise to deliver and how much is it worth? When goods are fungible & repairs are perfect, lower of cost of repair or of market value provides better measure. However, goods are often not fungible and subjective value (eg sentimental attachment to home) not visible.

Ceiling: cost of completion (cost of leveling land in Groves and Peevyhouse) b/c thats exactly what they ask for. Damages cannot be greater. Floor: Dimunition in value. b/c if they didnt care whether land were leveled or restored, could sell land to someone who did and get increase in value they bargain for. Rep Cases: Groves v. John Wunder Co.: Wunder breaches contract to remove all gravel fr property it leased fr Groves. Groves argues damages = cost of completion (>$60k). Trial court judgment = dimunition in market value of land ($12k). Appellate court holds correct measure = cost of completion contract entitled to compensation for what hed lost (work or structure hed been promised) and that he paid for, which he didnt get b/c contractors breach. BUT Peevyhouse v. Garland: P leased land to defendants for coal mining. Lease provided for D to fill in all pits & smooth surface at completion. D didnt. Cost of completion = $29k. Dimunition in value = $300. S.C. awarded $300. Held that primary purpose of contract was recovery of coal, and remedial work was incidental. Statute prohibited recovery in damages greater than wouldve gained fr full performance on both sides. why not other way around since: Groves a businessman so little subjective value to land while Peevyhouses live on farm, also Peevyhouses explicitly rejected offer earlier and insisted on restoration clause. Possibly restitution at work in Groves. Also possibly like specific performance: parties can bargain around gains fr breach. Groves in fact did not spend his award on restoring the land. Peevyhouses never in fact restored the land- but maybe they couldnt afford to, or restoration value > market value but < cost of restoration. In Peevyhouse, advantage of awarding this damage wouldve been: put incentives to bargain well in beginning. Coal company in best position to know cost of restoration. Information forcing rule, not expectation. Expectation Damages in Operation: Contract-Market Differential:

- When a market exists for a good or service, standard measure of damages = difference between contract price & market price + incidental expenses (ie costs to enter new contract). Acme Mills & Elevator Co. v. Johnson: Contract for wheat deliver. Market price at time of breach was less than contract price. Breach, but no damages. Illinois Central R.R. Co. v. Crail: Crail purchased carload of coal of X weight but missing some upon arrival. Had not resold any coal then. Shortage did not -> business losses. In this case, Wholesale rather than retail market held to be relevant market for measuring damages. Watt v. Nevada Central R.R. Co.: price difference of hay lost by fire but NOT the baling and transportation costs. Court reasons that since Watt did not actually buy replacement hay, wasnt really worth the cost of hay + transportation. Missouri Furnace Co. v. Cochran: P contracted w/ D to get coal delivered. D only delivered some. P contracted w/ another to deliver remainder. Court held that spot contracts on delivery ate minus original contract price as correct damages. BUT, reason for entering contract more certainty. Therefore, shouldnt correct measure be substitute futures contract price (minus original contract price)? (Prof. Baird and Roin think this case was wrongly decided) Anticipatory Breaches: when D renounces contract before performance is due. Also see UCC 2-712 & 2-713: if seller repudiates, buyers damages should be calculated re: market price at expiration of commercially reasonable time after buyer learned of breach. Differs fr common laws focus on time of performance. Indirect Measures Laurin v. DeCarolis Const.: P purchased some land fr D; D removed gravel fr property w/o Ps approval. Held: fair market value of gravel removed as damages, rather than dimunition in value. (Restitution at work, also? B/c purpose to deprive D of wrongfully made profits. Freund v. Washington Press: nominal damages for breach of agreement to publish b/c didnt ascertain Ps prospective royalties (also lost profits case) Lost Profits wholesale-retail differential: ceiling on sellers damages; differential represents incidental costs that seller faces in finding another buyer. But, seller may sell less than otherwise b/c consequences of breach are so big. Neri v. Retail Marine Corp: Neri contracts to buy boat from defendant, sends in deposit, but rescinds when needed operation -> cant afford boat. Boat had already been delivered to D by that time and was sold late for same price. P sues for deposit back. D argues that but for Ps breach, wouldve sold 2 boats and made 2 profits. Damages calculated re: UCC. Damages = lost profit + incidental expenses. Governed by UCC 2-718. But maybe he couldve only sold 2nd boat bc it was available. Shouldnt he get either lost profit of first sale (but no incidental

expenses) OR market differential (0 in this case) + incidental expenses? Court treats 2nd sale as independent fr 1st, but may well simply be substitute. Mindgames v. Western Publishing: contract required D to pay P 15% royalties on all games sold. P sues D for additional royalties claim wouldve gotten if D had carried out contractual promotion obligations. Court does not uphold claim; perhaps concerned w/ unknown / speculative profits, or saw lower sales of game after 1st year as evidence game wouldnt have made more $ anyway. Fera v. Village Plaza, Inc.: P signed 10 year lease for shop in Ds proposed shopping center. Ps space given to another tenant. D offers space thats rejected as unsuitable for P. P is awarded lost profits. Why?

Reliance as Proxy for Expectation Damages sometimes expectations damages difficult to measure (eg, lost profits measurement may be speculative) reliance damages as proxy. Traditionally, reliance damages only are for after contract has been signed. But, to better approximate expectancy damages, should also include precontractual expenses (wouldnt not including them mean were assuming he wouldve lost $?). Should also include opportunity costs of NOT having entered into another contract (but usually doesnt) Reliance damages = expectancy damages if calculated perfectly. Reliance damages = expenses + profit = gross receipts expenses + expenses; gross receipts = expected profit + expenses.

Problems: difficulty of measurement (a promise can induce subtle changes in behavior, etc. all of which can be reliance); giving promisee bad incentive to incur too many costs; giving promisor bad incentives -> more broken promises since courts usually underestimate real reliance costs (for instance, reliance usually doesnt include Chicago Coliseum Club v. Dempsey: Dempsey breached a contract to fight for a fight promoted by CCC. P sued for lost profits + incurred expenses but court did not award lost profits b/c too speculative. Court did not try to get at all reliance costs. Only awarded expenses incurred re: Dempsey fight after contract was signed. Didnt measure opportunity costs nor precontractual costs). Prof. Roin: this is a terribly undercompensatory decision. L. Albert & Son v. Armstrong Rubber Co.: action for recovery of price of rubber refiners. Sellers delivered 2. Buyers refused to accept all four b/c delivery of 2 was delayed. Buyer does not claim loss of profit but claims expenses it incurred in reliance upon sellers promise. that breachee will break even is good baseline but its only a baseline. Breacher can show it wouldve been a losing deal for promisee. Court is

not convinced promisee wouldve profited. Does not want to make promisor the insurer for promisee. Emphasizes expectation damages as core principle. Therefore, breachee entitled to recover for cost of rubber foundations used to prepare for performance, but subject to promisors privilege to offset how much promise wouldve lost if contract had been performed. Anglia TV v. Reed: precontractual expenses awarded when an actor breaches contract to act in TV production.

Mitigation & Foreseeability Mitigation duty as way to fix for overreliance problem. Since some breaches are inevitable or desirable, dont want breachee to pretend breach didnt happen. If I tell you to stop building a bridge, you need to stop, and seek out other jobs. What counts as mitigation? Expectancy as limit on reliance? Furthermore, want parties to take into account possibility of default- to take proper precautions. Rockingham County v. Luten Bridge Co.: P was awarded contract to build bridge but contract rescinded. P may sue for recovery of lost profits & losses that have occurred already as result of breach, but NOT for further work on bridge (changes in circumstances may lead to reason for breach) But two conflicting town boards; P did not know which was the legitimate board the one that rescinded or the people who tell him to keep going. Kearsarge Computer, Inc. v. Acme Staple Co.: if P spent certain amount to work on contract which cannot be rescinded when contract breached (eg, if P had hired workforce for X time), entitled to damages for those costs. Reasoning like Neri (2 profits instead of 1). Parker v. Twentieth Century-Fox Film Corp: D contracted w/ P to perform in Bloomer Girl. D dedcied not to go ahead w/ BG and breached contract w/ P; offered P in lead role in another movie. P refuses and sues for recovery of agreed guaranteed compensation. D claims P has duty to mitigate by accepting alternative offer. Court holds mitigation duty only when other employment was comparable or substantially similar. Other movie was different and inferior, therefore no mitigation duty. Perhaps worried if ruled the other way, production companoiies would bait & switch (offer X one kind of role, then cancel and offer alternate). Also, was option contract: pay her guaranteed amount whether or not to make a movie. Essentially company bargained to give P paid vacation. Foreseeability: Hadley v. Baxendale: no liability for consequential damages fr breach unless reasonably foreseeable

Once party communicates special needs, then other party becomes responsible for all damages flowing fr breach. (but maybe communication = more than just telling) Victoria Laundry Ltd. v. Newman Industry: P can recover for loss of business profits when large laundry boiler delivery unduly delayed. Under 1st rule of Hadley, considered engineering company that made laundry boiler to have normal knowledge of importance of boiler loss of business is foreseeable. Globe Refining Co. v. Landa Cotton Oil Co.: Holmess tacit agreement test mere notice is not enough. (Need bargained for exchange for special circumstance??) o Lamkins v. Interntaional Harvester Co.: seller could not have tacitly consented to damages for loss of entire crop for failure to deliver small lighting accessory. Wouldve otherwise asked for greater consideration @ time of contract. o Prutch v. Ford Motor Co.: Based on 2-715(a) of UCC. Ford liable crop damages when it delivered defective tractor to farmer. D in using tractor after finding out defect was fulfilling mitigation duty b/c alternative was to not harvest at all. o Lamkins court: special circumstances while Prutch court: reasonably foreseeable. Maybe also court thought Lamkins didnt mitigate or disproportionate damages, and best provider of info on value of light. Justifications: sensible way to allocate risks b/w parties. Default rule of what most parties want most of time; others can bargain around. penalty default a stick to force one party to convey info. Limitations on damages unique to contract law (unlike tort laws thin skull doctrine) b/c contract parties voluntary and have opportunity to discuss unusual conditions before entering contract. Rules hard to apply: whats reasonably foreseeable or normal? What damages were contemplated for special circumstances at time of contract? What are disproportionate damages?

Restitution as Alternative to Expectation Damages quantum meruit action / unjust enrichment. Damages recoverable when P has conferred a benefit on D, and P has sustained a loss. Measured by reasonable value of performance (Restatement 347) Not a contractual claim (can exist when contract doesnt). Theory: I gave him something, not as a gift, and he has to return it.

Some cases look like reliance but framed as restitution. Eg: Building remodeling cases; court argues D unjustly enriched or benefited fr changes fr buildings they dont buy benefit of extra info. Restitutution & expectancy can conflict. Expectancy usually greater than restitution except: Failed contract (so no expectancy remedy b/c no contract under law) United States v. Algernon: subcontractor stopped work b/c prime contractors breach. Recovery in quantum meruit for value of labor & equipment already furnished pursuant to contract, b/c Blair benefited fr subcontractors provision of labor & equipment. Breach of losing contract (breachee wouldve lost $ if contractd been completed) Should expectancy be ceiling when its alternative for restitution? Restitution as floor on expectation damages. Oliver v. Campbell: P divorce lawyer for D; D dismissed P after judgment was signaled but not signed. P can only recover balance of contract price, rather than the (higher) reasonable value ofservices. P had in effect performed and limited to contract price. Breacher suing (eg, if theyve partially performed. See Neri) Stark v. Parker: no recovery. P & D entered contract where P would perform services for D and would be paid a certain sum for a year of work. P quit Ds employ w/o cause and w/o Ds consent. Sued for quantum meruit, but The money was to be paid in compensation not as a consideration for an engagement to serve. Where reasonable excuse, law allows recovery, but here no excuse. Britton v. Turner: recovery. Similar situation as Parker. UCC remedies for defaulting buyer closer to Britton rule

Liquidated Damages & Penalty Clauses liquidated damages acceptance when they are a reasonable forecast (but difficult to measure) or reasonable approximation of actual damages. Common law does not allow for damages greater than expectation damages. b/c sometimes breach is efficient, and penalty -> promisee to get promisor to breach. However, courts may systematically underestimate true expectation damages; penalty clause way of signaling quality (were so good we have a penalty clause cuz we know we wont have to pay) Under existing law, can get around penalty clause problem by drafting contract differently: draft contract w/ low price but high bonus for performance by a set date. Ban on penalty clause favors well-established firms w/ good reputations. Also may lead to other bonding mechanisms or hostage giving. Penalties are NOT enforceable under contract. Reasons for penalty: unusually sensitive to breach; punishment; difficulty in quantifying damages.

Reasons for unenforceability: 1) contract breach remedies to make party whole, not to punish; allow for efficient breaches. Approaches to liquidated damages: Common law (Muldoon): damages hard to measure + amount reasonable in light of anticipated or actual damages Restatement: damages must be reasonable in light of actual damages; dfficulty of proof; unreasonably large are unenforceable as penalty UCC: Amount must be reasonable: in light of anticipated or actual loss; difficulties of proof of loss; inconvenience or infeasibility of other remedies; unreasonably large damages void as penalty Rep cases: Muldoon v. Lynch: funerary monument case. Contract provided for $10/ day damages if late; construction was delayed b/c marble was shipped late. Clauses purpose b/c hard to demonstrate a financial loss (emotional damage can be real, but courts ignore that b/c theres no market for it). Like Peevyhouse in that damage is not financial. Seems perfect for liquidated damages. Does clause provide for liquidated damages or penalty? Court holds that it is a penalty: contract referred to damages as forfeiture and no indicate defendant as suffered any actual damage which can be measured or compensated by money.Maybe court took into acct that contract was not canceled for the 2 yr delay (instead of finding another contractor but maybe company was stringing her along) Massman Constr. Co. v. City Council of Greenville, Miss. (5th Cir. 1945): bridge constructed late but no actual damage b/c road that needed to be built for bridge to be used finished even later. City claims liquidated damages ($250/ day of delay * # of days). Court held provision unenforceableb/c city didnt suffer actual damages (court seemed to reinterpret damage clause as coming into play when delay in traffic) Samson Sales, Inc. v. Honeywell, Inc.: negligence on Ds part (security company) -> robbery -?> loss of $60k. D argued contract stated D not Ps insurer and only would pay $50. Court held for P; $50 not reasonable in light of actual/ anticipated damages AND easy to prove actual damages.

Specific Performance good: if breaches usually do not make sense, damages hard to measure, and if negotiations relatively easy. Bad: if breaching often a good idea, renegotiations are hard, and courts have trouble compelling performance. Specific performance regime: giving promisee full value of promise, not simply its value in promisees hands. Common law courts did not award specific performance, but Chancellor could so order. Today, sp still routinely available in land sales transactions. Most commonly arise when expectation damages very hard to measure, eg unique goods or services b/c courts likely to undervalue promise, or when damages very hard to collect.

Some output contracts. See Curtice Brothers v. Catts (urgent demand for tomatoes. Making farmers produce tomatoes rather than pay damages). Possibly hard to get tomatoes elsewhere even if spot market. BUT maybe also to prevent cheating (farmer sells more than his whole crop when price is low and much less when its high). Negative injunctions when enjoined person possesses special, nonfungible talent. See Lumley v. Wagner: opera singer enjoined fr performing at rivals opera house. Wagner also probably doesnt have enough $ to pay for lost profits. Some covenants not to compete also enforced, alt usually not. Protecting intellectual property such as trade secrets.

Chapter 2: Domain of Legally Enforceable Promises Background: - one set of cases, restitution based: benefit conferred on another + others promise to pay = enforceable promise. Benefit conferred falls just short of what would support traditional restitution claim in absence of promise. Boothe v. Fitzpatrick: defendants promise to pay for pas keeping of bull enough to allow recovery Mills v. Wyman: court declined to allow action against father for past care bestowed on adult son. But b/c son is adult, no restitution claim against father to begin with. - Principal concern of 19th Century contract theorists was not w/ restitution cases. Bargained-for Consideration: Langdell and Holmes: contract (legally enforceable promise) could not exist in absence of bargain and a sufficient consideration. Performance or return promise that is bargained for Bargained for = sought by promisor in exchange for his promise + given by promisee in exchange for promise performance may be an act or forbearance from act Holmes: consideration is given and accepted as the motive or inducement for furnishing the consideration the relation of reciprocal conventional inducement, each for the other, between consideration and promise. Relative value doesnt matter. Just give me something or incur a detriment in exchange for promise Something done in past cant be consideration: cant be bargained for if already done (initial action or forebearance is gift). If court allows past consideration to be treated as consideration to enforce promise, would allow gifts to retroactively be made into bargains. Pros to consideration theory: Roughly sorts out promises intended to be legally enforceable from those that arent

Insistence on bargained-for exchange introduces formal element (versus just IDing intent). Formalisms advantages: Evidentiary function (may make it marginally easier to figure out after the fact whether someone intended to be legally bound) Channeling function: parties know fr existence of exchange that its legally enforceable and can lead their lives accordingly Cautionary function: parties forced to think carefully before entering legally enforceable obligation b/c promise is enforceable only if given in conscious exchange for something else. Cons of consideration theory: Lacks hard edges of good formal rule: o How to separate promise subject to condition (Ill buy you a Porsche if you go down to the store and pick it up) from bargained-for exchange (Ill buy you a Porsche if you mow my lawn)? o Judges can find consideration anywhere. See DiCicco v. Schwizer: fathers promise to pay annuity to daughter & fianc on ground that they went ahead and married (detriment b/c they had legal duty to not marry) o Judges can also fail to find consideration when parties engaging in formal ritual good rule should induce. See Fischer v. Union Trust: Fathers promise to pay mortgage on a property for daughter unenforceable b/c not a real bargain, just mimicks form of one. Many problems arise fr use of bargained-for exchange as a formal rule, rather than bargained-for exchange as a concept.

Rep cases: Kadimah Toras-Moshe v. DeLeo: decedent promised to give $25k to congregation. Congregation planned to use $ to change storage room to library named after descendent. Died intestate survived by wife. Promise unenforceable due to lack of consideration or reliance. Consideration= legal benefit to promisor or deteriment to promisee. o Hope or expectation not enough to constitute consideration or reliance. Pitts v. McGraw-Edison Co.: P retired and had sold Ds products on commission basis. No employment contract. After P left Ds company D continued to give him 1% commission on all sales for five years. P sued for breach of retirement contract. Sought to show negotiations leading to retirement were offer by D for exchange of customer records for 1% commission on all sales w/I territory. P wasnt required to do anything- voluntarily handed over customer records. Customer records were just a gift. Payments by D just gratuities. Possibly Pitts and DeLeo were not enforced bc not written down (so hard to prove).

Hamer v. Sidway: uncle promises nephew $5k in return for quitting smoking, gambling and drinking until 21. uncle dies before money is paid. Everyone agrees that if gift promise, unenforceable Court holds consideration b/c: Uncles psychological benefit Nephews reliance. Nephews not smoking, etc. is legal detriment b/c he refrained fr his legal right to engage in those behaviors. o Consideration = something bargained for thats not already a legal requirement. Bargain was for actual behavior. Not just promise of it. Webb v. McGowin: Webb prevents McGowin fr being injured but Webb was disabled. McGowin promises to pay Webb $ for rest of Webbs life. But when M dies, doesnt leave M in will. W sues executive of estate. Court holds enforceable contract b/w M & W b/c M received material benefit and subsequent promise is equivalent to having made bargain beforehand. (Does this jive w/ past consideration ban?)

Promissory Estoppel & Reliance: early 20th century attempt to expand legally enforceable promises domains to include those that induced reasonable reliance. Mere reliance not enough. Liability triggered only if reasonable reliance on a promise -> reliance damages rather than expectation damages b/c nature of injury is tortlike. Part performance doctrine: when vendor has performed in part. Reliance by vendee. Gifts can be enforced under this. Requires transfer of possession AND improvement (which do not have to be requested by vendor) -> inducing reliance by vendee. Seavey v. Drake: son sues executor of fathers estate for land made as a gift. No consideration. Not written down (as required by Statute of Frauds). However, hes made improvements to the land, and transfer of possession was good indication gift was real. (part performance by vendor in that he transfers it) Playing with consideration doctrine: Allegheny College v. National Chautauqua County Bank: Mary Kate Johnston pledged $5k while she died, gave $1k while alive but then repudiated promise. Court finds fictitious consideration in desire to be memorialized after death. Promissory estoppel dicta: part of fake consideration. Need reasonable reliance by promisee on promise. But did college have reliance? (they hadnt made any announcements since not enough $ for a scholarship) Siegel v. Spear: reliance by Siegel on Spears agents offer to get insurance. When Siegels furniture burned in fire and was not insured, D claimed was gift promise w/o consideration. Court held consideration was in turning furniture over (but thats a free bailor, not bargain)

Equitable Estoppel: prevents D from pleading certain defenses (eg, no consideration). Based on fraud or misrepresentation. 90 Restatement. Promise Reasonably Inducing Action or Forbearance promissory estoppel: prevents D from pleading certain defenses. Based on reliance. Not necessarily applied to contracts. First Natl Bank of Logansport v. Logan Mfg. Co: No loan contract b/c terms not yet set, no mutuality (P never promised to take out loan, so bank should also be free to walk out). However, court applies PE b/c investors put themselves in substantially worse position relying on loan officers promise that bank would lend $ since no contract, reliance damages awarded rather than expectancy damages. problems with doctrine: none of virtues of formal rule & undercuts formal aspects of law (eg how to make contracts in writing when one can just say one relied on promise) Many promises made seriously that would foreseeably induce reliance not necessarily intended to be legally enforceable.

Precontractual Negotiations & Reliance: acceptance of offer required before theres a contract to enforce. Offer & acceptance: fulfills cautionary function: fulfills channeling (b/c we want parties to get together and agree rather than assume assumptions of offers) Gimbel Bros and Drennan almost same facts but reach opposite results. Subcontractor bids on contract ad general contractor uses bid to make own bid. Subcontractor however has made a mistake. General contractor now already committed to building at fixed price. Can subcontractor revoke original bid after general contractor has relied on it? 19th century formalism would have allowed subcontractor to revoke offer any time before offer was accepted. Never a bargain and no consideration. Also, general contractor was never bound to use subcontractor. Drennan: promissory estoppel invoked to find liability. Implied promise to hold offer open for reaosnable period fr subcontractors submission of bid and its desire general contractor would rely on it. Reasonable reliance as touchstone. Llewellyn: tend to look for legal obligation by exploring trade custom. reasonable reliance on commercial norms. Contemporary scholars: but commercial norms are different from legal obligations. Modern cases sometimes also use promissory estoppel to give relief when a negotiating party has incurred significant expenses when a party has

strung another along, or when actions (even in good faith) cause other party to change position to her detriment. E.g. Goodman v. Dicker, Red Owl Reliance damages rather than expectation damages, b/c recovery for injury done and restoration to status quo. Reliance and expectations damages good proxies each used in first instance b/c theory leads us there. These cases also use real reliance versus the undercompensatory formalistic reliance damages in true contract cases such as Dempsey.

Review for Winter Quarter: Exchanges can be governed by tort & property law. Why do we need contract law? Contract law for promises: for future exchanges. Why? b/c: to ensure the goods availability, to ensure the current price (what if demand increases? Or supply decreases), etc? To ensure more productive exchanges (for instance, buyer can increase his production plant to make a good more useful). But seller can always hold out for a higher price if buyer spends in reliance (and thus has a higher value). Next time, buyer wont make the investment (and wont engage in contract). Contract law solves the holdup problem, leading to increased transactions, leading to increased social welfare. Why not enforce all promises? - parties dont have full information; want to be sure of mutual assent; fairness; formality (many administrative concerns underlie this). Formalities: What constitutes an enforceable contract that one can recover damages for? FIRST, promise (can be implied by law or by conduct, does not have to be explicit) THEN, consideration - not absolutely necessary (for example, no consideration but reliance -> promissory estoppel -> reliance damages (and occasionally expectation damages), or past benefit -> quantum merum-> restitution). Gift promises usually not enforceable, except to charities. THEN sufficiently definite promise & consideration (not too vague, not illusory) THEN Statute of Frauds- some have to be in writing THEN whether theres a breach THEN remedy (first see if liquidated damages If gaps then either expectation/reliance/restitution damages or specific performance) Spring Quarter Contracts

Seller gives Buyer X in exchange for $. Contract law is basically about cooperation. 1) Mutual Assent 2) Substantive fairness (both parties have to be made better off) 3) Administrability (how to administer contracts to achieve 1) and 2)) a. Formal/informal b. Rules/standards I. Forming Contracts (Chapter 3) 1. How to interpret statements/ actions 2. when is agreement reached? (offer/acceptance doctrine) 3. what needs to be content of offer/acceptance? 4. sequence problem. Interpreting Contracts (Chapter 4) 1. Interpreting terms (2nd part of chapter) 2. writings (1st part of chapter) Policing Bargains (chapter 5) 1. incompetency/ infancy 2. fraud/ misrepresentation 3. mistake usually mutual, but sometimes even unilateral 4. impossibility/ impracticability 5. undue influence/ duress/ consideration (legal duty) 6. unconscionability

II. III.

Chapter 3: When (and How) Promises Become Enforceable Section 1: Mutual Assent When is there an actual agreement? Subjective test: meeting of minds (consensus ad idem): both parties must have the same understanding in mind for there to be an agreement that constitutes a contract. Rep cases:Raffles v. Wickelhaus (or Peerless rule; Court of Exchequer 1864): not having the same ship called Peerless in mind -> ambiguity -> no meeting of minds -> no contract. Analogize to wine from two different estates with same name. Flower City Painting Contractors v. Gumina Constr. Co. (2d Cir. 1979): no contract b/c subcontractor and general contractor did not have same understanding of whether apartment unit encompasses interior and exterior walls. General contractor relied on customary usage; subcontractor was new to the biz & didnt know custom. Modifications to subjective test:

1) Fault: See Konic Intl Corp. v. Spokane Computer Services (no contract when both parties equally at fault for misunderstanding contract term fifty-six twenty as $5620 or $56.20); Colfax Envelope Corp. v. Local No. 458-3M, Chicago Graphic Communications Intl Union (7th Cir. 1994): no sensible basis for choosing between conflicting understandings 2) Duty to inform: See Dickey v. Hurd (Hurd should have said something when he understands Dickey didnt understand same thing) See how cases fit with Restatement, Second: Section 20: Effects of Misunderstanding (p. 303): - No Contract when neither party knows or should know others meaning OR when each party knows or should know. (when neither or both at fault) - Contract when: when one party only knows one meaning or has no reason to know of any other, and other party knows of 1st partys ignorance or should know. Objective test: manifestations of behavior that reasonable person would take to mean intent to be bound. Rep cases: Embry v. Hargadine, McKittrick Dry Goods Co. (MO Ct. App. 1907): Contract b/c Ds actions & words would be understood by reasonable person as assent to contract. Objective test still factors in subjective belief, when subjective behavior affects behavior, which reasonable person may take as indication of assent or not. See Kabil Developments Corp. v. Mignot (OR 1977; whether Ps belief in whether theres contract for helicopter services fr D counts b/c may affect behavior that reasonable person can gauge for agreement)

####Robbins v. Lynch: Intent is a conclusion rather than a fact.This sense of intent denotes agreement between the parties and is not a license to allow undisclosed intent to dominate. [subjectivity or objectivity?]###### BUT pockets of subjectivity. Form of words not enough to satisfy objective test. Just a presumption. See NY Trust Co. v. Island Oil & Transport Co. (Sham contract b/w two parties to loophole tax law)

Objective tests purpose is to incentivize people to be clearer so others wont rely to their detriment. Subjectivity in cases that do not fulfill objective tests purpose. Wheeler v. White: Wheeler relied on Whites promise of a loan, razed building. Wants to estop White fr pleading no contract. However, reasonable person wouldnt intend to be bound by such vague document- just negotiating terms. But, Wheelers reliance may be reasonable: court may think reasonable person sees why White wants to be bound but wants contracts in general to be less vague. Therefore, Estoppel (which only gives reliance) upheld. Not expectation (lost profits). Reliance: value of old buildings (& cost of demolishing? no b/c he wouldve demolished for other development anyway?). Prof. Whittier (p.307): inconsistency in these cases. Maybe courts really doing torts but fitting in contract theory. Promissory estoppel a tort-like theory. Section 2: Offer and Acceptance Step 1: Is there an offer? Step 2: is there an acceptance? Definition (fr Calamari) offer: - Restatement (2nd) 24: a manifestation of willingness to enter into a bargain so made as to justify another person in understanding thatassent to that bargain is invited and will conclude it. o Notice, NOT necessarily a promise. Includes executed sale or barter where no promise is made. (e.g., A says to B, my car in your possession is yours if you pay me $4k) - An offer empowers offeree to create contract by accepting offer. Definition (fr Calamari) acceptance: UCC 2206(1)(a), declares: Unless otherwise unambiguously indicated by language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances[.] Restatement 2nd has tracked UCC. Usually, acceptance requires knowledge of offer + manifest an intent to accept it. Performance = acceptance of offer in unilateral contract Promise = acceptance of offer in bilateral contract

What an offer is NOT - negotiating terms: Moulton v. Kershaw: notice to offer Michigan fine salt to be shipped at this price it is a bargain held to be just ad and not an offer. Did not use language conferring offer to sell. Would intro too much uncertainty if offer. - Inquiries. Will you see me your property for $50k? (Calamari, p. 36) - Statements of intention, hopes and desires and estimates (Im going to sell my car for $450) (Calamari, p. 35) - Letters of intent - Advertisements (nationally advertised at $440, today only at $250) o BUT SEE Lefkowitz v. Great Minneapolis Surplus Store (1 Black Lapin Stole, Beautiful, Woth $139.50$1.00 FIRST COME FIRST SERVED. P was first @ store and gave $1. Offer here. PROMISE: FIRST COME FIRST SERVED as promissory words QUANTITY: one. What an acceptance is NOT - Petterson v. Pattberg: until an act requested by offeror is performed, no contract. But what counts as that act? o Majority: act is the payment. So not accepting payment = not accepting offer. o Dissent: offer to pay (with present ability and manifest intention to bringing the money to the person) = act. Restatement of Contracts, Second Section 63: Time When Acceptance Takes Effect - acceptance as soon as medium for acceptance out of offerees possession (even if it never reaches offeror) (see Morrison v. Thoelke) - but, a acceptance under option contract only when received by offeror (see Kibler v. Caplis) Option Contract Created by Part Performance or Tender Restatement 45 1) where offer invites offeree to accept by a performance and does not invite a promissory acceptance, creates option contract when offeree begins the invited performance a. comment: must be part of the actual performace invited to preclude revocation. Mere preparations for performance not enough. 2) offerors duty to perform conditioned on completion of invited performance by offers terms Carlill v. Carbolic Smoke Ball Co: Ds ad promising 100 to anyone who uses ball for 2 weeks and still gets flu ACCEPTED when someone actually does use it & fulfills its conditions - not mere puff but rather a binding promise. (court seems to focus on companys 1000 held in bank for such eventual payment) - no prior notice of acceptance needed; continuing offer

o notice of acceptance at same time of performance consideration: ad -> more sales/ inconvenience of use by P.

Cobaugh v. Klick-Lewis,Inc.: P a golf player, saw a car and sign indicating someone will win a car when they make a hole in one. D claims car was for previous attorney. But, held that D made binding offer that P accepted. - not a contingent gift b/c consideration exists. Benefit = publicity for D. Detriment = Ps putting the ball. - Not mutual mistake b/c P did not have reason to believe prize was only intended for earlier tourney - Focuses on objective manifestation of intent, discounts what companys subjective intent may have been. - Business reasons as evidence that companys making offer for unilateral contract (option contract?) Unknown offers: when someone turns in someone wanted by law enforcement but didnt know there was an award, cant have accepted reward offer b/c impossible to accept an offer that one doesnt know existence of. acceptance of offer through acceptance. See o Allied Steel & Conveyers, Inc. v. Ford Motor Co.: performing contract by delivery of goods is one way of accepting indemnity contract. Acknowledgment by signed purchase order held to be suggested but not exclusive means of acceptance. o Brackenbury v. Hodgkin: Performance of offer (care for mom, then inherit house) enough to show acceptance of offer, no need to say I accept. Unilateral contract which requires acceptance of offer, but not a reciprocal promise (as bilateral contract would). no offer acceptance through simply saying we accept. o Davis v. Jacoby: Whiteheads letter an offer: if Davis cares for him & wife, would gain property after his death. Issue: whether actual performance or letting promising performance counts as acceptance of offer. Whitehead dies before Daviss actual performance in caring for his wife. Turns on distinction b/w unilateral and bitlateral contract: D argues unilateral contract: offer revoked upon offerors death P argues biteral contract: assurance (the bargained for promise) is what counts. o Court holds that it is a bilateral contract. Evidence: closeness of relationship & Whiteheads confidence in Davis; Whiteheads need for assurance from tone of letter; ask for care of BOTH Mr. & Mrs. Whitehead (thus contemplating he may die before Mrs.) Restatement 45 (applies to offer to enter unilateral contract) & 62 (applies tooffer to enter either unilateral or bilateral contract) o For 62, beginning of performance = acceptance of offer. 45 leaves offeror more vulnerable than does 62. b/c 62 conditioned on where an offer invites an offerree to choose between acceptance by promise and acceptance by performance

Firm offers or option contracts o Restatement & UCC: when firm offer/ option in writing, no need for consideration. Common business practice and reduces transaction costs. o Dickinson v. Dodd: seller originally offers to keep offer open for 10 days. Then he sells it after couple of days. Buyer knew. When buyer knows seller has sold to others before expiration period, sufficient notice of revocation of offer. Limited & Indefinite Promises o In a bilateral contract: two promises, both enforceable (a promise for a promise is a detriment, and can only be a deteriment if other is enforceable). o Davis v. General Foods: when is a promise enough for consideration, and when is it so ambiguous that it doesnt count? P sent in recipe, but D stated theyd accept it only if compensation solely w/I their discretion. Held: no contract b/c its an illusory promise (too indefinite) o Obering v. Swain-Roach Lumbering Co: heirs agree w/ lumber co to buy land fr lumber co (if lumber co buys land of decedent) while lumber co reserves right to remove timber. Lumber co does no have to buy land. Unilateral contract with acceptance of offer at auction. So heirs need to make reasonable effort to buy the land. if you do X (buy land at auction), I will do Y (give you the timber). o Wood v. Lucy, Lady Duff-Gordon: Court holds bilateral contract where Lady Duff-Gordon grants Wood exclusive permission to market her design while Wood would give her half profits (Court holds an implied return promise is that Wood would use reasonable efforts to get business) But, isnt this really option contract? Lucy cant practically bind Wood since profits would be speculative so she cant recover. o Omni Group v. Seattle-First Natl Bank: Not illusory promise when condition for land sale includes whether feasibility study is satisfactory. Implicit requirement of good faith in determining satisfaction. Although subjective standard, evidence of whether land is satisfactory inferable from engineers report & similar developments. o Feld v. Henry S. Levy & Sons: inverse of requirement contract (where seller is required to sell whatever amount buyer needs). An output contract where buyer is required to buy whatever seller produces. But seller wants a higher price and shuts down crumb making machine. Held: contract is NOT void for lack of mutuality b/c its not ambiguous. Seller has to make best efforts to produce -> good faith as per UCC 2306. o Corenswet v. Amana Refrigeration: no good faith req b/c contract provides for termination at any time for any reason w/ 10 days notice. Good faith does not override explicit terms. o Sun Printing v. Remington: no contract b/c indefinite agreement. An open price AND open duration are too indefinite. Contract had agreed on prices up till December, but set to negotiate on future prices. If theyd only left prices open, would be fine.

But are prices and duration really indefinite? o Can look to past transactions and use same period as they did before when renegotiating terms. o Canadian Export Paper Co.s price set as ceiling in contract o Since contract specified renegotiation, need to renegotiate in good faith. Whether a preliminary agreement (agreement in principle or letter of intent) is binding o Judges dont like magic words, so term Letter of intent not dispositive. 3 types of preliminary agreements: Fully binding preliminary agreement: when parties agree on all points that require negotiation (including whether to be bound) but agree to memorialize agreement in more formal document. Binding preliminary commitment: when parties have agreed on major terms but leave other terms open to negotiations. Does not bind them to eventual contract, but to obligation theyd negotiate in good faith to reach that contract. Proposals: not intended to be binding, and therefore neither party has obligation to negotiate further. o Empro v. Ball-Co: No contract b/c too many subject to conditions that are including but not limited to various conditions. Agreement had agreed on price & assets, but subject to shareholder/ directors approval -> hadnt really agreed to anything Just a letter of intent intention to reach a deal but havent yet.

II. Interpreting Contracts (Chapter 4) i. Interpreting terms (2nd part of chapter) - virtually all cases deal with contractual interpretation. - Value of default rules in maximizing value of contracts by reducing transaction costs in writing & reading long contracts. o Real contracts usually not complete. Often have general language that covers contingencies thr default rules applied by courts. - Tension b/w literalist and purposivist judges. See Spaulding v. Morse. Latter are more willing to allow extrinsic evidence. - Plain meaning rule w/I four corners of document. o WWW Associates v. Giancontier: court does not allow extrinsic evidence in proving whether merger clause & cancellation clause are meant for only buyers benefit. If ambiguity, then look at extrinsic evidence. If meaning already clear, then plain meaning of contract governs. o Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.: Court holds that extrinsic evidence is required to establish context for meaning of words, since words need context to have meaning. D wants to offer evidence that an indemnity clause only refers to property damage to 3rd parties. o Frigaliment v. BNS: modern courts tend to advance interpretations to enforce contract rather than void it. Dispute as to what chicken means (young chicken,

or any?) Look to: 1) consistent usage of word w/I contract (presumption, not disposition); 2) trade usage; 3) regulations ; 4) market price (why would seller greater weight of chickens for smaller total $ in same order?). D wins bc P has burden of proof and is not covered, since meaning is ambiguous. Try to figure out parties ex ante intention. Or, imaginative reconstruction what they wouldve wanted trade usage and custom as guides. Mirror image rule: acceptance of offer is when its on same terms as offer is made. o Livingston v. Evans: Mirror image rule measured by what reasonable person would think terms mean. In this case, held to be renewal of original offer. Seller offers to sell land for $1800. Offeree asks if can send lowest cash price and give $1600. Seller says cant reduce price. Buyer accepts original offer. But seller has already sold the land. Whether or not contract is breached depends on whose interpretation of sellers 2nd statement is accepted. Seller: rejection of counter-offer. Buyer: rejection of counter-offer but also renewal of original offer. o Court holds for buyer b/c: sellers 2nd statement refers to 1st price. Court seems to think the meaning is clear. Battle of the forms: when standardized forms of buyer and seller conflict with each other. o Richardson v. Union Carbide Indus. Gases: battle of forms resolved under UCC rather than under mirror image rule. Indemnity and merger clauses conflict. UCC 2-207: more relaxed than common law, allows for more fluid business relationships but loses some predictability. 2-207(3): knockout rule conflicting clauses cancel each other out. Then apply gap-filling measures. If under mirror image rule? Then last shot last offer that is accepted would win. Use of product can count as acceptance of offer rather than purchase of it. o ProCD v. Zeidenberg: ProCD compiled 3k of phone directory listings into a CD. License inside rather than on outside of box: commercial use higher price. License limits consumer users to personal use. Zeidenberg bought consumer version and sold info separately. Accepted (but ignored) license <- breach of contract. Arbitrage problem if no contract. Consumer who buys at lower price can sell to commercial users for less than ProCD does. Zeidenberg argues his acceptance was only of terms on the box, not inside. Court rejects Zeidenbergs argument. In any case, box gives him notice subject to license inside box. Z had option to reject offer by returning product. Volunteering versus contracting o Martin v. Little, Brown &Co: Martin is held to have volunteered info to Little, Brown in pting out plagiarism in book. His original letter offering to point out plagiarism doesnt mention he wanted to be paid.

o Collins v. Lewis: Implied-in-fact contract. P found Ds cows, tried giving them back but D wouldnt take them then b/c not enough time. P maintained cows, let D know and let D know hes going to seek compensation. D then sold cows. P claimed unjust enrichment if D didnt compensate. Also, P might be liable if he released the cows b/c he was the deputy sheriff. ii. writings (1st part of chapter) Statute of Frauds: certain kinds of contracts have to be in writing to be enforceable: real estate, service contracts > 1 yr; sale of goods of over X amount (for UCC, >$500). Policy reason: to prevent fraud against court. Parol evidence rule: common-law principle that writing intended by parties to be final embodiment of agreement cannot be modified by evidence of earlier or contemporaneous agreements that would change agreement (usually to prevent party fr introducing negotiating terms) o PER comes into play whenever contracts are in writing, which is broader than the class of contracts covered by S/F. Exceptions to PER (ie to allow PER): 1) collateral to main agreement; 2) cannot contradict express or implied provision of written contract; 3) parties would not have expected it to be in writing. o See Mitchell v. Lath: removal of ice house. Court holds that 3) not fulfilled, possibly 2) not fulfilled. PER applies. o But see Hatley v. Stafford: PE allowed to show buy-out period for a land contract has expired. Duration term in contract was omitted- need to explicitly state if meant to be indefinite. Also indefinite =/= most natural reading b/c land w/ wheat was worth MUCH more than land w/o (but couldnt that have been built into price?) Court takes into account insophistication of both parties (contract was handwritten, no counsel) o Hoffman v. Chapman: mutual mistake also allows for exception to PER. Deed writer accidentally conveyed entire land to buyer but seller only meant to sell part of it. If both parties make a fundamental mistake about contract, court will rescind or reform it. PER wouldve banned evidence showing mutual mistake b/c it was during negotiation stage Restatement 209: Integrated Agreements (& 216(2)): o Is there an integration? (contract is complete) o Integration or merger clause: e.g., no terms of agreement outside writing almost always leads to barring parol evidence. Concern with general versus specific merger clause. Concern that general language -> less attention b/c boilerplate. But, Easterbrook pts out boilerplate is useful; -> predictability. Reduce transaction costs (of fighting out each negotiation pt). But only useful if consistently enforced. o Courts will ask is it a complete or partial integration, or not integration at all?

Complete integration: 213(2): all PE w/I scope of transaction is excluded (eg no real estate related evidence will be accepted for real estate transaction) Partial integration 216(1): only inconsistent PE excluded. o Also see UCCs parol evidence rule on p. 411. o Rep cases: Long Island Trust v. International Inst.: parol evidence allowed b/c its condition precedent. Could have avoided outcome by writing in contract unconditional guarantee. Bank lends $ to II, but only if guaranteed. Guarantors orally agreed to guarantee if all five sign. II defaults. LI sues. Lipsit v. Leonard: oral agreement that P would get equity interest if he came to work for D. Writing refers to this but as could be profit-sharing, etc. Oral agreement barred as PE under breach of contract claim, but comes in under fraud or misrepresentation (-> inducement to work for D). Why dont people always sue under fraud tort claim? remedy less generous (just out of pocket reliance) and harder to prove (would need to prove promise and that promisor had no intention to keep it) LaFazia v. Howe: Merger clauses usually will -> PER but merger clause not dispositive on fraud claim. Court holds that in this case, merger clause precludes D from asserting misrepresentation by P. D purchased store frm P; claimed P misrepresented profitability. D then breached contract. Contract had disclaimer and merger clauses, that: buyer relied on own judgment; seller hadnt represented anything re profits; entirety of agreement. D had made several payments before breaching (court sees promptness as a factor in whether to grant rescission).

III. Policing Bargains (chapter 5) i. incompetency/ infancy incompetency and infancy voidable contracts. When one reaches age of majority or is competent, one can affirm the contract made while a minor or while incompetent. o Infancy doctrine: one way. Minors can get contracts enforced. But cant enforce contracts against minors. Does same hold for incompetency? remedy for incompetency/ infancy: rescission (or disaffirmance) of contract. Contracts with minors are enforceable when providing necessities. (dont want to disincentivize people from entering contracts w/

minors when minors need the services/ goods): See Webster Street Partnership v. Sheridan Restitution not required when minor rescinds contract only need to return what one has rather than what hed received. See Halbman v. Lemke Expansion from traditional narrow incompetence doctrine: motivational counts as well as cognitive (eg, clinical depression -> impaired ability to make decisions. See Ortelere v. Teachers Retirement Bd.) Undue influence through excessive pressure + undue suspectibility can also be grounds for rescission for incompetence. See Odorizzi v. Bloomfield School Dist. He understood the contract (resign and we wont publicize your troubles) but he was too weak to resist had just been interrogated and didnt get sleep for 40 hrs; 2 people badgering him.

i. fraud/ misrepresentation usually, misrepresentation/ fraud must be active. o No duty to disclose to strangers, usually. See Laidlaw v. Organ o BUT, duty to disclose to people in confidential relationships. See Jackson v. Seymour. Non-disclosure can -> constructive fraud: 3 factors: price so inadequate that it shocks the conscience; confidential relationship (family? Friendship? Fiduciary? + reliance on advice) o Cushman v. Kirby: Mr. Kirby had duty to correct Mrs. Kirbys misrepresentation when he was in front of her and knew she was misrepresenting to home buyer (that water was hard and treatable rather than sulfur-water and untreatable) However, not necessarily a duty to disclose. Buyer had duty to inspect if no disclosure. BUT no duty to inspect in this case b/c seller had lied. Remedy: seller argues for repair of system. Buyer for dimunition in value. Court holds for buyer. Expectancy damages. If this were a warranty case, duty to disclose water isnt perfectly good, and remedy wouldve been repair since its reasonable alternative to dimunition in value. o Eytan v. Bach: P buys a painting he thinks is expensive original fr D. D did not have duty to disclose it was a reproduction b/c cheap price of paintings was notice they were reproductions rather than expensive originals. Also, seller did not expressly represent whether paintings were original or reproductions, and D didnt have reason to know P thought they were really valuable. ii. mistake/ warranty a. Mistake Doctrine Usually, mutual mistake doctrine b/c then there isnt mutual benefit in facilitating these doctrines. o Must be about material aspect of bargain. o See Sherwood v. Walker: contract for sale of cow not enforced because of mutual mistake as to material fact (neither party thought cow was fertile and at least

one party thought could never be fertile- when it was pregnant therefore cow was sold for beef value rather than breeding value) Sometimes, unilateral mistakes: o mistake of fact (remediable) versus mistake of judgment (non-remediable) whether mistake is honest and non-negligent whether other side had notice of mistake mistake has to be substantial party not significantly harmed by rescission (alt this encourages opportunistic re-negotiations) (does same doctrine apply for mutual mistake?) o Elsinore v. Kastorff: D miscalculated bid, finds out and tells P his mistake. Clerical error. Allowed to rescind contract on unilateral mistake. Remedy for mistake: rescission of contract OR enforcement as if no mistake occurred. o Buyers usually better off thr protection of warranty or thr duty to disclose by seller o Seller occasionally remedy thr mutual or unilateral mistake Why is law kinder to buyers than to sellers? o Buyers usually dont have a duty to disclose (but still cant lie) b/c dont want to discourage investment in finding info o Maybe sellers usually have more info about what theyre selling (eg theyve lived on their property that theyre selling) b. Warranties: Remedy for warranty breach: expectancy damages. Enforcing contract rather than rescinding it. o Under UCC, one has option of either damages or rescission Express warranty (UCC 2-213): affirmation of a fact made by seller that becomes part of basis for bargain. Tribe v. Peterson: a gentle horse thats never bucked before bucks. o why not sue under unilateral mistake? mistake of judgment not fact (b/c gentle horse = opinion) o also, want to recovery expectancy damages and get $ for new horse + injury for wrist o Court holds: 1) no express warranty horse wont buck; 2) even if express warranty (of horse being gentle), not breached by horses bucking. Hinson v. Jefferson: P bought house that D had restrictive covenants on, but found later couldnt use it for such purpose bc cant build septic tank. o First theory: mutual mistake Court does not hold so. Too much uncertainty about whether land sales will be final. Analogous to mistake of judgment (as to whats best use of land) o Second theory: implied warranty Not express since D had not said land was suitable for septic tank Analogizes to UCC 2-314. Common law applies b/c land use, not sale of goods, but uses UCC as persuasive precedent Ordinary consumers, not sophisticated parties.

Implied warranties can be waived. Mutual mistake cant be. Breach of implied warranty held here. Because restrictive covenants limit the land use Disclosures unknown and cannot be reasonably discovered by grantee Johnson v. Healy: warranty applies to builder, but not necessarily to seller whod bought the house fr someone else, b/c consumer seller doesnt have as much access to info as builder-seller does o Maybe worried about over-remedy b/c value of repair is much greater than value of new building i. impossibility/ impracticability impossibility alone not enough. ALSO requires unforeceability and not w/I contemplation of either party. Changed circumstances that justify nonperformance. Rep cases: o Taylor v. Caldwell: music hall burning down excuses breach of contract (which was to provide a music hall for performances) o BUT Tompkins v. Dudley: builder liable bc guaranteed completed building. Assigned risk to promisor bc bore risk of materials and implicitly bore risk of completion. Incentivizes taking precautions. Builder is on the ground and can better assess situation. o BUT Kel Kim v. Central Market: Ps inability to get insurance not held as impossibility. Maybe b/cKel Kim in beter position to know if theyd get insurance. (Kel Kim rents space in Central Market for skating rink, and store insists on KK getting insurance) o American Trading v. Shell: since contract did not explicitly state only one route, then cannot charge for going by another route even though cheapest route impossible to access. o frustration of purpose doctrine: Restatement 265: after contract made, partys principal purpose substantially frustrated without his fault b/c of event the non-occurrence of which is basic assumption when contract made. No longer required to fulfill rest of contract, unless language or circumstances indicate otherwise. Krell v. Henry: D rents room fr P to watch coronation but coronation cancelled due to kings illness. P sues for breach of contract b/c D doesnt pay balance. D not really impossibility bc not impossible to pay (which is the performance asked). Court holds for D b/c owner in better position to insure against loss (if coronation held later, can rent later) Chase Precast Corp. v. John J. Paonessa Co.: is frustration of purpose/ commercial impracticability a defense when theres a cancellation clause built into contract? Yes, b/c cancellation clause only goes to foreseeability of small cancellations.

ii. undue influence/ duress/ consideration (legal duty) Duress: o Wrongful threat o No other recourse o No adequate legal remedy o Also see Restatement 175: no reasonable alternative. o Goes to bargaining process. o Rep cases: Austin Instrument, Inc. v. Loral Corp: Seller: Austin. Buyer: Loral. L contracts w/ navy, subcontracts w/ A for parts during Vietnam War. A refuses to deliver remainder of 1st contracts part if L does not agree to give it monopoly for 2nd contract (w/ increased prices applying retroactively and prospectively). L tried to find alternative suppliers but couldnt, therefore agrees. Held: 2nd contract is void for economic duress. Remedy= return of increased price. Embola v. Tuppela: Tuppela asked for $50 to get to AK to fight for his gold claims, promises $10k payment. Contract is valid. Batsakis v. Demotsis: plaintiffs financial distress -> acceptance of a small loan with a large repayment promise =/= duress. Legal Duty (consideration) aka pre-existing duty o Goes to substance of contract o Renegotiation of a contract when there is already legal duty or pre-existing duty = 2nd contract void b/c no new consideration. o Restatement 89: if non-anticipated changes in circumstances, then price can be renegotiated. o Rep cases: Alaska Packers Assn v. Domenico: sailors go on strike ad demand higher wages than originally contracted. Court holds that 2nd contract for higher wages is void b/c sailors merely agreeing to do what they were already obligated to (no new consideration). Levine v. Blumenthal: D cannot pay increased rent b/c of Depression. D claims a second oral argument modified original contract so that D could pay same rent. Court agrees w P that there is no additional consideration for 2nd agreement. Therefore, 1st contract is to be enforced. Denney v. Reppert: employees of bank not entitled to reward money for helping apprehend robbers b/c already had duty to capture robbers (w/I scope of their employment). Police officer who arrested robbers while outside his jurisdiction, however, had no pre-existing legal duty, and therefore is entitled to reward. Prof. Posner argues that scope of employment should be read narrowly & that this case is nonsense.

iii. unconscionability / Good Faith unconscionability o goes to defect in bargaining process in whch one party would be made worse off after contract. o Unequal bargaining power + degree of sophistication o Procedural unconscionability: Imperfect information Unequal bargaining power (lack of choice) Harsh tactics Unfair surprise (most important factor. Increasing transaction costs when firms trick people, b/c other firms cant use peoples expectations) o Substantive unconscionability: REALLY unequal consideration Oppressive terms o Courts unclear about whether P&S both required. Maybe sliding scale. o Typically in commercial transactions (franchisee-franchisor) o Remedy is rescission of contract or term o Regulations & statutes have mostly replaced work of unconscionability doctrine o Rep cases: Henningsen v. Bloomfield Motors: Ds disclaimer waiving right to sue for personal damages for injury due to defective product is unconscionable b/c 1) unequal bargaining power (form was standard across auto industry and dealer wasnt authorized to change it); 2) lack of sophistication (Buyer didnt understand what they were contracting away; reasonable persons understanding may not think it means covering personal injuries). Duty to read doesnt apply here b/c contract isnt enforceable. Richards v. Richards: disclaimer (had to be signed for Mrs. R to ride w/ Mr. R @ job) is invalid b/c 1) lack of sophistication: two purposes on form not clearly distinguished (passenger authorization & disclaimer); 2) unequal bargaining power: a) too broad & all-inclusive; b) standardized agreement- little bargaining power. Broemmer v. Abortion Services of Phoenix: arbitration agreement @ abortion clinic invalid b/c 1) weak bargaining position (time constraint, emotional turmoil); 2) lack of sophistication (language not clear). Not w/I her reasonable expectations. Woollums v. Horsley: court wont rescind contract, but wont enforce it thr specific performance, either (Ie, remedy will be damages) Buyer was sophisticated businessman. Sellers was unsophisticated and ill, didnt know value of his land as well as buyer did. o Unconscionability at that time only protected against SP, not against damages o Court was probably concerned w/ substantive inequality & gap b/w parties sophistication o Maybe also figured local jury would be sympathetic to Woollums

Waters v. Min Ltd: Contract for sale of annuity to D for its value is invalid. Very strong grounds for substantive inequality: like giving a dollar for a quarter) Also, b/c of confidential relationship P was influenced by her bf. Case by case analysis (always looking at bargaining process & substantive inequality) Williams v. Walker-Thomas Furniture Co: cross-collateral contract (adding to total debt rather than item by item). Unconscionable. Court seems to be paternalistic: P knew D didnt have much $ but sold her expensive stereo anyway. Bargaining process (form contract, no attempt @ explaining) + substantive inequality (maybe b/c of whats at stake and b/c of insophistication, making it different from ordinary store credit) Brower v. Gateway 2000: arbitration clause. procedural and substantive unconscionability: substantive component enough to make contract term unenforceable. In this case, lack of choice re: arbitration forum & excessive cost of litigating (initial fixed cost > most claims would be worth). Not procedural unconscionable since no unfair surprise (alt court may see some procedural problem in that an arbitration clause lulls consumer into thinking problems will be easily resolved)

good faith o implicit duty in all contracts to deal in good faith. Discourages sharp dealing. o Good faith is about performance of contract. Remedy is NOT rescission as under unconscionability. Market Street Associates Ltd Partnership v. Frey: MSA did not breach good faith duty simply by not telling GE of buyback clause. Need more evidence to be produced thr trial. Both parties are sophisticated. GE should have read the contract instead of act surprised. Sheets v. Teddys Frosted Foods: (under Scrutiny of Limited Commitment): Sheets is inspector for Teddys; tells Teddys its not meeting regulatory standards. Teddys fires Sheets. Held: exception to at will when violate public policy (Here, committing crime vs getting fired & public welfare concerns)