CONTRACTS OUTLINE

Frug, Fall 2007

Introduction
What Proi!"! Should th" La# En$orc"% Th" &octrin" o$ Con!id"ration
1. Donative Promises, Form, and Reliance..........................................................................................................2
a. Simple Donative Promises.................................................................................................................3
b. The Element of Form.........................................................................................................................4
c. The Element of Reliance....................................................................................................................
2. The !ar"ain Principle and #ts $imits................................................................................................................%
a. The !ar"ain Principle........................................................................................................................%
i. &neven !ar"ains..................................................................................................................'
ii. D(ress..................................................................................................................................'
b. &nconscionabilit)............................................................................................................................1*
c. The Problem of +(t(alit)................................................................................................................12
i. ,onditional Promises.........................................................................................................12
ii. #ll(sor) Promises...............................................................................................................12
iii. #mplied Promises...............................................................................................................13
d. Performance of $e"al D(t) as ,onsideration- +odification and .aiver of ,ontract(al D(ties. . .14
i. $e"al D(t) R(le.................................................................................................................14
ii. +odification......................................................................................................................1/
iii. 0ccord and Satisfaction ....................................................................................................1%
iv. .aiver................................................................................................................................1'
3. Past ,onsideration..........................................................................................................................................1'
4. The $imits of ,ontract...................................................................................................................................2*
R""di"! $or 'r"ach o$ Contract
. 0n #ntrod(ction to ,ontract Dama"es............................................................................................................22
/. The E1pectation +eas(re...............................................................................................................................24
a. Dama"es for !reach of a ,ontract to Perform Services..................................................................24
i. !reach b) the Person .ho 2as ,ontracted to Perform Services......................................24
ii. !reach b) the Person .ho 2as ,ontracted to 2ave Services Performed.........................2%
b. Dama"es for !reach of a ,ontract for the Sale of 3oods................................................................2'
i. !reach b) the Seller...........................................................................................................2'
ii. !reach b) the !()er..........................................................................................................3*
c. +iti"ation- ,ontracts for Emplo)ment............................................................................................32
d. Foreseeabilit) ..................................................................................................................................3
e. ,ertaint)...........................................................................................................................................3%
f. Dama"es for +ental Distress...........................................................................................................3'
". $i4(idated Dama"es........................................................................................................................4*
%. Specific Performance.....................................................................................................................................42
'. The Reliance and Restit(tion +eas(res.........................................................................................................4
a. Reliance Dama"es in a !ar"ain ,onte1t..........................................................................................4/
b. The Restit(tion +eas(re..................................................................................................................4%
i. Restit(tionar) Dama"es for !reach of ,ontract................................................................4%
ii. Restit(tion in Favor of 5 in Defa(lt..................................................................................46
A!!"nt
6. 0n #ntrod(ction to #nterpretation...................................................................................................................1
a. S(b7ective and 8b7ective Elements in the Principles of #nterpretation in ,ontract $a9................1
b. Problems of #nterpretin" P(rposive $an"(a"e.................................................................................4
c. The R(le of Trade &sa"e, ,o(rse of Dealin", and ,o(rse of Performance in #nterpretation.........
1*. The +echanics of !ar"ain :#;<8ffer and Revocation.................................................................................%
a. .hat ,onstit(tes an 8ffer................................................................................................................%
b. Termination of the 8fferee=s Po9er of 0cceptance> $apse, Re7ection, ,o(nteroffer......................6
c. Termination of the 8fferee=s Po9er of 0cceptance> Revocation...................................................../*
11. The +echanics of !ar"ain :##;<Transactin" at a Distance........................................................................../2
12. The +echanics of a !ar"ain :###;<+odes of 0cceptance............................................................................/3
a. Silence as 0cceptance....................................................................................................................../4
b. 0cceptance b) Electronic 0"ent....................................................................................................../
13. #mplied?in?$a9 and #mplied?in?Fact ,ontracts- &nilateral ,ontracts Revisited.........................................../
14. Preliminar) @e"otiations, #ndefiniteness, and the D(t) to @e"otiate in 3ood Faith...................................../'
a. #ndefiniteness.................................................................................................................................../'
b. Preliminar) @e"otiations and the D(t) to !ar"ain in 3ood Faith :liabilit) before contract;.........%1
1. The Parol Evidence R(le and the #nterpretation of .ritten ,ontracts...........................................................%3
a. The Parol Evidence R(le..................................................................................................................%3
b. The #nterpretation of .ritten ,ontracts...........................................................................................%%
c. Trade &sa"e, ,o(rse of Performance, and ,o(rse of Dealin" as Part of a .ritten ,ontract..........'*
For Contract!
1%. #nterpretation and &nconscionabilit) in a Form ,ontract Settin".................................................................'2
(i!ta)" and Un"*+"ct"d Circu!tanc"!
1'. +istaAe...........................................................................................................................................................'4
a. &nilateral +istaAes..........................................................................................................................'4
b. +istaAes in Transcription- Reformation..........................................................................................'/
c. +(t(al +istaAes...............................................................................................................................'/
d. @ondisclos(re...................................................................................................................................'6
16. The Effect of &ne1pected ,irc(mstances......................................................................................................61
Pro,l"! o$ P"r$oranc"
22. The 8bli"ation to Perform in 3ood Faith......................................................................................................6%
23. The Doctrine of S(bstantial Performance....................................................................................................1**
a. The 3eneral Principle....................................................................................................................1**
b. ,ontracts for the Sale of 3oods.....................................................................................................1*2
24. E1press ,onditions.......................................................................................................................................1*4
a. #ntrod(ction....................................................................................................................................1*4
b. The Distinction !et9een the 8perations of a Promise and the 8perations of a ,ondition...........1*4
c. ,onditions Precedent and ,onditions S(bse4(ent.........................................................................1*
d. Problems of #nterpretation in Distin"(ishin" !et9een ,onditions and Promises.........................1*
e. ,onditions of ,ooperation- Prevention- #mplication of a Promise from an E1press ,ondition....1*/
f. E1c(se from a ,ondition................................................................................................................1*/
2. !reach and Response....................................................................................................................................1*'
a. The 8rder of Performance.............................................................................................................1*'
b. 0bilit) to Perform..........................................................................................................................1*6
c. +aterial !reach> Fail(re of Performance b) 8ne Part) as an E1c(se for @onperformance b) the
8ther...............................................................................................................................................11*
2/. 0nticipator) !reach, Prospective #nabilit) to Perform, and 0de4(ate 0ss(rances of Performance............112
a. 0nticipator) !reach ......................................................................................................................112
b. Prospective #nabilit) to Perform and 0de4(ate 0ss(rances of Performance.................................114
INTRO&UCTION
Four 'a!ic Ar"a! o$ Contract La#
.hat promises sho(ld the la9 enforceB C The doctrine of consideration
Remedies for breach of contract
0ssent C 2o9 contracts are formed
Performance
E$$"cti-" L"gal Argu"nt
&nderstand that an) iss(e can be ar"(ed from both sides
Elements of an ar"(ment>
o The la9 is on m) side
o D0nd it=s a "ood thin", too :ar"(ments of 7(stification;
This is important beca(se both sides 9ill sho9 ho9 the la9 is on their side
ar"(ments of 7(stification sho9 9h) it=s sensible to hold in )o(r favor
Thr"" T.+"! o$ Argu"nt! o$ /u!ti$ication
Fairn"!!
o 0ppeal to c(lt(ral mores, e4(itable principles, etc.
Con!"0u"ntiali!t
o Effect that one r(le or another 9ill have on societ)
Rol" o$ th" court!
o #s this the t)pe of iss(e on 9hich the co(rts sho(ld r(leB .hat impact 9ill r(lin"
one 9a) or another have on the co(rts= role in societ), and is that effect
appropriateB
1
I1 What Proi!"! Should th" La# En$orc"% 2
Th" &octrin" o$ Con!id"ration 3RS 4756708
Thr"" alt"rnati-" an!#"r! to thi! 0u"!tion
Con!id"ration<the la9 sho(ld enforce bar"ains b(t not other9ise
o .hat 9e mean b) consideration is Ebar"ainF
o 0s lon" as it=s a bar"ain it=s EconsiderationF<doesn=t matter if there=s not
e4(ivalenc) in val(e
o !) definition, a "ift is not a bar"ain
o EG(sticeF is not relevant
For<if an a"reement=s in the EformF it=s enforceable, other9ise not
o #f there=s a seal the promise is enforceable, other9ise not :this no lon"er applies
toda);
o EG(sticeF is not relevant
R"lianc"9if one part) has relied on the promise in some reasonable 9a) it=s
enforceable, other9ise not
o @o bar"ain or partic(lar form re4(ired
o EG(sticeF is relevant
51 &onati-" Proi!"!, For, and R"lianc"
Contract d"$in"d 3RS 458
,ontract> 0 promise or set of promises for the breach of 9hich the la9 "ives a remed), or
the performance of 9hich the la9 in some 9a) reco"niHes as a d(t)
E,ontractF applies to those remedies 9hich have le"al effect
R"0uir""nt o$ a ,argain 3RS 4578
Formation of a contract re4(ires a bar"ain in 9hich there is>
o 0 manifestation of m(t(al assent to the e1chan"e, and
o 0 consideration
Th" conc"+t o$ con!id"ration
!road conception>
o ,onsideration is simpl) a collective term for the 9hole set of elements that maAe
promises le"all) enforceable
@arro9 conception :RS I%1;
o ,onsideration is e4(ated 9ith the sin"le element of bar"ain :bargain theory of
consideration;
2
To 4(alif) as consideration, the act or promise m(st constit(te some le"al
detriment to the promisee- other9ise, it 9ill be simpl) nominal or ill(sor).
o &nder classical contract la9 the basic fa(lt line in consideration ran at the
bo(ndar) bet9een bar"ain promises and "rat(ito(s promises, since "rat(ito(s
promises 9ere per se (nenforceable.
R"0uir""nt o$ "*chang": T.+"! o$ "*chang" 3RS 4758
To constit(te consideration, a performance or ret(rn promise m(st be bar"ained for, that
is, so("ht b) the promisor in e1chan"e for his promise and "iven b) the promisee in
e1chan"e for that promise :bargain theory of consideration;
,onsideration can be>
o 0n act other than a promise
o 0 forbearance
o The creation, modification, or destr(ction of a le"al relation
,onsideration ind(ces the maAin" of the promise, and promise ind(ces the f(rnishin" of
the consideration
Ad"0uac. o$ con!id"ration: utualit. o$ o,ligation 3RS 4778
#f the re4(irement of consideration is met<that is, if there=s a bar"ain<there is no
additional re4(irement of>
o 0 "ain or benefit to the promisor or loss or disadvanta"e to the promisee,
o E4(ivalenc) in val(es e1chan"ed :tho("h "ross differences in val(e ma) indicate
the consideration 9as not in fact bar"ained?for, b(t 9as instead a EshamF;
o +(t(alit) of obli"ation
515 Si+l" &onati-" Proi!"!
0 simple donative promise is one that is made for affective reasons<love, friendship,
etc.<that is>
o @ot cast in a form to 9hich contract la9 "ives si"nificance, and
o 2as not been demonstrabl) relied (pon
Simple donative promises are "enerall) (nenforceable, e1cept in certain sit(ations
:reliance, form, etc.;
o Dougherty v. Salt, N1;1 Ct1 o$ A++l!1, 5757 3+1 <8
0(nt Tillie "ave ,harlie a J3,*** promissor) note
0(nt Tillie died and her estate ref(sed to pa), so ,harlie s(ed
,o(rt held that the note 9as p(rel) vol(ntar) and th(s an (nenforceable
promise of an e1ec(tor) "ift. The bo) 9as not a creditor, nor 9as the a(nt
pa)in" a debt. Rather, she 9as conferrin" a bo(nt). #n other 9ords, there
9as no consideration on the part of the bo)
3ift promises are generally (nenforceable if the) lacA consideration
'"n"$icial r"lianc"
3
Reliance on a promise that increases the val(e of the promise
E."., 9hen a promoter, rel)in" on a promise b) a m(sic "ro(p to pla) a concert in t9o
months, advertises the concert, increasin" "ate receipts
Conditional donati-" +roi!"!
#n a conditional donative promise, the parties vie9 the condition as a necessar) means to
maAe the "ift, not as the price of the "ift
o E."., parent pa)in" for the child=s car provided the car the child selects is less than
J1,***
#f, ho9ever, the parties vie9 the condition as the price of the "ift, then it=s a conditional
bar"ain and th(s enforceable
o E."., Fr(" b()in" Ellie a t?shirt if Ellie 9ill meet him at the t?shirt shop in
2arvard S4(are
Argu"nt= >i$t Proi!"! Should Not '" En$orc"a,l"
Fairness C reach of s(ch a promise does not dama"e promisee, 9ho promised nothin" in
ret(rn- also "ift promises made at emotionall) char"ed moments, and so don=t reflect tr(e
9ill of promisor. Sit(ations ma) also chan"e
,onse4(entialist C 9ho 9ants a 9orld in 9hich ever) promise made m(st be enforcedB
Promisor needs abilit) in s(ch circ(mstances to chan"e mind. People 9ill be more
rel(ctant to maAe promises so less "iftin"
Role of ,o(rts C overload co(rt if forced to enforce ever) promise made- also,
evidentiar) problems of provin" 9hether s(ch a promise 9as made at all
Argu"nt= >i$t Proi!"! Should '" En$orc"a,l"
Fairness C (nfair to promisor 9ho cannot maAe le"all) bindin" promise- "oes a"ainst free
9ill. #t=s a(nt Tillie=s 9ish to "ive ,harlie the mone). ,harlie 9as co(ntin" on it
,onse4(entialist C people sho(ld be able to rel) on promises, re"ardless of consideration,
etc., 9o(ld c(t do9n on empt) promises, etc.
Role of ,o(rts C 9ho are the co(rt=s to sa) that there is no consideration of a Aind, that
promisor did not "et somethin" :reco"nition, "ratit(de; in ret(rn for the donative
promiseB 0(nt Tillie didn=t Ano9 the correct form to (se so maAin" ever)one have
access to this le"al Ano9led"e 9ill "reatl) increase the comple1it) of iss(e and role of
la9)ers
512 Th" El""nt o$ For
0 donative promise can be enforceable if in proper form :9ill, tr(st, inter vivos transfer,
seal;
Reasons for rel)in" on form to determine enforceabilit)>
o Evidentiar) :correct form provides proof that a promise 9as made;-
o ,a(tionar) :compl)in" 9ith form ca(tions people that promise is le"all)
enforceable;-
o ,hannelin" :helps co(rt determine 9hat promises sho(ld be enforced;-
4
o Deterrence :helps prevent rash contractsKinade4(ate consideration;
@ominal consideration (s(all) not bindin" :form b(t not s(bstance of a bar"ain;
o @arro9 e1ception to "eneral r(le that co(rt does not looA at ade4(ac) of
consideration
o 0 transaction is said to have nominal consideration 9hen it has the form of a
bar"ain, b(t not the substance of a bar"ain :beca(se the promisor did not vie9
9hat he "ot as the price of his bar"ain;
RS re4(ires a bar"ain in fact rather than in form in order for it to be
enforceable :bar"ain in form onl) is mere pretense;
o Schell v. Nell, Su+1 Ct1 o$ IN, 5?<5 3+15@8
Schnell promised three "ifts in amo(nt of J2** in consideration for 1 cent,
then failed to pa)
,o(rt held that, 9hile the inade4(ac) of consideration 9ill not normall)
vitiate an a"reement, in this case the pa)ment 1 cent in ret(rn for three
"ifts of J2** 9as Emerel) nominal, and intended to be soF
Deceased 9ife=s love and aid in ac4(irin" the J/** 9ere past
considerations and th(s not relevant
2ad 1 cent been almost an)thin" non?monetar) it liAel) 9o(ld have
co(nted
,ontracts based on nominal consideration are not normall) enforceable
Argu"nt= Noinal Con!id"ration Should Not '" En$orc"a,l" 3Su,!tanc" o-"r For8=
!ar"ain m(st be a bar"ain in fact rather than 7(st in form C 7(stice, etc.
+(st be patentl) inade4(ate to be nominal C does not effect the vast ma7orit) of contracts
Argu"nt Noinal Con!id"ration Should '" En$orc"a,l" 3For o-"r Su,!tanc"8=
.o(ld maAe consideration doctrine easier to appl)
@ominal consideration is an effective replacement for the abandoned device of the seal
@ot the role of the co(rts to determine the ade4(ac) of consideration
51A Th" El""nt o$ R"lianc"
Kirksey v. Kirksey, AL Su+1Ct1, 5?@B 3+12@8
o !rother?in?la9 sa)s to 5, E#f )o( come do9n and see me #=ll "ive )o( some of m)
landF
o 5 abandons her o9n land and travels /* miles to live 9ith brother?in?la9
o 0fter t9o )ears brother?in?la9 tells 5 to leave
o Holding> the ho(se 9as a "ift, so no consideration and therefore no enforcement
o Dissent sa)s the /*?mile trip 9as consideration
o Toda), RS I6* 9o(ld hold for 5 beca(se she relied on brother?in?la9=s promise
Th" r"lianc" +rinci+l" 3RS 4708

0 promise the promisor sho(ld r"a!ona,l. "*+"ct to ind(ce action or forbearance

:reliance; on the part of the promisee and 9hich does ind(ce some action or forbearance
is bindin" :enforceable; if in7(stice can be avoided only b) enforcement of s(ch promise
:promissory estoppel ;
o #.e., promise is bindin" if promisee has relied on promise :and promisor sho(ld
reasonabl) e1pect promisee 9o(ld rel) on promise;
o Reasonableness of reliance is important
o Relief in s(ch sit(ation, ho9ever, ma) be limited to dama"es meas(red b) e1tent
of the reliance rather than the terms of the promise
Feinberg v. Pfeiffer Co., (O Ct1 o$ A++"al!, 57B7 3+1278
o 0fter man) )ears of 5 9orAin" for L, L promised 5 a pension after she retired
o M soon retired
o L paid pension benefits for seven )ears, then stopped
o Holding> that 5 relied on L=s pension promise in choosin" to retire 9hen she did,
so the promise 9as enforceable 7(stice requires L to contin(e pa)in" 5 pension
benefits
o 0 promise b) an emplo)er to pa) pension benefits to an emplo)ee is enforceable
(nder RS I6* if the emplo)ee, in reliance on that promise, 4(its her 7ob
5 relied (pon pension in decidin" to retire 9hen she co(ld have
conceivabl) contin(ed 9orAin" C 9o(ld not have had the f(nds to retire
other9ise
Promise not enforceable if one looAs onl) to the bar"ain theor) C no
consideration
o Potential problem<9o(ld this allo9 emplo)er=s to rep(diate (nrelied?on pension
promisesB
Hayes v. Plantation Steel Co1, F"d1 &i!trict Ct1 o$ RI, 57?2 3+1A@8
o M anno(nced his retirement from L
o 0 9eeA before 5 9as to retire, L promised to EtaAe careF of 5
o 0fter 5 retired L made several )ears of pa)ments to 5, b(t then stopped
o Holding> 5 anno(nced his retirement before L promised to pa) pension benefits,
so L=s pension promise did not ind(ce 5 to 4(it his 7ob. Therefore, L=s promise to
pa) pension benefits does meet the re4(irements of RS I6* :promissor) estoppel;
o 0 promise b) an emplo)er to pa) pension benefits to an emplo)ee is not
enforceable if that promise to pa) is not 9hat ind(ces the emplo)ee to 4(it his 7ob
Cats v. Danny Dare 3not in ,oo)8
o M 9orAs for L for man) )ears
o M in7(red protectin" store from robber, can no lon"er 9orA
o L promises 5 a pension<is the promise enforceableB
o 0ccordin" to Feinber", no, beca(se 5 9as in7(red before the promise 9as made, 5
co(ld not possible have relied on the promise in actin" as he did
E!to++"l in +ai! 3"0uita,l" "!to++"l8 and +roi!!or. "!to++"l
E!to++"l in +ai! :e4(itable estoppel;
/
o #f 0 maAes a false statement of fact to ! and ! has reasonabl) and foreseeabl)
relied on that statement, 0 is prevented :EestoppedF; from den)in" the tr(th of
that statement in co(rt
o E1g1, Griswold v. Haven 3+12<8
Ford needs mone)- .ri"ht o9ns a 9areho(se
.ri"ht sa)s to a lender, EFord has "rain in m) 9areho(seF
$ender lends Ford mone) (nder idea that sec(rit) 9o(ld be Ford=s "rain in
.ri"ht=s 9areho(se :lender relies on .ri"ht=s statement that Ford had
"rain in the 9areho(se;
Ford defa(lts, lender s(es .ri"ht for conversion of the "rain .ri"ht said
Ford had in the 9areho(se
.ri"ht prevented at trial from sa)in" Ford didn=t have "rain in the
9areho(se for p(rpose of trial Ford did have "rain in the 9areho(se
:e1istence of "rain established as a fact for p(rposes of the trial;
Proi!!or. E!to++"l :RS I6*;
o 0 promise 9hich the promisor sho(ld reasonabl) e1pect to ind(ce action or
forbearance of a definite and s(bstantial character on the part of the promisee and
9hich does ind(ce s(ch action or forbearance is bindin" if in7(stice can be
avoided onl) b) enforcement of the promise
o #n s(ch a case, the promisee=s reliance is treated either as consideration or as a
s(bstit(te for consideration
Argu"nt $or R"lianc"=
Fairness C prevents in7(stice C a person sho(ldn=t be in7(red for 7(stifiabl) rel)in" on
another=s promise, 9hich 9as then broAen
,onse4(entialist C it 9ill maAe people thinA t9ice abo(t maAin" K breachin" promises
Argu"nt again!t R"lianc"=
2ard to tell 9hat in7(red part) 9o(ld have done if hadn=t been promise C hard to 4(antif)
Promisee=s d(t) to ens(re promise enforceable :bar"ain theor), etc.; before rel)in" on it
21 Th" 'argain Princi+l" and it! Liit!
215 Th" 'argain Princi+l"
Th" 'argain Princi+l"
&nder this principle, bar"ains are not onl) enforced, b(t enforced accordin" to their terms
,o(rts "enerall) do not in4(ire into the ade4(ac) of consideration :Westlake v. Adams;
o To do other9ise 9o(ld violate the idea that 7(d"es 9ill looA into the val(e of
somethin" violates the free marAet principle that its val(e is in fact determined b)
9hat one is 9illin" to pa) for it
o .hat=s important is that the parties "ot 9hat the) bar"ained for
RS 472 C 0n) performance bar"ained for constit(tes consideration
%
RS 477 C #f re4(irement of consideration is met, no f(rther re4(ired "ain to promisorKloss
to promisee, e4(ivalence in the val(es, or m(t(alit) of obli"ation
o Net, co(rts do often investi"ate ade4(ac) and fairness of consideration (nder
doctrines of :1; d(ress and :2; (nconscionabilit)
RS 475, Co"nt! C Net bar"ain m(st be a real bar"ain, not 7(st a pretense or a
formalit) :nominal consideration, le"al d(t) r(le, "ivin" (p invalid claim;
Haer v. Sidway, N; Ct1 o$ A++"al!, 5?75 3+1@78
&ncle promised 5 J,*** if 5 9o(ld refrain from drinAin", smoAin", (sin" tobacco, and
pla)in" cards (ntil 5 t(rned 21
.hen nephe9 t(rned 21, (ncle 9rote letter promisin" to pa) 5 the J,*** 9henever 5
9anted it
&pon the (ncle=s death, estate ref(sed to pa) on the "ro(nds that it 9as a "ift promise
Holding> 5 "ave (p a le"al ri"ht in ret(rn for the promised J,***, so there 9as
consideration
,onsideration means not that one part) is profitin" b(t that the other abandons some le"al
ri"ht :or limits some le"al ri"ht; as an ind(cement for the promise of the other
For somethin" to be consideration, it is eno("h that that thin" have ind(ced the promisor
to maAe the promise :i.e., a bar"ain=s a bar"ain;
Davies v. !artel "aboratory Service, 57?7 3+1@78
5 9orAed for L as an at?9ill emplo)ee
C promised to maAe "ive 5 a better, permanent 7ob and increase 5=s salar) if 5 co(ld "et
an +!0
8ne )ear later L fired 5 9itho(t ca(se
For p(rposes of consideration, EdetrimentF means legal detriment as opposed to
detriment in fact. The consideration a part) offers can be act(all) beneficial to herself
and still co(nt as consideration so lon" it involves doin" or not doin" somethin" the part)
other9ise has a le"al ri"ht to do or not do.
21515 Un"-"n 'argain!
Hancock #ank $ %rust v. Shell &il, Su+1 /ud1 Ct1 o$ (A, 577@ 3+1B08
2ancocA and Shell had a contract allo9in" Shell to terminate at an) time 9ith onl) 6*?
da)s notice re4(ired- 2ancocA on the other hand 9as obli"ated for 1 )ears, 9ith Shell
havin" the option to rene9 for another 1
2ancocA so("ht to invalidate the lease for ElacA of m(t(alit) of obli"ationF
#f there=s consideration, co(rts traditionall) decline to void the contract; merel) beca(se
that part) made 9hat he re"ards as a bad bar"ain
o #.e., if it=s a bar"ain, it=s enforceable
#atsakis v. Deotsis, TD Ct1 o$ Ci-il A++"al!, 57@7 3+1B58
5 lent L J2 in drachmae d(rin" ..##- L promised to repa) J2,***
Holding> L 9on J2,*** :there=s no 4(estion there 9as a bar"ain;
+ere inade4(ac) of consideration does not void a contract
'
@ot d(ress beca(se there is no threat and Em) terms or no dealF not considered a threat
21512 &ur"!!
Th" &octrin" o$ &ur"!!
0 promise made (nder d(ress ma) be (nenforceable even 9ith consideration
D(ress is a proced(ral not s(bstantive standard C the process that led to the deal
RS 4 57B 3Wh"n &ur"!! ,. Thr"at (a)"! a Contract Eoida,l"8
o E#f a part)=s manifestation of assent :consideration; is ind(ced b) an improper
threat b) the other part) that leaves the victim no reasonable alternative, the
contract is voidable b) the victimF
RS 457< 3Wh"n a Thr"at i! I+ro+"r8
o :1; 0 threat is improper if>
.hat is threatened is a crime or a tort, or the threat itself 9o(ld be a crime
or a tort if it res(lted in obtainin" propert),
.hat is threatened is a criminal prosec(tion
.hat is threatened is the (se of civil process and the threat is made in bad
faith, or
The threat is a breach of the d(t) of "ood faith and fair dealin" (nder a
contract 9ith the recipient :contract m(st alread) be in place;
o :2; 0 threat is improper if the res(ltin" e1chan"e is not on fair terms, and >
The threatened act 9o(ld harm the recipient and 9o(ld not si"nificantl)
benefit the part) maAin" the threat
The effectiveness of the threat ind(cin" the manifestations of assent is
si"nificantl) increased b) prior (nfair dealin" b) the part) maAin" the
threat, or
.hat is threatened is other9ise a (se of po9er for ille"itimate ends
Chouinard v. Chouinard, F12d, 577? 3+1B<8
!eca(se of bad b(siness dealin"s, 5 badl) needed a loan
Father and brother ref(sed to si"n banA loan a"reement (ntil o9nership iss(e 9as settled
Holding> Threat of financial distress and impendin" banAr(ptc) 9ere not d(ress beca(se
5 bro("ht them (pon himself :cf. Batsakis v. Demotsis;
+ere hard bar"ainin" positions :if la9f(l; and the press of financial circ(mstances not
ca(sed b) the part) a"ainst 9hom the contract is so("ht to be voided, is not deemed
d(ress
To be d(ress, the threat m(st come from the part) a"ainst 9hom the d(ress is alle"ed
o &nder common la9, a stran"er has no d(t) to resc(e another person in distress.
Th(s, a person=s threat of ref(sin" to aid person in distress not a E9ron"f(l actF
9ithin the meanin" of the r(le
Post v. 'ones, <0 US, 5?B< 3+1B78
0dmiralt) case 9here a 9halin" ship ran a"ro(nd and 9as completel) helpless
Three ships resc(ed the oil onl) after 9halin" ship=s captain a"reed to sell them the oil at
a ver) lo9 price
6
Holding> ,ontract 9as (nenforceable beca(se ship captain 9as completel) helpless and
so had no choice
Tra-"l"r in th" &"!"rt F.+o 2 I! thi! &ur"!!%
8ne part) resc(es another starvin" in the desert on condition that he pa) an obscene fee
#f 9e 9ant to sa) this is d(ress, 9here is the improper threat ind(ced b) the other part)B
C no p(blic d(t) to help
Remember, 9hen RS sa)s Eph)sicall) compelled b) d(ressF it means that one part) is
t9istin" the other=s arm, not 7(st that one is in bad ph)sical condition
Argu"nt! $orGagain!t &ur"!!
See ar"(ments forKa"ainst (nconscionabilit), belo9
212 Uncon!iona,ilit.
Th" &octrin" o$ Uncon!ciona,ilit. 3RS 420?8
#f a contract or contract term is (nconscionable at the time the contract is made, a co(rt
ma) ref(se to enforce the contract, ma) ref(se to enforce the (nconscionable term, or
ma) limit the application of an) (nconscionable term so as to avoid an) (nconscionable
res(lt
o &nconscionabilit) determined in li"ht of>
Settin"
P(rpose
Effect
o 3ross ine4(alit) of contract terms or bar"ainin" po9er does not b) itself indicate
(nconscionabilit), b(t 9hen both are present, alon" 9ith other factors, the) ma)
confirm those other indications of (nconscionabilit)
S(bstantive vs. proced(ral (nconscionabilit)
o Proc"dural uncon!ciona,ilit.>
,oncerned 9ith E(nfair s(rpriseF :fine print cla(se, mistaAes or i"norance
of important facts, or other thin"s that mean bar"ainin" did not proceed as
it sho(ld;
o Su,!tanti-" uncon!ciona,ilit. :overl) harsh terms;>
#nvolves an (n7(st or one?sided contract :imbalance of obli"ations;
Sometimes seems s(fficient in and of itself to void a term of a contract
Sometimes helps confirm or provide evidence of proced(ral
(nconscionabilit)
UCC 426A02 3 Uncon!ciona,l" Contract or Clau!"8
#f the co(rt as a matter of la9 finds the contract or an) cla(se of the contract to have been
(nconscionable at the time it 9as made co(rt ma) ref(se to enforce the contractD
1*
T9o tests for determinin" 9hether h)brid "oods :part E"ood,F part Eservice,F i.e., carpet?
la)in"; fall 9ithin the &,,
o Predominant factors test>
.hether the contract=s Epredominant factorF<its thr(st or p(rpose,
reasonabl) stated<is the rendition of a service 9ith "oods incidentall)
involved :e."., paintin" of a portrait; or the transaction of a sale 9ith
laborKservices incidentall) involved :e."., installation of a 9ater heater in a
bathroom;
o Severance test>
Severs the contract into different parts :"oods, services; and applies the
&,, to the "oods b(t not to the non?"oods in the contract
Defects 9ith "oods covered b) &,,- defects 9ith non?"oods not covered
b) &,,
o +a7orit) in Pittsley v. Houser :p.%4; follo9s the predominant factors test
(illias v. (alker)%hoas Furniture Co., US Ct1 o$ A++"al! $or &C, 57<B 3+1<A8
$ease?to?o9n f(rnit(re store has sec(rit) cla(se in contract s(ch that if b()er defa(lts on
an) pa)ment, store can repossess both the defa(lted?on item and an) other item b()er
p(rchase at the store
Store repossessed ever)thin" 5 had ever bo("ht from them after she defa(lted on one
item
Holding> ,ontract 9as (nconscionable beca(se 5 had little ed(cation or bar"ainin" po9er
and so ended (p 9ith an (nreasonable contract 9ith little Ano9led"e of the terms
0 contract is (nconscionable 9hen there is an absence of meanin"f(l choice on the part
of one of the parties to"ether 9ith contract terms that are (nreasonabl) favorable to one
part)
o #n this case there 9as absence of meanin"f(l choice, "ross ine4(alit) of
bar"ainin" po9er, etc.
!a*well v. Fidelity Financial Services+ ,nc1, AH Su+1 Ct1, 577B 3+17<8
5 installs 9ater heater it doesn=t need, can=t afford, is installed incorrectl), and declared a
haHard
C loans 5 mone) to pa) for the heater, 9ith 5=s ho(se as collateral
Total cost of loan :incl(ded a fe9 thin"s in addition to the heater; 9as nearl) half the
val(e of 5=s ho(se
Holding> ,ontract 9as (nconscionable beca(se J1,*** for a 9ater heater is a grossly
excessive price 9hen the home itself is 9orth onl) J4*,*** :settin" and p(rpose
considerations;
o S(bstantive (nconscionabilit) established in "rossl) e1cessive price
&nconscionabilit) is determined in li"ht of a contract=s settin", p(rpose and effect.
,ontract terms so one?sided as to oppress or (nfairl) s(rprise an innocent part), an
overall imbalance in the obli"ations, or a si"nificant cost?price disparit) all evidence
(nconscionabilit)
11
!artin v. -llian. in?class e1ample
Plaintiff in7(red in a(to accident and le" amp(tated 16/ da)s later :polic) covers (p to 6*
da)s after accident;
P s(ed for (nconscionabilit) C on '6
th
da) has to decide bet9een le" and pa)ment
Holding> ,o(rt disa"reed. #ns(rance companies create risA tables and offer plans. 2e
accepted one of these plans. !etter for ins(rance companies to (se marAet facts to create
plan for more than 6* da)s than to have the co(rts do it :role of the courts ar"(ment;
o .hat !ould be conscionableB 1** da)sB 2** da)sB
Argu"nt! $or &octrin" o$ Uncon!ciona,ilit.=
+oralit) as 9ell as the ar"(ment that certain people :poor, (ned(cated, those in tro(ble;
have (ne4(al bar"ainin" po9er C no meanin"f(l choice, and hence contract not tr(l)
consens(al
Prevent those 9ith bar"ainin" po9er from ab(sin" that advanta"e :protect ri"hts 9eaA,
etc.;
,o(rts sho(ld protect the 9eaA, and f(rther co(rts are able to dra9 line to limit
(nconscionabilit) :and d(ress; and still protect ri"ht to contract
Argu"nt! again!t Uncon!ciona,ilit.=
#ntent of parties K freedom of contract sho(ld be determinative. F(rther, sho(ldn=t treat
the poor differentl) beca(se of (ne4(al bar"ainin" po9er, etc C same ri"ht to contract as
others
Slipper) slope till point 9here all contracts based on (ne4(al bar"ainin" po9er are
(nenforceable- threat of (nconscionabilit) maAes b(sinesses less liAel) to contract 9ith
poor
.h) sho(ld the co(rt 7(d"e the val(e of consideration after the factB
21A Th" Pro,l" o$ (utualit.
Princi+l" o$ utualit.
!oth parties m(st be bo(nd or neither part) is bo(nd
21A15 Conditional Proi!"!
Scott v. !oragues "uber Co1, AL Su+1 Ct1, 575? 3+1??8
L promised that if he bo("ht a boat, then he 9o(ld rent to 5
L bo("ht boat b(t chartered it to someone else
Holding> 8nce L bo("ht the boat :9hich he 9as not bo(nd to do;, he had to charter it to 5
o @ot an ill(sor) promise beca(se L "ave (p his abilit) to charter the boat to
someone else
0cceptance on the part of one part) of a conditional promise b) another converts the
promise into a bindin" contract, s(ch that the other part) m(st perform his obli"ation
9hen the condition is met
12
21A12 Illu!or. Proi!"!
Illu!or. +roi!" rul" 3RS 4778
Illu!or. +roi!">
o 0 promise that does not limit the part)=s f(t(re actions :somethin" for nothin";
o 0 promise is not ill(sor) if promisor=s options limited in some 9a), no matter
ho9 sli"ht
Illu!or. +roi!" rul">
o 0 real promise in e1chan"e for an ill(sor) promise is not an enforceable bar"ain
beca(se is lacAs consideration :even if it=s bar"ained?for;
To be valid, a promise m(st constrict the scope of potential choice C it
m(st foreclose the actor=s f(t(re possibilities in order to be a promise at
all.
#f a promisor maAes a commitment that does not shrinA the bo(ndaries of
choice :RS 477; or if the alternate performances are not s(fficient as
consideration, the person has made an ill(sor) promise and there cannot
be m(t(alit)
#ll(sor) promise test :limit others= f(t(re actions; formal test similar to seal
'ilat"ral -!1 unilat"ral contract!
'ilat"ral contract> e1chan"e of a promise for a promise
Unilat"ral contract> e1chan"e of a promise for an act :o(tside the principle of m(t(alit);
o 0n) bar"ained?for act or forbearance 9ill constit(te ade4(ate consideration for a
(nilateral contract
#ll(sor) promise r(le applies onl) to bilateral contracts
o "ontra> fallac) of the ill(sor)?promise r(le is that it treats transactions involvin"
ill(sor) promises as failed bilateral contracts, 9hen the) are properl) (nderstood
as (nilateral contracts desi"ned to increase the probabilit) of e1chan"e.
o Harris v. #ime $nc> Any bar"ained?for act or forbearance 9ill constit(te ade4(ate
consideration for a (nilateral contract. ,alc(lator 9atch case.
(ickha $ #urton Coal C. v. Farers/ "uber Co., IA Su+1 Ct1, 5720 3+1758
5 4(otes L a cheap price in ret(rn for L promisin" to b() Eall the coal he 9antedF from 5
Holding> #ll(sor) promise beca(se L not obli"ated to b() an)thin" from 5
0 promise is enforceable onl) if there is m(t(alit) of obli"ation amon" the contractin"
parties, 9hich m(t(alit) of obli"ation f(rnishes the consideration for the deal
!iai Coca)Cola #ottling v. &range Crush Co.
8ran"e ,r(sh contracted to allo9 ,oAe to man(fact(re 8ran"e ,r(sh indefinitel)
&nder terms of deal, ,oAe co(ld cancel at an) time for an) reason
Holding> ,ontract (nenforceable for lacA of m(t(alit), since the licensor :,oAe; co(ld
bacA o(t at an) time :i.e., 9as not bo(nd in an) 9a);
To be enforceable, a promise m(st limit the promisor=s freedom of choice in the f(t(re-
performance of a promise cannot be optional
13
.illiston> often parties maAe ill(sor) promises beca(se the) are so ea"er to obtain
possible 9orA, etc. that the) "ladl) trade an absol(te promise for an optional one
"indner v. !id)Continent Petroleu Cor0., p. 6%, 0rAansas, 162
$ease 9ith +id?,ontinent allo9ed +id?,ontinent to cancel at 9ill 9ith ten da)=s notice
Holding> ,ontract enforceable since the 1* da)=s notice at least bo(nd +id?,ontinent to
somethin"
+(t(alit) does not mean that obli"ations of both parties m(st be Ee1actl) coe1tensiveF
,ontrast to &range Crush C onl) difference bet9een the cases is 1* da)=s notice
Fr(" C 9hat if it 9ere 1* min(tesB 1* min(tes O form over s(bstance :mechanical;
Thought! on Illu!or. Proi!"!
#f co(rts 9ant to enforce a contract, the) find that there is consideration- if not, the) find
there 9as an ill(sor) promise C s(bstantive readin" of the la9
Reasons 9h) ill(sor) promises are (nenforceable incl(de not 9antin" people to maAe
(nfair deals, chase ill(sions or taAe advanta"e of others= 9eaA bar"ainin" positions
21A1A I+li"d Proi!"!
(ood v. "ucy+ "ady Duff)Gordon, N; Ct1 o$ A+"al!, 5757 3+15058
$(c) hired .ood to place "oods $(c) desi"ned and endorsed on sale, in ret(rn for half
the profits made
$(c) 9anted o(t of the contract, sa)in" .ood did not bind himself to do an)thin", did
not act(all) promise to tr) to sell $(c)=s "oods
.ood made an implied promise to (se reasonable efforts to sell .ood=s prod(cts, and this
implied promise :"ood faith effort; constit(tes consideration
o This holdin" allo9s for a "reat deal of 7(dicial interpretation of contracts
:s(bstance over form;
o .o(ld (ickha have come o(t differentl) had co(rt (sed this standardB
R"0uir""nt! and Out+ut Contract!
R"0uir""nt! contract> :1; The seller promises to s(ppl) all of the b()er=s re4(irements
of a defined commodit) at a stated price over a desi"nated period of time and :2; the
b()er promises to p(rchase all of his re4(irements of the commodit) d(rin" that time
from the seller at the stated price
Out+ut! contract> :1; The b()er promises to b() all of a seller=s o(tp(t of a "iven
commodit) at a stated price and :2; the seller promises to sell all of her o(tp(t of the
commodit) d(rin" that time to the b()er at a stated price
UCC 426A0< 3Out+ut, R"0uir""nt! and E*clu!i-" &"aling!8> 8(tp(t and
re4(irements contracts do not lacA m(t(alit) of obli"ation
Grouse v. Grou0 Health Plan+ ,nc., (N Su+1 Ct1, 57?5 3+150@8
3ro(se received 7ob offer from 3ro(p 2ealth Plan, 4(it his c(rrent 7ob and t(rned do9n
another 7ob offer
14
3ro(se didn=t have favorable references, 3ro(p 2ealth Plan :per compan) polic);
rescinded 3ro(se=s emplo)ment offer
3ro(se had diffic(lt findin" another 7ob and s(ffered 9a"e loss
Emplo)er liable (nder RS I6* for reliance dama"es
o Fr(" C this co(ld have also been decided the same 9a) b) co(rt findin" an
implied promise to let emplo)ee prove himself on the 7ob :it instead (sed reliance;
o ,ontrast to (hite v. 1oche C opposite res(lt
21@ P"r$oranc" o$ a L"gal &ut. a! Con!id"ration: (odi$ication
and Wai-"r o$ Contractual &uti"!
21@15 L"gal6dut. Rul"
L"gal6dut. Rul"
L"gal6dut. rul"> Performance of a le"al d(t) is not consideration
o $iAe the ill(sor) promise r(le, the le"al?d(t) r(le is an e1ception to the idea that
bar"ain O contract
RS 47A 3+"r$oranc" o$ a l"gal dut.8> Performance of a le"al d(t) o9ed to a promisor
9hich is neither do(btf(l nor the s(b7ect of honest disp(te is not consideration- ho9ever,
a similar performance is consideration if it differs from 9hat 9as re4(ired b) the d(t) in
a 9a) 9hich reflects more than a pretense of bar"ain
Slattery v. (ells Fargo -rored Service Cor0., FL &i!trict Ct1 o$ A++"al!, 5777 3+15078
Pol)"raph scientist e1tracted confession from store robber, tried to claim J2,*** re9ard
Holding> Pol)"raph scientist 9as onl) f(lfillin" a pre?e1istin" d(t) in e1tractin"
information b) pol)"raph
Performance of a pre?e1istin" d(t) is not consideration
Denny v. 1e00ert, I; Ct1 o$ A++"al!, 57<? 3+15508 s2uib
!anA offered J1** for arrest and conviction of banA robbers
Several people tried to claim re9ard<banA emplo)ees, state policeman, etc.
Holding> Re9ard "iven onl) to sheriff of nei"hborin" co(nt)<onl) one 9itho(t a le"al
d(t) to apprehend the robbers
Th" Fold6u+ /o,
"ingenfelder v. (ainwright #rewery Co1, (O Su+1 Ct1, 5?75 3+15558
o ,ontractor threatened to 4(it in the middle of a 7ob (nless L promised to pa) more
o C a"reed to pa) more to "et contractor to finish, then ref(sed to pa) additional
e1tra
o Holding> @o consideration, since the contractor onl) promised to finish
performin" his le"al d(t) (nder the ori"inal contract
o 0 promise to pa) someone more for doin" somethin" he alread) has a le"al d(t)
to do is not consideration
1
o ,ontractor=s threats amo(nted to a hold6u+ Jo, and to enforce 9o(ld p(t
premi(m on bad faith
o ,o(ld a"reement to pa) hi"her 9a"e have been allo9ed (nder modification of
contractB
'UT= Schwart.reich v. Cauan)#asch+ ,nc., +1 52?, N;, 5725, s2uib
o P entered into a 9ritten a"reement 9ith D for )ear=s emplo)ment at J6* a 9eeA
o P received a hi"her offer from another firm a month before services to be"in
o 0fter conversation 9ith D, both tear (p old contract and 9rite identical one at
J1** a 9eeA
o Holding> @e9 contract is enforceable
Fo# to r"concil" d"ci!ion! in "ingenfelder and Schwart.reich%
o 3ood faith re4(irement to modif) contract :also stated in &,,; C s(bstantive
re4(irement
o St(dents liAe formal re4(irements so can 7(st have a r(le :even if 9e don=t liAe
that r(le;
E1amples of formal re4(irements> rippin" (p contract, time of
conversation, etc.
In6Cla!! "*a+l"
o Ship=s sailin" aro(nd the 9orld- t9o sailors 7(mp ship
o ,aptain promises to split abandonin" sailors= 9a"es amon" rest of sailors if
the)=ll do the 9orA abandonin" sailors 9ere s(pposed to do enforceableB
o Nes> Each sailor has specific d(ties- in coverin" the) taAe on ne9 ones
o @o> Sailors= d(t) is to brin" ship home safel)- doin" the e1tra 9orA is part of that
d(t)
Foakes v. #eer, Fou!" o$ Lord!, 5??@ 3+155@8
!eer a"reed to for"ive interest if FoaAes paid the rest of the mone) no9
Holding> @o consideration since FoaAes alread) had le"al d(t) to pa) !eer the mone)
o ,o(rt sa)s it doesn=t liAe this o(tcome :beca(se bird in hand better than t9o in
b(sh;, b(t feels compelled b) precedent
0 promise to pa) a lesser s(m than one o9es is not consideration
o This precedent applies 9hen the claim is undi!+ut"d, li0uidat"d, and du"
Argu"nt! $or not "n$orcing l"gal6dut. +roi!"!
P(lnerabilit) of promisor to threats :hold?(p 7ob;
Potential for (ne4(al protection (nder the la9 :monetar) tips for police officers;
@o additional consideration beca(se alread) obli"ated to do 9hat is bein" offered
21@12 (odi$ication
+odification of a contract (s(all) does not re4(ire consideration :and cannot be
rescinded;
1/
RS 4?7= 0 promise modif)in" contract d(t) not f(ll) performed is bindin">
o #f fairKe4(itable in vie9 of circ(mstances not anticipated b) parties 9hen contract
made
o To e1tent provided b) stat(te- or
o To e1tent that 7(stice re4(ires enforcement in vie9 of material chan"e in position
res(ltin" from reliance on promise
Tension bet9een 4?7 :fair Q e4(itable modification; and 47A :le"al d(t) r(le;>
o ,an read 4?7 as limitin" 47A b) the Efair Q e4(itableF r(le or as an alternative to
47A. 8bvio(sl) need to speaA both lan"(a"es. ,onsider -ngel v. !urray 9here
there is the tension
-ngel v. !urray, RI Su+1 Ct1, 577@ 3+15A?8
3arba"e collector si"ned ?)ear contract 9ith cit) to collect all its trash
&ne1pected increase in n(mber of homes, so collector asAed for more mone)
,it) a"reed to increase pa)ment and tendered the increased pa)ment
M s(ed, claimin" ne9 contract (nenforceable since "arba"e collector 9as onl) doin" his
le"al d(t)
+odification bindin" beca(se it 9as :1; vol(ntar), :2; fairKe4(itable "iven (nforeseen
circ(mstances, and :3; preceded f(ll performance
21@1A Accord and Sati!$action
Accord and !ati!$action
RS 42?5 3accord and !ati!$action8> 0n accord is a contract (nder 9hich an obli"ee
promises to accept a stated performance in satisfaction of the obli"or=s e1istin" d(t).
Performance of the accord dischar"es the ori"inal d(t).
o &ntil performance of the accord the ori"inal d(t) is s(spended, tho("h, in case of
breach before performance, the obli"ee can demand either the ne9 or the ori"inal
d(t). 0"ain, a 4(estion of "ood faith
E*"cutor. accord> 0n accord that has not been satisfied
o 3enerall) (nenforceable (nder common la9, tho("h modern trend has been to
hold them enforceable as substituted contracts
Su,!titut"d contract> 0 ne9 contract that is treated as a complete s(bstit(tion for the old
o #n case of a s(bstit(ted contract, the ori"inal contract is immediatel) dischar"ed
E1ample>
o S(ppose ! o9es 0 J1** (nder a contract
1%
o ! cannot pa) cash so he offers 0 his horse instead and 0 accepts
2e cannot offer cash for less than J1** or else a le"al d(t) iss(e
o #f ! "ives 0 horse :satisfaction of accord;, both parties dischar"ed from accord Q
contract
o The iss(e arises 9hen no satisfaction> can 0 s(e for the horse or the J1**B
o Depends 9hether there 9as an accord or a s(bstit(ted contract
#f s(bstit(ted contract then ori"inal contract immediatel) dischar"ed
#f accord then 0 can still s(e for the ori"inal J1**
Per) hard to tell one from other, tho("h depends on ori"inal intent :also
can be va"(e;
UCC 4A6A55> !asicall) accord and satisfaction. #f one part) proves that he in "ood faith
tendered an instr(ment as pa)ment in f(ll for a disp(ted claim and the claimant obtained
pa)ment of the instr(ment :i.e. cashed checA or accepted mone);, then claim is
dischar"ed
!c!ahon Food Cor0. v. #urger Dairy Co., US Ct1 o$ A++"al! $or 7
th
Cir1, 577< 3+15278
+F, misled !(r"er abo(t past debts, "ave !(r"er pa)ment that indicated it 9as pa)ment
in f(ll for bad debts
+F, sent checAs marAed Epa)ment in f(llF
Holding> The p(rported EsatisfactionF pa)ments 9ere invalid to satisf) the debt
For an accord and satisfaction to dischar"e a debt, the part) tenderin" pa)ment to satisf)
the debt m(st :1; do so in "ood faith and :2; maAe it clear that the pa)ment is intended to
settle all o(tstandin" claims bet9een the parties
#mportant also that the amo(nt at iss(e 9as not di!+ut"d
21@1@ Wai-"r
Th" #ai-"r doctrin"
RS 4?@ 3+roi!" to P"r$or a &ut. in S+it" o$ Non6occurr"nc" o$ a Condition8> 0
promise to perform a contract even tho("h other side did not f(lfill a certain condition is
bindin", as lon" as condition 9as not a material part of contract.
o 0n (ne1ec(ted 9aiver :i.e., one related to an (ne1ec(ted term or stip(lation; can
be retracted as lon" as there is adequate notice, (nless>
The 9aiver 9as "iven for consideration :re"ardless of materialit);, or
Retraction 9o(ld be (n7(st beca(se the other part) has detrimentall) relied
on the 9aiver
.aiver is often defined as Ano9in" relin4(ishment of le"al ri"ht
The r(le that 9aiver needs no consideration is one escape from le"al?d(t) r(le
&i$$"r"nc" ,"t#""n #ai-"r and odi$ication
1'
Wai-"r= 8ne part) "ives (p a condition, not a material element, of a contract
o ,an be rescinded 9hile still e1ec(tor) if there=s been no reliance
(odi$ication> !oth parties a"ree to alter a material element of the contract :affects the
9hole deal;
o ,annot be rescinded
In6Cla!! E*a+l"=
3eneral contractor a"rees to b(ild ho(se and onl) be paid if o9ner=s architect satisfied
o @ot an ill(sor) promise b(t rather a conditional promise :bo(nd if condition met;
,ontractor b(ilds ho(se b(t architect not satisfied- o9ner a"rees to pa) an)9a)
.aiver of condition enforceable since not a material part of the contract
o ,o(ld also possibl) ar"(e (n7(st enrichment if o9ner ref(ses to pa)
Clark v. (est, N; Ct1 o$ A++"al!, 570? 3+15@@8
P(blisher a"reed to "ive 9riter J2Kpa"e if he dranA and J/Kpa"e if he abstained
.riter dranA, b(t p(blisher Ane9 and did not ob7ect thro("h the co(rse of their dealin"s
Holding> This constit(ted a 9aiver of the drinAin" condition :9riter "ot J/Kpa"e;
o The drinAin" provision 9as merel) a stipulation of the contract, not the
consideration the contract 9as not a contract for 5 to 9rite booAs so he can
sta) sober- rather, sta)in" sober 9as incidental to the 9riter=s performance
o The booAs 9ere the consideration, not the abstention from alcohol
0 part) can 9aive a stipulation of the contract, b(t not the consideration itself
A1 Pa!t Con!id"ration 3'"n"$it! Pr"-iou!l. R"c"i-"d8
+oral obli"ation :stated as an e1plicit promise; to perform certain other9ise
(nenforceable contracts maAes s(ch contracts enforceable C debt dischar"ed b)
banAr(ptc), SK$, etc.
o 8ften this is e1plained b) sa)in" that the ne9 promise does not create a le"al
ri"ht 9here none e1isted before :9hich 9o(ld re4(ire consideration; b(t to
remove from the promisor a defense a"ainst the assertion of an e1istin" le"al
ri"ht. This is distin"(ished from cases 9here there is solel) a moral obli"ation
9Ko(t a le"al ri"ht, 9here the moral obli"ation alone is (s(all) not s(fficient
consideration
Proi!" $or '"n"$it R"c"i-"d 3RS 4?<8

0 promise made in reco"nition of a benefit previo(sl) received b) the promisor is

bindin" to the e1tent necessar) to prevent in7(stice

The promise is not bindin", tho("h, if promisee conferred benefit as a "ift, if promisor
has not been un%ustly enriched, or to e1tent that its val(e is disproportionate of the benefit
o Promise to pa) for emer"enc) services rendered also not bindin"

Sit(ations in 9hich promises to pa) for past benefits are enforceable>

o Promise to pa) dischar"ed debt :RS I'3;
o Promise to pa) despite the fact that the stat(te of limitations has passed :RS I'2;
16
o Promise to pa) a debt inc(rred 9hile a minor

These three promises 9ere deemed enforceable (nder t9o principles>

o +oral obli"ation serves as consideration
o @e9 promise deprives promisor of the le"al defense and act(aliHes the ri"ht
!ills v. (yan, (A Su+1 /udicial Ct1, 5?2B 3+15B28
L=s 2?)ear?old son ret(rned from lon" vo)a"e, became ver) ill
M tooA the son in and cared for him at "reat personal e1pense (ntil the son died
L promised to pa) all e1penses 5 inc(rred 9hile 5=s son 9as recoverin", rene"ed
Holding> 0ltho("h L had a moral obli"ation to repa) 5=s e1penses, this alone 9as not
s(fficient consideration to ma) the promise enforceable
+oral obli"ation is s(fficient consideration for an e1press promise onl) in cases 9here a
"ood or val(able consideration e1isted in the past
o #.e., there m(st be some pre?e1istin" le"al obli"ation to maAe the promise
enforceable
Fr("> !(llKbo) :propert)Knon?propert); distinction
o !(ll escapes, stran"er taAes care of it. !(ll o9ner promises to repa) stran"er for
carin" for b(ll. enforceable
&nder RS 4?< this case mi"ht have come o(t differentl)
(ebb v. !cGowin, AL Ct1 o$ A++"al!, 57AB 3+15B<8
5 fell 9ith a pine to prevent it from in7(rin" L standin" belo9- 5 severel) in7(red
0s repa)ment, L promised to s(pport 5 for the rest of 5=s life
L died nine )ears later and L=s e1ec(tors stopped pa)ment- 5 s(es
Holding> Promise held enforceable beca(se L received a material benefit from 5=s savin"
his life :h(man life 9orth more than mere sentimental val(e;
0 moral obli"ation is s(fficient consideration to s(pport a s(bse4(ent promise to pa)
9here the promisor has received a material benefit, altho("h there 9as no ori"inal d(t)
or liabilit) restin" on the promisor :modern position, liAe RS 4?< ;
Harrington v. %ayler+ NC, 57@B 3+15B78 s2uib
L assa(lted his 9ife- in ret(rn L=s 9ife AnocAed L do9n 9ith an a1e
L=s 9ife 9as abo(t to decapitate L 9hen 5 ca("ht the a1e, m(tilatin" her hand
L orall) promised to pa) 5 for dama"es b(t didn=t live (p to it
Holding> 0 h(manitarian act, vol(ntaril) performed, is not consideration
@1 Th" Liit! o$ Contract
There are certain areas in 9hich co(rts 9ill not enforce contracts, liAe>
o Private contracts in marria"e
o Reprod(ctionKchildrenKparenthood
o Sense that co(rt sho(ld sta) o(t of these areas :decisions of the heart;
(ar)"t Inali"na,ilit.
2*
Some thin"s )o( 7(st can=t sell, liAe or"ans, se1, or children
That doesn=t mean )o( can=t transfer these thin"s :.e."., or"an donation, adoption;, )o(
7(st can=t sell them
Some thin"s, ho9ever, are both nonsalable and nontransferable :e."., votes;
#alfour v. #alfour, %%%, 5757 3+15<A8 s2uib
0"reements made bet9een h(sband and 9ife are not contracts, even tho("h there ma) be
9hat as bet9een other parties 9o(ld constit(te consideration for the a"reement
o 0"reements bet9een h(sband and 9ife are not contracts beca(se the parties did
not intend for them to be attended b) le"al conse4(ences
,n 1e !arriage of (itten, IO Su+1 Ct1, 200A 3+15<@8
M and L married for % R )ears- 5 (nable to have children, so 5 had e""s taAen and
artificiall) fertiliHed 9ith L=s sperm
M and L si"n contract that sa)s nothin" 9ill happen to embr)os 9itho(t s(pport of both
M and L s(bse4(entl) divorce- 5 9ants c(stod) of embr)os, L doesn=t 9ant to let her
Holding> #f there=s a stalemate bet9een the parties, the stat(s 4(o 9ill be maintained :i.e.,
the embr)os sta) froHen;
+arital and famil) decision are hi"hl) emotional s(b7ect to chan"e- co(rts are rel(ctant
to "et involved in hi"hl) personal areas of reprod(ctive decisions
%.F. v. #."., Su+1 /ud1 Ct1 o$ (A, 200@ 3+157A8
M and L are t9o 9omen 9ho lived to"ether for several )ears
M 9anted child, L event(all) relented- before child 9as born 5 and L split (p
L at first promised to pa) child s(pport, and "ave 5 some mone), b(t later ref(sed more
M s(ed for child s(pport
Holding> L=s promise to pa) child s(pport not enforceable
o ,o(rt rel(ctant to enforce prior a"reements that bind famil) members to f(t(re
relationships
The decision to become or not become a parent is a personal ri"ht of s(ch delicate and
intimate character that the co(rt sho(ld never attempt direct enforcement
Dissent> .hat abo(t fairness to 5B L helped brin" child into 9orld, no9 9alAin" a9a)
1.1. v. !.H., (a!!1, 577? 3+15?A8 s2uib

S(rro"ac) case> 5 paid mone) for L to be s(rro"ate mother, L chan"ed mind si1 months
into pre"nanc)

M s(ed for c(stod)

Holding> S(rro"ac) arran"ements are liAe adoption- mother sho(ld have several da)s
after birth to chan"e her mind

,o(rt doesn=t liAe sellin" children, also 9orried e1ploitation of 9omen 9ho need mone)
21
II1 R""di"! $or 'r"ach o$ Contract
B1 An Introduction to Contract &aag"!
Pur+o!"! o$ R""di"! 3RS 4A@@8

EG(dicial remedies (nder the r(les stated in this Restatement serve to protect one or more
of the follo9in" interests of a promisee>
o &xpectation interest ' #nterest in havin" the benefit of his bar"ain b) bein" p(t in
as "ood a position as he 9o(ld have been in had the contract been performed,
The e1pectation interest is not based on the in7(red part)=s hopes 9hen he
made the contract, b(t rather on the actual value the contract 9o(ld have
had to him had it been performed
The e1pectation interest is therefore based on the circ(mstances at the
time of performance and not those at the time of the maAin" of the
contract
o (eliance interest > #nterest in bein" reimb(rsed for loss ca(sed b) reliance on
contract b) bein" p(t in as "ood a position as 9o(ld have been in had contract not
been made
o (estitution interest > #nterest in havin" restored to him an) benefit that he has
conferred on the other part) Sdis"or"edTF

The defa(lt remed) is e1pectation dama"es

.h) e1pectation dama"es are preferred over reliance dama"es

o Easier to meas(re contract price than for"one spec(lativeKopport(nit) price
o #ncentive to breach onl) e1ists if in best interests of both parties :incl(des cost to
each other;
In6Cla!! E*a+l"

L "oes to an anti4(e store at closin" time on a Frida) and a"rees to pa) 5 J1** for a
mirror, 9hich he 9ill come bacA to picA (p :and pa) for; on +onda)

Sit(ation 1> L calls +onda) mornin" and sa)s he doesn=t 9ant it an)more
o &xpectation damages> &ncompensated e1pectation of profit even tho("h no real
in7(r)

Sit(ation 2> 5 crates mirror for shipment over 9eeAend, L calls +onda) to cancel the deal
o (eliance damages> E1penses and time spent to crate mirror in reliance on contract

Sit(ation 3> L taAes mirror 9ith him and promises to pa) on +onda). &ses the mirror at
a fanc) dinner part) and then ret(rns it on +onda) claimin" he doesn=t 9ant to p(rchase
it
o (estitution damages> L benefited 9itho(t pa)ment, 5 sho(ld be able to dis"or"e
benefit
Hawkins v. !cGee, NF Su+1 Ct1, 5727 3+15708
22

Doctor promised perfect hand, short recover)- res(lted in disfi"(red hand, lon" recover)

Trial co(rt "ave reliance dama"es> Pain and s(fferin" and ill effects of operation

0ppellate co(rt chan"ed this to e1pectation dama"es> Difference bet9een val(e of 9hat
he "ot :hair) hand; and 9hat promised :perfect hand;

,an maAe the dama"e a9ards lar"e or small>

o &xpectation>
!i"> $oses "ainf(l emplo)ment for life :ma)be 9o(ld have been a hand
modelB;, miser), pain :!&T, ho9 do )o( separate o(t the pain and
s(fferin" from the operation and the pain and s(fferin" that res(lted from
the botchin" of the operationB;.
Small> 2and 9as alread) abnormal and can shaveK9a1 hand or 9ear a
"love :a little hair on his handB bi" dealU;
o (eliance>
!i"> Pal(ed old hand more, and pain is relevant. @othin" can be done for
victim no9, so to p(t him in position he 9o(ld have been in had the
contract never been made 9o(ld taAe a lot of mone)
Small> 8(t of pocAet e1penses and pain
o (estitution>
!i"> Doctor "ot val(able e1perience and fee.
Small> Dis"or"e the fee

Point is that var)in" o(tcomes can res(lt from each of the meas(res :not a sin"le
form(la;

!c3uaid v. !ichou, NF, 57A2, 3+157@8= M=s s(fferin" incident to treatment 9as part of
price 5 9as 9illin" to pa) for the operation, so sho(ld not enter into the dama"es
e4(ation
4an 5ee v. (it.ke, S&, 57?7 3+15778

Pan Vee 9ent to see .itHAe abo(t operation to fi1 her fin"er

0t one point Pan Vee asAed for a "(arantee that her fin"er 9o(ld be all ri"ht- .itHAe
responded that after s(r"er) the fin"er 9o(ld be Eno 9orse off than it 9as ri"ht thenF

Holding> The statement 9as ins(fficient as a matter of la9 to constit(te an e1press

contract to heal Pan Vee=s fin"er- rather, it falls into a cate"or) of statements constit(tin"
Etherape(tic reass(ranceF of a "ood res(lt
Sullivan v. &/Connor, (A, 577A 3+157?8

Holding> ,o(rt sa)s (nliAel) ph)sician 9o(ld promise specific res(lts "iven the
(ncertainties of the case

,o(rt advocated more lenient reliance dama"es 9itho(t clear proof of "(arantee-
8ther9ise doctors 9ill be fri"htened into practicin" Edefensive medicineF

(easoning> The best remed) method in patient?ph)sician cases 9here there=s a breach of
an a"reement to c(re ma) be the Ereliance interest.F This 9o(ld compensate the patient
for the detriments he s(ffered in reliance (pon the a"reement :pa)ment of doctors fees,
pain and s(fferin" :dama"es; res(ltin" from 9orsenin" of patient=s condition d(e to
breach of a"reement to c(re;
o Restit(tion interest 9o(ld be too little compensation> onl) pa)ment of fee bacA,
i"nores other e1penses and pain in s(fferin" inc(rred
23
o E1pectanc) interest 9o(ld be too m(ch compensation
Ei!"n,"rg> E1pectation dama"es create efficient incentives for performance, since it forces the
potential breachin" part) to taAe other parties= interests into acco(nt :m(st maAe them 9hole if
breach; 9hen decidin" 9hether to breach. Protectin" e1pectation interest is "ood for societ).
Po!n"r :$a9 and Econ.;> !reach of contract is efficient, and therefore desirable, if the
promisor=s "ain from the breach, after pa)ment of e1pectation dama"es, 9ill e1ceed the
promisee=s loss from breach. !reach is perfectl) acceptable as lon" as the breachin" part) taAes
e1pectation dama"es into acco(nt and th(s p(ts other part) in position he 9o(ld have been in
9ith no breach :i.e., L sho(ldn=t be st(cA to a bad deal, that=s bad for the econom)- as lon" as L
pa)s dama"es, if L can "et better deal :taAin" into acco(nt e1pectation dama"es;, L sho(ld
breach;. +ain iss(e is ho9 potential breachin" part) confidentl) Ano9s e1pectation dama"es in
real 9orld.
Fri"dann :anti?Posner;> Transaction costs and liti"ation res(lt from breach. EEfficient breachF
(ndermines confidence in bar"ains and sec(rit) for promise better than efficient breach. @o one
indifferent to breach :people tend to 9ant performance, not breach;, so breachin" part) sho(ld
pa) profits from breach to other part).
<1 Th" E*+"ctation ("a!ur"
SFr("> These form(las never p(t )o( bacA in the e1act same position )o( 9o(ld have been in had
the contract been performed beca(se the) don=t taAe into acco(nt the a""ravation ca(sed b) the
breach and attorne)s feesT
S0lternatives to e1pectation dama"es incl(de>

Stip(lated dama"es :contractin" aro(nd the la9;

Specific performance

Reliance and restit(tion dama"esT

<15 &aag"! $or 'r"ach o$ a Contract to P"r$or S"r-ic"!
<1515 'r"ach ,. th" P"r!on Who ha! Contract"d to P"r$or S"r-ic"!
&"t"rining &aag"!= Co!t o$ co+l"tion -!1 &iinution o$ Ealu"

Dama"es meas(red either b) :1; diminution in value or :2; reasonable cost of completion

,ost of completion "enerall) favored (nless>

o :1; ,ost is disproportionate to benefit, and
o :2; !reached contract provision is incidental
3ood faith is not taAen into acco(nt since intention is not to p(nish for
breach
24

.h) choose dimin(tion of val(e over cost of completionB

o +a)be )o(=re 9orried 5=s "oin" to "o to Pe"as rather than (sin" the mone) to
"etKdo 9hat the) 9ere ori"inall) promised :i.e., 9indfall;
"ouise Caroline Nursing Hoe+ ,nc.+ v. Di* Construction Co., (A Su+1 /ud1 Ct1, 5772
3+125?8

!(ilder breached contract to b(ild n(rsin" home, so home s(ed for e1pectation dama"es
o ,laimed e1pectations dama"es sho(ld be meas(red b) the fair marAet val(e of the
completed b(ildin" rather than the cost of completin" the b(ildin"

Holding> ,o(rt denied this beca(se obtainin" another b(ilder to complete the b(ildin"
9o(ld not cost n(rsin" home an) more than the ori"inal contract price
o To "ive 5 the f(ll marAet val(e 9o(ld be to p(t them in a better position than had
the contract been performed. EThe plaintiff is entitled to be made 9hole and no
more.F

2ere, marAet val(e is more than cost of completion :opposite of Peevyhouse;

Peevyhouse v. Garland Coal $ !ining Co., OI SC, 57<2 3+12208

L contract(all) a"reed to fi1 dama"e 9hen done minin" in bacA)ard

2o9ever, ref(sed, as cost of repairin" dama"e :J26W; 9o(ld onl) increase propert)
val(e b) J3** :and val(e of entire propert) 9as onl) JW;

Holding> ,o(rt said normall) cost of completion 9o(ld be standard of dama"es, ho9ever
appropriate dama"es in this case 9ere instead diminution of value of land bKc>
o ,ontract provision 9as E incidental F to the main p(rpose of the contract
o ,ost of performance E grossly disproportionate F to the benefit conferred
:economic 9aste;

!oth sides 9ant to p(t 5=s in position the) have 9o(ld been in if contract never e1isted,
ho9ever there is a difference of opinion on ho9 to define that EpositionF
o ,o(rt sides 9ith contractors that position sho(ld be defined as val(e of propert)
:i.e., economic position;
o 89ners don=t care abo(t val(e and 9ant to be p(t in position 9ith a nice bacA)ard
:i.e., physical position;

Parties co(ld have 9ritten contract more effectivel) to ens(re repair 9orA not
EincidentalF

0r"(ments in favor of co(rt=s holdin">

o "onsequentialist> @o coal minin" companies 9o(ld mine land if the)=re "oin" to
have J26,*** to fi1 J3** in dama"es

0r"(ments a"ainst co(rt=s holdin">

o "onsequentialist> @o one=s "oin" to let coal companies mine their land if the
minin" compan)=s "oin" to be able to "et o(t of their remedial provisions
:scre9in" (p the land;

Schneberger v. -0ache Cor0., OI, 577@ 3+122?8> ,ase similar to Peevyhouse, 9ith
similar holdin" based on same r(le :"ross disproportionalit) of cost of performance to
2
res(ltin" benefits leads co(rt to (se dimin(tion of val(e rather than cost of completion to
determine dama"es;
'acobs $ 6oung v. Kent, in6cla!! "*a+l"

,ontractor a"reed to install Readin" pipe in ho(se b(t installed different brand of similar
4(alit) instead

Holding> !reach 9as incidental and cost disproportionate to benefit, so correct meas(re is
dimin(tion of val(e rather than cost to tear do9n ho(se and b(ild 9ith correct pipin"
:cost of completion;
&aag"! $or 'r"ach in Con!truction Ca!"!

RS 4A@? 3Alt"rnati-"! to lo!! in -alu" o$ +"r$oranc"8

o :2; #f a breach res(lts in defective or (nfinished constr(ction and the loss in value
to the in%ured party is not proved !ith sufficient certainty , the in7(red part) ma)
recover dama"es based on either>
The dimin(tion of the marAet price ca(sed b) the breach, or
The reasonable cost of performance or of remed)in" defects if that cost is
not clearl) disproportionate to the probable loss of val(e to him
H.P. Droher $ Sons v. %oushin, (N, 57B7 3+125A8

,ase involved poorl) constr(cted ho(se in +@

Holding> The dimin(tion of val(e standard is appropriate in cases 9here the breachin"
part) has made a substantial good)faith effort to perform the contract accordin" to its
terms
o #mplication is that if the breachin" part) did not maAe a "ood?faith effort, the cost
of completion standard 9o(ld appl) :and the dimin(tion of val(e standard 9o(ld
not be applicable;
7astern Steashi0 "ines+ ,nc. v. 8S, %%, 57BA 3+12A58

3overnment contracted to (se ship and said after9ard 9o(ld restore ship to its pre?
"overnment?(se condition. 3overnment ref(sed to do so bKc cost to restore ship 9o(ld
be J4 million, after 9hich val(e of ship 9o(ld be onl) J2 million

Holding> "overnment m(st pa) shipo9ner cost of ship after restoration rather than cost of
restoration, bKc>
o Economic 9aste concerns
o #t=s (nliAel) shipo9ner 9o(ld act(all) spend the J4 million to fi1 the ship :since
its ret(rn 9o(ld be onl) J2 million;
City School District of 7lira v. !c"ane Construction Co., N;, 57?5 3+12A28

School district contracted to have +c$ane b(ild s9immin" pool 9ith roof s(pported b)
bea(tif(l 9ood beams. The beams 9ere central to the aesthetics of the str(ct(re. +c$ane
intentionall) (sed 9ood treatment method that res(lted in discolored beams

Holding> Dama"es are cost of completion rather than dimin(tion of val(e, even tho("h
cost of completion :J3%,***; far o(t9ei"hed dimin(tion of val(e :J3,***;, bKc>
o The desi"n of the beams 9ere central to the p(rpose of the b(ildin" pro7ect :not
incidental;, and
2/
o +c$ane liAel) acted in bad faith :mistaAe liAel) not the res(lt of innocent
oversi"ht or inattention;
Fo* v. (ebb, AL, 57B? 3+12AA8

Holding> 0esthetic tastes are more important for person b(ildin" a ho(se than for person
b(ildin" a commercial propert). Therefore, it=s proper to a9ard dama"es for cost of
completion :repair; than for dimin(tion of val(e 9hen home not b(ilt to precise
specifications
Grossan Holdings "td. 4. Hourihan, FL, 57?2

Pal(e of home had increased s(bstantiall) bet9een date of breach :alteration of desi"n
plans; and date of deliver) :completion;

Holding> Dama"es for breach of contract sho(ld be meas(red as of the date of the breach,
not as of the date of deliver). Relevant bKc dama"es 9ere a9arded based on dimin(tion
of val(e
-dvanced+ ,nc. v. (ilks, AI, 57?B

.here propert) is of special significance to o9ner and repair follo9in" breach of

contract seems liAel), the cost of repair :completion; ma) be appropriate even if it
e1ceeds dimin(tion of val(e bKc it=s liAel) o9ner 9ill (se dama"es to repair propert)
rather than 7(st pocAet them and sell the deficient propert)
1u*ley 7lectronics and Construction v. Forsyth, UI, 577< 3+12AB8

Pool b(ilder b(ilt pool that 9as too shallo9

Holding> ,ost of completion :cost of b(ildin" ne9 pool;, X21,/*, 9o(ld be

(nreasonable dama"es bKc 9o(ld be "rossl) disproportionate to advanta"e "ained in
havin" pool of the proper depth.
o 2o9ever, 5 entitled to some dama"es :X2**; for loss of Epleas(re and amenit)F
s(ffered b) reason of not havin" a %=/F deep pool to dive into
<1512 'r"ach ,. th" P"r!on Who Fa! Contract"d to Fa-" S"r-ic"!
P"r$or"d
-iello Construction+ ,nc.+ v. Nationwide %ractor %railer %raining and Placeent Cor0., RI
Su+ Ct1, 57?0 3+12A78

!()er a"reed to pa) monthl) installments to contractor to fill and "rade his land,
breached contract, indicatin" that f(nds 9ere not available to maAe pa)ments

Holding> ,o(rt a9arded :Scosts inc(rredT C Spa)ments b()er had alread) madeT; to "et
amo(nt of (nreimb(rsed mone) 5 had spent on pro7ect Y Sprofits 5 9o(ld have madeT
o #dea 9as to have dama"es be 9hat 5 9o(ld have had had contract been performed
o 0lso e4(als> :Scontract priceT C Smone) 5 saved b) not completin"T; C S pa)ments
madeT

Fr("> This is an important case bKc states r(le in a service contract 9hen person pa)in"
breaches
(ired !usic+ ,nc. v. Clark, IL, 57<0 3+12@08

,larA si"ned contract for monthl) m(sic service for three )ears. 0fter seventeen months,
,larA discontin(ed service beca(se he moved. 0 ne9 tenant tooA ,larA=s place and
2%
be"an a ne9 contract at a hi"her place. .ired s(ed for the remainin" 16 months of
,larA=s contract

Holding> ,o(rts a9ard .ired its lost profits bKc .ired co(ld have an) n(mber of
c(stomers at an) time :since its service 9as not a fi1ed 4(antit) of some personal
propert), liAe a car or ho(se;, so ne9 tenant didn=t reall) EreplaceF ,larA
4ite* !fg. Cor0. v. Caribte* Cor0., A
rd
Cir1, 57<7 3+12@08

Fi1ed costs :overhead; sho(ld not be considered as part of a seller=s costs for p(rposes of
comp(tin" e1pectation dama"es bKc fi1ed costs 9o(ld have been the same 9hether or not
contract had been formed- onl) variable costs are relevant
<12 &aag"! $or 'r"ach o$ a Contract $or th" Sal" o$ >ood! 3UCC8
&"t"rining Wh"th"r W"Kr" Und"r th" UCC

&,, applies to all transactions in "oods :UCC 426502;

3oods are all thin"s movable :UCC 42650B;

o Doesn=t incl(de mone), investment sec(rities, real estate or ca(ses of action
o #ncl(des (nborn animals, "ro9in" crops, thin"s attached to b(t separable from
realt) :UCC 426507;
o $and is not covered b) &,,
o Service contracts are not covered b) &,,, b(t combination of "oods and services
ma) be :test is severabilit) v. thr(st of a"reement :favored;;

I(PORTANT= I$ th" UCC a++li"!, itK! "rror not to di!cu!! it

E1amples
o Peevyhouse not a &,, case beca(se coal is to be severed b) the b()er, not the
seller :see UCC 426507;
o Sale of a mobile home covered (nder &,, beca(se is a Ethin" attached to b(t
separable from realt)F :see UCC 426507;
o 0nesthesiolo"ist providin" anesthesia> ,ases "o both 9a)s :is it a "ood or a
serviceB;
o #s information a E"oodBF 0re ideas E"oodsBF
<1215 'r"ach ,. th" S"ll"r
UCC Rul"! $or 'r"ach ,. S"ll"r

.hen seller fails to maAe deliver) or rep(diates or b()er ri"htf(ll) re7ects or revoAes
acceptance, b()er can EcoverF and "et dama"es or recover dama"es for non?deliver) at
marAet price
o Disa"reement 9hether b()er can cover and still "et paid marAet price if hi"her
o +ost sa) Eno>F .hite Q S(mmers point to specific lan"(a"e in &,, :or and
alternative; and don=t 9ant to p(t b()er in better position than if contract (pheld
2'
o Some sa) E)es>F Peters doesn=t believe that or prevents both- seller sho(ld not "et
advanta"e of a fort(ito(s cover b) b()er and marAet val(e 9o(ld disco(ra"e
breach

426752 3LCo-"rM8> Follo9in" a breach a b()er ma) EcoverF b) maAin" in "ood faith and
9itho(t reasonable dela) an) reasonable p(rchase of "oods or services in s(bstit(tion for
those d(e from the seller
o The b()er 9ho has so EcoveredF ma) recover as dama"es from the seller the
difference bet9een the cost of cover and the contract price to"ether 9ith an)
incidental or conse4(ential dama"es res(ltin" from the breach, min(s an)
e1penses saved as a res(lt of the breach ScoverT C Scontract priceT Y
Sconse4(ential dama"esT C Se1penses saves as a res(lt of the breachT

42675A 3&aag"! $or non6d"li-"r. or r"+udiation8> The meas(re of dama"es for non?
deliver) or rep(diation b) the seller is the difference bet9een the marAet price at the time
9hen the b()er learned of the breach and the contract price to"ether 9ith an) incidental
and conse4(ential dama"es SmarAet priceT C Scontract priceT Y Sconse4(ential dama"esT
o +arAet price is to be determined as of the place for tender or, in cases of re7ection
after arrival or revocation of acceptance, as of the place of arrival
o Dama"es are to be assessed as of the time the b()er learned of the breach
:beca(se that=s 9hen the b()er first has the opport(nit) to seeA cover or
alternative relief;
o 42672A= #f no prevailin" price, reasonable s(bstit(te :as to time and distance from
the place of performance; ma) be (sed :need to "ive fair notice;
o 42672@> P(blished reports of prices can also be (sed to determine the prevailin"
marAet price at the time of rep(diation
o This I applies 9hen the b()er has not EcoveredF

42675@ 3&aag"! $or ,r"ach in ca!" o$ acc"+tanc" o$ good!8> #f b()er accepts "oods
that do not conform to the contract, the b()er ma) recover for Ebreach of 9arrant)F
o Dama"es for breach of 9arrant) are meas(red as the difference at the time and
place of acceptance bet9een the "oods accepted and the val(e the) 9o(ld have
had if the) had been as 9arranted, pl(s an) incidental or conse4(ential dama"es

42675B 3Incid"ntal and con!"0u"ntial daag"!8> #ncidental dama"es res(ltin" from the
seller=s breach incl(de e1penses reasonabl) inc(rredDin connection 9ith effectin" cover
and an) other reasonable e1pense incident to the breach
Continental Sand $ Gravel+ ,nc. v. K$K Sand $ Gravel+ ,nc., 7
th
Circuit, 57?B 3+12@28

L sold 5 defective e4(ipment for J*W :breach of e1press 9arranties;

Holding> 5 a9arded J1*4W, cost to brin" e4(ipment to 9arranted condition. ,o(rt

re7ects L=s ar"(ment that dama"es sho(ld have been dimin(tion of val(e rather than cost
of repair :completion;

42675@= Dama"es "enerall) sho(ld represent the difference bet9een the val(e of the
"oods at the time of acceptance and the val(e the) 9o(ld have had if the) had been as
9arranted
o 3ives b()er benefit of bar"ain 9hen val(e of "oods e1ceeds p(rchase price
!anouchehri v. Hei, N( Ct1 or A++"al!, 5777 3+12@A8
26

(easoning> The difference bet9een the val(e of the "oods as 9arranted and the val(e of
the "oods as accepted can often be appro1imated b) the cost to repair the "oods so that
the) confirm to the 9arrant)
7gerer v. CS1 (est+ ""C, WA Ct1 o$ A++"al!, 200A 3+12@A8

5 contracted 9ith L to fill "ravel at J.*K)ardZ 9ith material that 9as cheaper than Epit
r(n.F L breached. 0fter si1 months, 5 fo(nd replacement material at J'.2K)ardZ. The
replacement material 9as pit r(n. M co(ldn=t afford that J'.2K)ardZ price- had to 9ait
t9o )ears to find price it co(ld afford :J/.26K)ardZ;.

Holding> #n assessin" 5=s dama"es, co(rt (ses J'.2K)ardZ fi"(re :Eh)pothetical coverF;,
even tho("h it 9as for a material of hi"her 4(alit) and cost than the material 5 ori"inall)
contracted for, bKc pit r(n is a reasonable s(bstit(te for the contracted?for material.

.here a seller fails to deliver to a b()er a prod(ct contracted for and the b()er does not
cover, in assessin" dama"es the co(rt ma) looA to the price of reasonable s(bstit(te at a
time reasonabl) close to the time of breach as evidence of the prevailin" price, despite
4(alit) differences bet9een the prod(ct contracted for and the s(bstit(te prod(ct
o This r(le "rants co(rts si"nificant lee9a) in meas(rin" prevailin" price bKc it sa)s
a co(rt ma) (se a marAet price for "oods different in 4(alit) from the ones the
b()er contracted for
Panhandle -gri)Service+ ,nc. v. #ecker, IS, 57?2 3+12@<8

Holding> Fail(re of the b()er to cover 9hen s(ch remed) is reasonabl) available 9ill
precl(de recover) of conse4(ential dama"es
Ei!"n,"rg> #f the breachin" seller cannot prove that the b()er=s ne9 p(rchase is in fact a
replacement for the one not delivered (nder the contract, the EcoverF p(rchase sho(ld not
foreclose the b()er=s recover) (nder 42675A :dama"es assessed based on marAet val(e at the
time of breach;
<1212 'r"ach ,. th" 'u."r
UCC Rul"! $or 'r"ach ,. 'u."r

42670A 3S"ll"rK! r""di"! in g"n"ral8> .here b()er breaches and breach is of the !hole
contract, seller can choose the remed) :not m(t(all) e1cl(sive;>
o .ithhold deliver) of the "oods
o Resell the "oods and recover dama"es
o Recover dama"es for nonaccpetance : 42670? ; :or in some cases the price : 426
707 ;;
o ,ancel

42670< 3R"!al"8> #f made in "ood faith and in a commerciall) reasonable manner, the
seller ma) recover the difference bet9een the resale price and the contract price to"ether
9ith an) incidental dama"es, less e1penses saved in conse4(ence of b()er=s breach

42670? 3&aag"! $or nonacc"+tanc"8> +eas(re of dama"es for non?acceptance or

rep(diation b) the b()er O S(npaid contract priceT C SmarAet price at time and place of
tenderT Y Sincidental dama"esT C Se1penses saved in conse4(ence of b()er=s breachT
3*
o #f the above meas(re of dama"es is insufficient to p(t the seller in as "ood of a
position had the contract been f(ll) performed, ho9ever :(s(. relevant 9ith Elost
vol(me sellersF;, then the meas(re of dama"es is profit :incl(din" reasonable
overhead; 9hich the seller 9o(ld have obtained from f(ll performance, to"ether
9ith incidental dama"es
o This I applies 9hen the b()er doesn=t resell the "oods

426707 3Action $or th" +ric"8> .hen the b()er fails to pa) the price as it becomes d(e
the seller ma) recover :to"ether 9ith incidental dama"es; the price of>
o :1; an) "oods b()er has accepted, and
o :2; an) "oods seller cannot resell

426750 3S"ll"rK! incid"ntal daag"!8> Seller=s Eincidental dama"esF relate primaril) to

transportation and c(stod) :of the "oods; costs res(ltin" from the breach
So, seller has three remedies in case of breach b) b()er>

ScontractT C Sresale:cover;T

ScontractT C SmarAetT

$ost profits
KG! Harvesting Co. 4. Fresh Network, CA Court o$ A++"al!, 577B 3+12BA8

!()er covered on lett(ce shipments after seller defa(lted to sell at m(ch hi"her price

!()er covered at cost of J223W, b(t bKc b()er had cost?pl(s contract 9ith ,astellini, all
b(t J%*W of that 9as passed on to ,astellini

Seller ar"(es b()er sho(ldn=t "et ScoverT C ScontractT since that 9o(ld p(t b()er in better
position than had contract been performed

Holding> 5 entitled to ScoverT C ScontractT since 5 entitled to the benefit of the bar"ain
:i.e., 9hat he 9o(ld have had had the contract been performed;. .hat 5 chooses to do
9ith the bar"ain is immaterial

.hat the b()er chooses to do 9ith the bar"ain is not relevant to the determination of
dama"es :and th(s if dama"es p(t the b()er in a better position than he 9o(ld have been
in had the contract been performed beca(se the b()er fo(nd some 9a) to settle the
sit(ation so that ScoverT C ScontractT 9o(ld p(t him in that better position, he still "ets
Scover?contractT dama"es
Lo!t Eolu" S"ll"r!

Neri v. 1etail !arine Cor0., N; Ct1 o$ A++"al!, 5772 3+12<08

o 5 contracted to p(rchase ne9 boat for J13W and then rep(diated 9hen he "ot sicA.
L resold boat 3 months later for the ori"inal cost. .hat loss sho(ld L be
compensated forB
o Holding> Second sale is not a resale b(t rather a lost vol(me sale. #n other 9ords,
9itho(t breach, seller 9o(ld have made t9o sales, not 7(st one. Th(s, SmarAet
priceT C Scontract priceT ins(fficient to p(t seller in as "ood a position as he 9o(ld
have been in had the contract been performed bKc doesn=t acco(nt for lost profit
from the first sale. Th(s, (nder 42670? dama"es for breach of first sale sho(ld be
Slost profitT Y Sincidental dama"esT.
31

%eradyne+ ,nc. v. %eledyne ,ndustries+ ,nc., 5

!t
Cir, 57?2 3+12<@8
o #n a breach b) b()er 9here seller resells, the proceeds of the resale are not to be
credited to the seller for p(rposes of assessin" dama"es if the seller is a Elost
volume seller,F that is, one 9ho, had there been no breach b) the b()er, co(ld and
9o(ld have had the benefit both of the ori"inal contract and the resale contract

"a.enby Garages "td. 4. (right, Engli!h Ct1 A++1,577< 3+12<B8

o Holding> $ost?vol(me sales don=t appl) to (sed cars beca(se not all (sed cars are
the same, even of the same model and )ear
#.e., ne9 car dealers are lost?vol(me sellers beca(se a ne9 car can be
replaced 9ith one e1actl) the same- a (sed car, on the other hand, cannot
be replaced 9ith one e1actl) the same, beca(se no t9o (sed cars are
e1actl) the same.
S@8TE> +iti"ation, Foreseeabilit) and ,ertaint) are notions to limit dama"es C in fact, prevent
the plaintiff from bein" p(t in as "ood a position as he 9o(ld have been in had contract been
performed. These limits define e1pectation dama"es. ,ode also doesn=t p(t plaintiff in as "ood
a position bKc it does not acco(nt for interest, attorne)=s fees, or end prod(ct to boost rep(tationT
<1A1 (itigation: Contract! $or E+lo."nt

*itigation> D(t) to avoid (nnecessar) dama"es in conse4(ence of breach to limit

economic 9aste

The miti"ation r(le is not abo(t 9hat )o( have to do- rather, it=s abo(t 9hat dama"es )o(
"et :if )o( don=t miti"ate, )o( don=t "et the dama"es;
&ut. to (itigat"

RS 4AB0 3A-oida,ilit. a! a Liitation on &aag"!8

o Dama"es are not recoverable for loss that the in7(red part) co(ld have avoided
9itho(t (nd(e risA, b(rden, or h(miliation
o The in7(red part) is not precl(ded from recover) b) this r(le to the e1tent that he
has made reasonable b(t (ns(ccessf(l efforts to avoid loss

!&T, 42670@328 3S"ll"rK! &uti"!GRight! in Ca!" o$ 'r"ach8

o .here the "oods are (nfinished, an a""rieved seller ma) in the e1ercise of
reasonable commercial 7(d"ment for p(rposes of avoidin" loss and of effective
realiHation either>
,omplete the man(fact(re and 9holl) identif) the "oods to the contract,
or
,ease man(fact(re and resell for scrap or salva"e val(e or proceed in an)
other reasonable manner
o @8TE> This I seems not to cohere 9ith RS 4AB0, in the that d(t) to miti"ate
:coverKresell; is m(ch less :or not re4(ired at all;

D(ties to miti"ate accordin" to different sit(ations>

o Bridge building> D(t) to stop, no d(t) to search for other brid"e. @o cover.
32
o +ale of ,oods :&,,;> @o d(t) to cover or resell :can simpl) collect marAet
dama"es;.
o -andlord)#enant> @o d(t) to search for different tenant or to accept another.
o &mployee> D(t) to search, and if taAes a 7ob, amo(nt earned is ded(cted from the
dama"es
1ockingha County v. "uten #ridge Co., @
th
Cir1, 5727 3+12<<8

@, co(nt) rep(diated brid"e contract, b(t brid"e?b(ildin" compan) contin(ed 9orAed

after notice "iven

Holding> !rid"e compan) failed d(t) to miti"ate dama"es, so not entitled to costs after
rep(diation. ,ompan) th(s a9arded Se1penses inc(rred before breachT Y Se1pected
profitsT b(t not e1penses inc(rred after the breach 9hen the compan) contin(ed to b(ild
the brid"e.

0fter an absol(te rep(diation or ref(sal to perform b) one part) to a contract, the other
part) cannot contin(e to perform and recover dama"es based on f(ll performance.
o This r(le is onl) a partic(lar application of the "eneral r(le of dama"es that a
plaintiff cannot hold a defendant liable for dama"es 9hich need not have been
inc(rred.

(easoning> +iti"ation 9o(ld red(ce economic 9aste and not p(t 5 in an) 9orse position
o !&T, this isn=t entirel) tr(e since 5 no9 has to brid"e to sho9 off and less 9orA
for emplo)ees
!adsen v. !urrey $ Sons Co., UT, 57?7 3+12<78

0fter rep(diation b) b()er, pool table man(fact(re chopped (p its tables and sold them as
fire9ood

Holding> The pool table man(fact(rer :seller in this case; had a duty to mitigate its
damages to buyer and failed to do so, bKc dismantlin" the pool tables and (sin" them as
fire9ood, rather than attemptin" to sell them at a f(ll or disco(nt price, 9as not
commercially reasonable
,n 1e Kellett -ircraft Cor0., A
rd
Cir1, 57B0 3+12<78

0meriform contracted to have Wellett maAe sho9er cabinets for a "overnment contract.
Wellett rep(diated. #n coverin", 0meriform chose the hi"her?priced alternative :,(tler;

Holding> #n miti"atin" dama"es to the b()er, a seller does not have to taAe those steps
9hich 9o(ld be most advanta"eo(s to the seller :i.e., find the cheapest alternative;.
Rather, b()er m(st merel) be reasonable in findin" the alternative
#ank &ne+ %e*as N.-. v. %aylor, B
th
Cir1, 5772 3+12708

!anA froHe Ta)lor=s assets, 9hich prevented Ta)lor from contin(in" to participate in old?
drillin" vent(re. !anA claimed Ta)lor co(ld have contin(ed participation b) sellin" her
o9n assets, incl(din" her personal 7e9elr) and cash.

Holding> Tho("h an in7(red part) is re4(ired to (se reasonable dili"ence to minimiHe

losses, he is not re4(ired to maAe E(nreasonable personal o(tla)s of mone)F or to
Esacrifice a s(bstantial ri"ht of his o9nF

0n in7(red part), rather is re4(ired to inc(r onl) sli"ht e1pense and reasonable effort in
miti"atin" his dama"es
E+lo."nt and th" &ut. to (itigat" 3"*c"+tion to th" g"n"ral rul"8
33

Emplo)ee 9ho is 9ron"f(ll) dischar"ed has d(t) to search for another 7ob- if he taAes
another 7ob then earnin"s are s(btracted from dama"es
o Emplo)ee need onl) looA for and taAe co+ara,l" Jo, :b(t this be"s the 4(estion
of 9hat=s comparableB;
o @ot re4(ired to taAe an inferior 7ob, b(t if )o( do then it is taAen o(t of )o(r
dama"es

.hat=s comparableB
o EFloor lad) and desi"nerF vs. Efloor lad)BF
o ,E8 of small compan) vs. E1ec PP or ,88 :hi"her?pa)in"; of lar"e compan)B
o +cDonalds vs. !WB
o 8ne firm vs. anotherB
o This is a problematic 4(estion
o This is also an important 4(estion> #f )o( maAe ver) fe9 thin"s comparable, )o(
raise the cost of breach- if )o( maAe man) thin"s comparable, )o( lo9er the cost
of breach

Rationale for the emplo)ee e1ception to "eneral miti"ation r(le>

o #t=s in the p(blic=s interest to "et people bacA to 9orA rather than have them
inefficientl) sittin" aro(nd
o .hereas a contractor or landlord does not need incentives to "o o(t and find a
ne9 so(rce of income, an emplo)ee does not necessaril) have this incentive.
,o(rts therefore force emplo)ee to miti"ate b) taAin" a comparable 7ob
:efficienc) concerns;
Shirley !ac"aine Parker v. %wentieth Century)Fo* Fil Cor0., CA SC, 5770 3+12728

St(dio rep(diated movie contract 9ith actress, offered her ne9 part instead. .estern
rather than m(sical, in 0(stralia rather than $0, etc.

Holding> 5 did not have to taAe different or inferior emplo)ment, so she can recover
9a"es. !asicall), 5 "ets paid to sit home and do nothin" since contract not deemed
comparable.

The "eneral r(le for dama"es in 9ron"f(l dischar"e cases is the amo(nt of salar) a"reed
(pon for the period of service, min(s the amo(nt the breachin" emplo)er can sho9 the
emplo)ee :1; has earned or :2; mi"ht 9ith reasonable effort have earned from other
emplo)ment.
o !efore pro7ected or (nso("ht earnin"s can be (sed to miti"ate dama"es, ho9ever,
the emplo)er m(st sho9 that the other emplo)ment 9as comparable or
s(bstantiall) similar to that of 9hich the emplo)ee has been deprived.

Th(s, small distinctions in criteria for assessin" comparabilit) can drasticall) affect
miti"ation

Fr("> 0n) 9a) )o( c(t it, person is (nliAel) to be p(t in same position as if contract
(pheld
Punkar v. King Plastic Cor0., FL A++1 577@ 3+127B8

0 9ron"f(ll) dischar"ed emplo)ee has a d(t) onl) to looA for emplo)ment near his home
!r. 7ddie+ ,nc. v. Ginsberg, TD Ci-1 A++1, 57<? 3+127B8
34

5 can recover for e1penses inc(rred 9hile seeAin" to miti"ate lossesKdama"es res(ltin"
from L=s breach :i.e., e1penses inc(rred 9hile seeAin" in vain for other emplo)ment;
Southern Keswick+ ,nc. v. (hetherholt, FL A++1, 577@ 3+127<8

0 9ron"f(ll) dischar"ed emplo)ee is not obli"ated to taAe an inferior 7ob, b(t if he does
taAe one his earnin"s from s(ch inferior emplo)ment sho(ld (sed in miti"atin" dama"es
&aag"! $or Lo!! o$ R"+utation and Lo!! o$ O++ortunit. to Practic" On"K! Pro$"!!ion

,laims for loss of rep(tation>

o 3enerall), "eneral loss of rep(tation claims res(ltin" from contract breaches :e.".,
loss to brid"e b(ilder of increased rep(tation from s(ccessf(ll) completin"
brid"e, loss to artist 9ho doesn=t increase her rep(tation b) completin" a portrait;
are denied
o !&T, co(rts have allo9ed emplo)ees 9hose rep(tations 9ere impaired b) breach
of contract to recover specific losses that res(lted from the in7(r) to the 5=s
rep(tation

,laims for loss of opport(nit) to practice one=s profession>

o 0n emplo)er "enerall) ma) (tiliHe his emplo)ee=s services 9hen and ho9 he
9ishes, provided the emplo)er pa)s the emplo)ee the a"reed?(pon price
o !&T, 9here the emplo)ee=s rep(tation 9ill s(ffer if he is not allo9ed to practice
his profession or 9hen the Eanticipated benefitF to the emplo)ee from doin" the
9orA is a Ematerial partF of the advanta"e to be received b) the emplo)ee from
the emplo)ment :as in the case of a radio anno(ncer;, dischar"ed emplo)ee ma)
recover dama"es
<1@1 For"!""a,ilit.

!asic R(le> ,an onl) "et dama"es if foreseeable at time contract 9as made

$imits dama"es part) can recover and introd(ces a tension bet9een conse4(ential
dama"es and e1pectation idea of p(ttin" a""rieved part) in as "ood a position as if
contract (pheld

The foreseeabilit) doctrine is abo(t lo9erin" the cost of breach :L?centered doctrine;

0r"(ment for foreseeabilit) doctrine> @o one 9o(ld a"ree to contract if the) Ane9 that
had to pa) all conse4(ential dama"es

0r"(ment a"ainst foreseeabilit) doctrine> .h) 9o(ld 5 ever enter into a contract if,
9hen L breached, L 9o(ldn=t be responsible for the dama"esB
Un$or"!""a,ilit. a! a Liitation on &aag"! 3RS 4AB58

Dama"es are not recoverable for loss that part) in breach did not have reason to foresee
as a probable res(lt of the breach 9hen the contract 9as made

0 loss ma) be foreseeable as a probabl) res(lt of breach beca(se it follo9s from the
breach>
3
o #n the ordinar) co(rse of events, or
o 0s a res(lt of special circ(mstances that part) in breach had reason to Ano9 of

The co(rt ma) limit dama"es for foreseeable loss, if s(ch dama"es 9o(ld be
disproportionate to the a""rieved part)=s losses, b) e1cl(din" recover) for loss of profits,
b) allo9in" recover) onl) for loss inc(rred in reliance, etc.

,omment> The mere circ(mstances that some loss 9as foreseeable, or even that some
loss of the same "eneral Aind 9as foreseeable, 9ill not s(ffice if the loss that actually
occurred 9as not foreseeable. #t is eno("h, ho9ever, that the loss 9as foreseeable as a
probable, as distin"(ished from a necessar), res(lt of the breach

No( have to tell people abo(t the special circ(mstances :speciall) comm(nicate;, and if
)o( don=t, the)=re not liable
UCC 42675B 3'u."rK! Incid"ntal and Con!"0u"ntial &aag"!8

,onse4(ential dama"es res(ltin" from the seller=s breach incl(de an) loss :1; res(ltin"
from "eneral or partic(lar re4(irements and needs of 9hich the seller at the time of
contractin" had reason to Ano9, and :2; 9hich co(ld not reasonabl) be prevented b)
cover or other9ise
o :Seller=s conse4(ential dama"es in case of breach b) b()er are his lost profits;
Hadley v. #a*endale, England, 5?B@ 3+12778

+iller contracted to have broAen shaft sent to 3reen9ich to be fi1ed and 4(icAl)
ret(rned. Deliver) dela)ed b) some ne"lect ca(sin" the mill to remain closed for several
e1tra da)s. +iller s(ed for lost profits res(ltin" from breach of contract that Aept mill
closed

Holding> Dama"es from mill sh(t?do9n (nforeseeable to shipper so 7(r) sho(ld not
consider lost profits in dama"es

(easoning> E#n the "reat m(ltit(de of cases of millers sendin" off broAen shafts to third
persons b) a carrier, s(ch conse4(ences 9o(ld not, in all probabilit), have occ(rred- and
these special circ(mstances 9ere never here comm(nicated b) the plaintiffs to the
defendantsF

.here t9o parties have made a contract 9hich one has broAen, dama"es sho(ld be s(ch
as ma) fairl) and reasonabl) be s(pposed either :1; to have arisen nat(rall) :i.e.,
accordin" to the (s(al co(rse of thin"s; from s(ch breach of contract itself or :2; to have
been in the contemplation of both parties :Ereason to Ano9F;, at the time the) made the
contract, as the probable res(lt of the breach of it

0r"(ments of 7(stification>
o Fairness>
L 9o(ld ar"(e not fair to pa) s(ch hi"h dama"es for somethin" the) co(ld
not have Ano9n 9o(ld happen
M 9o(ld ar"(e that it is not fair that he have to bear the br(nt of the loss
ca(sed b) defendant=s breach
o ,onse4(entialist>
!oth sides 9o(ld ar"(e that a r(lin" contrar) to their liAin" mi"ht maAe
people less liAel) to enter into contracts

L> ,ost of breach too hi"h

3/

M> ,an=t depend on the other side to f(lfill their f(ll d(t)
4ictoria "aundry 9(indsor: "td. 4. Newan ,ndus. "td., England, 57@7 3+12?A8

M p(rchased lar"e?capacit) boiler from L to e1pand its la(ndr) b(siness. !oiler 9as
dela)ed for man) months, ca(sin" 5 to lost n(mero(s l(crative contracts it 9o(ld have
had had it had the boilder

Holding> 5 entitled to lost profits bKc L Ane9 of intended (se and that 5 9anted boiler
0S0P- therefore L had reasonabl) possessed imp(ted Ano9led"e of foreseeable dama"es
to 5
Koufos v. C. C.arnikow+ "td. ;%he Heron ,,<, %%%, 57<7 3+12?B8

M chartered L=s vessel to carr) their load of s("ar to !asrah, intended to sell the s("ar
once the boat arrived in !asrah. L=s vessel arrived in !asrah 6 da)s late- in the space of
those 6 da)s, the price of s("ar in !asrah had fallen. Th(s, 5=s profits 9ere less than the)
9o(ld have been had L=s boat arrived on time

Holding> L mi"ht have Ano9n 5 9o(ld sell the s("ar once it arrived in !asrah and mi"ht
have s(pposed it 9as possible that the price of s("ar 9o(ld fl(ct(ate d(rin" those 6 da)s
of dela), b(t he had no Ano9led"e of 5=s act(al intentions and had no reason to s(ppose it
probable that d(rin" the relevant period the price of s("ar 9o(ld fall. Th(s, the res(lt
9as not a foreseeable conse4(ence of the dela) at the time of contract, and L is not
responsible for L=s profits lost beca(se of the 6 da)s dela)
Hector !artine. and Co. v. Southern Pacific %rans0. B
th
Cir1 577< 3+12?78

To be recoverable, the harm s(ffered b) the a""rieved part) doesn=t have to be the most
foreseeable of possible harms- rather the harm need onl) be not so remote as to maAe it
(nforeseeable to a reasonable person at the time of contractin"
,nde0endent !echanical Contractors+ ,nc. v. Gordon %. #urke $ Sons, NF, 577A 3+12758

#n order to establish liabilit), 5 m(st onl) sho9 that L=s breach 9as a substantial factor in
ca(sin" the in7(r) :and not the only factor;
Liitation! on Con!"0u"ntial &aag"!

Panhandle -gri)Service+ ,nc. v. #ecker, IS, 57?2 3+12?78

o #f a b()er fails to attempt to cover, he cannot recover conse4(ential dama"es
:incl(din" lost profits;

S.'. Groves $ Sons v. (arner Co1, A

rd
Cit, 577? 3+12758
o .here both parties have contrib(ted to the breach, the dama"es are divided (p
amon" the parties :i.e., 5 can=t recover all his losses;
<1B C"rtaint.

!asic R(le> No( can onl) "et dama"es that )o( can prove 9ith reasonable certaint)
o #f )o( can=t prove dama"es 9ith reasonable certaint), then )o(r dama"es mi"ht be
Hero :this r(le is another b(rden on 5;

SEisenber" doesn=t liAe this all?or?nothin" r(le, 9o(ld assess based on probabilit)
o Fr("> !(t this 9o(ld empt) the certaint) r(le of meanin"T
3%
Unc"rtaint. a! Liitation on &aag"! 3RS 4AB28

Dama"es are not recoverable for loss be)ond an amo(nt that the evidence permits to be
established 9ith reasonable certainty
UCC 45650<358 3R""di"! to ," li,"rall. adini!t"r"d8

(emedies shall be liberally administered to the end that the a""rieved part) ma) be p(t in
as "ood a position as if the other part) had f(ll) performed, b(t neither conse4(ential or
special dama"es ma) be had e1cept as specificall) provided in this 0ct or b) other r(le of
la9
Kenford Co. v. 7rie County, N; Ct1 o$ A++"al!, 57?< 3+12728

5 entered into contract 9ith L to constr(ct and operate a domed stadi(m near !(ffalo. L
breached contract, and 5 s(ed for loss of prospective profits d(rin" 2*?)ear mana"ement
contract

Holding> L presented massive amo(nts of anal)ses, b(t its proof ins(fficient to meet the
re4(ired standard, as L=s (ltimate concl(sions 9ere still pro7ections and s(b7ect to
ad7(stment and modification :also, this 9as a ne9 enterprise and so forecastin" profits
9as too spec(lative;

For 5 to recover, the dama"es m(st be reasonabl) certain and directl) traceable to the
breach, not merel) spec(lative
S.e! Business (ule> Prohibits :in most cases; recover) of lost profits res(ltin" from a breach of
contract that has prevented the plaintiff from establishin" a proposed ne9 b(siness on the "ro(nd
that profits in s(ch cases are too spec(lative. +odern trend is a9a) from this r(le, and to9ards
9hether the plaintiff has "athered a s(fficienc) of proofT
-shland !anageent ,nc v. 'anien, N;, 577A 3+127B8

5 contracted 9ith L to create investment model to s(cceed c(rrent model, L breached

Holding> 5 entitled to dama"es for lost profits bKc parties had caref(ll) st(died
professional 7(d"ments of 9hat the) believed 9ere realistic pro7ections of L=s soft9are=s
f(t(re (se :so pro7ection of f(t(re profits in this case 9as not based on (nd(e spec(lation;

The re4(irement that dama"es be reasonabl) certain does not re4(ire absol(te certaint)
b(t rather that dama"es be capable of meas(rement based (pon Ano9n reliable factors
9itho(t (nd(e spec(lation
1obola v. Consindas, (A, 57<< 3+12778

5 trained and rode horse in ret(rn for %[ of horse=s 9innin"s. 0fter one )ear, L
deprived 5 of ri"ht to race.

,o(rt a9arded 5 lost profits based on horse=s prior record of 9innin". #.e., horse=s
consistent performance s(""ests she 9o(ld have 9on some of the si1 races after L tooA
the horse bacA, maAin" profits to 5 reasonabl) certain and th(s entitlin" 5 to dama"es for
lost profits.
Conte0orary !ission+ ,nc. v. Faous !usic Cor0., 2
nd
Cir1, 5777 3+127?8

L contracted to release fo(r sin"les from 5=s alb(m, L breached. Prior to breach, one of
the sin"les from the alb(m had reached \'*, and after it 9as 9ithdra9n from the marAet
d(e to L=s breach rose to \/1
3'

The record 9as real, the price fi1ed, the marAet 9as b()in", and the record=s s(ccess 9as
increasin". Th(s, it is reasonabl) certain that the sin"le 9o(ld have risen even hi"her had
it not been 9ithdra9n. M th(s entitled to dama"es for lost ro)alties
S!(t isn=t investment :a horse, m(sic alb(m; a risA), spec(lative proposition in man) casesB
Seems liAe the test is to Emake the pro%ections sound convincing.F Seems liAe 9e are "ettin"
a9a) from p(re e1pectation theor). !(rden on 5 and obvio(sl) some fle1ibilit)T
<1< &aag"! $or ("ntal &i!tr"!!
Lo!! &u" to Eotional &i!tur,anc" 3RS 4ABA8

Recover) for emotional dist(rbance 9ill be e1cl(ded (nless breach also ca(sed bodil)
harm or contract or breach is s(ch that serio(s emotional dist(rbance 9as a partic(larl)
liAel) res(lt

E1amples of contracts 9hose breaches are liAel) to res(lt in serio(s emotional

dist(rbance> carriers and innAeepers 9ith passen"ers and "(ests, carria"e and proper
disposition of dead bodies, deliver) of messa"es

E1amples of contracts not liAel) to res(lt in mental distress dama"es> emplo)ment

o ,onse4(entialist ar"(ment for not a9ardin" mental distress dama"es in a
9ron"f(l firin" s(it> *ost 9ron"f(l firin"s res(lt in mental distress :so a9ardin"
dama"es 9o(ld be too e1pensive;

RS 4ABB 3Puniti-" daag"!8> P(nitive dama"es are not recoverable for a breach of
contract (nless the cond(ct constit(tin" the breach is also a tort for 9hich p(nitive
dama"es are recoverable
Wrong$ul &i!charg"
4alentine v. General -erican Credit+ ,nc., (I SC, 57?@ 3+1A028

M 9ron"f(ll) dischar"ed from her 7ob, s(es for mental distress :loss of peace of mind
res(ltin" from loss of 7ob sec(rit);

Holding> 5 ma) not recover mental distress dama"es. The primar) p(rpose of an
emplo)ment contract is economic, not the sec(rin" of personal interests. The ps)chic
satisfaction of the emplo)ment is secondar). M=s monetar) loss for 9ron"f(l termination
of emplo)ment can be estimated 9ith reasonable certaint) accordin" to the terms of the
contract and the marAet val(e of 5=s service.

Dama"es for mental distress ma) be recovered onl) if :1; the contract=s primar) p(rpose
is to sec(re some +"r!onal int"r"!t :e."., marria"e, a child; and :2; dama"es cannot
ade4(atel) determined b) looAin" to the marAet standard or terms of the contract

(easoning> ,o(rt concerned that reco"niHin" ps)cholo"ical s(fferin" 9o(ld increase

dama"es and chan"e the incentives s)stem :bKc almost ever) breach res(lts in pec(niar)
loss and pec(niar) loss invariabl) res(lts in some form of mental distress;. ,o(rt=s
(nderl)in" concern to Aeep labor marAet fl(id, and co(rt also fears potential for p(nitive
dama"es.
Childcar"
"ane v. Kindercare "eaning Centers+ ,nc., (I, 577? 3+1A0B8
36

M drops child off at da)?care center. .hen 5 ret(rns later in the da), the center is locAed
and no one is there. M calls police to breaA in and "et her child :9ho 9as sleepin" in a
crib;. M s(ed for dama"es for emotional distress as a res(lt of the incident

Holding> 0 contract to care for one=s child is a matter of Emental concern and solicit(deF
rather than Epec(niar) a""randiHement.F Th(s, the contract 9as personal rather than
commercial in nat(re. 0t time of contract, it 9as foreseeable to the parties that a breach
9o(ld res(lt in emotional distress to 5. Therefore, 5 entitled to recover dama"es for
emotional distress res(ltin" from the breach. That 5=s emotional distress did not res(lt in
ph)sical in7(r) is not important.

Dama"es for emotional distress ma) be recovered for breach of contracts of a personal
nat(re :i.e., contracts that are not pec(niar) or commercial;. That emotional distress
9o(ld res(lt from breach m(st have been foreseeable at the time of contract.

Dama"es ma) be a9arded for emotional distress even in cases 9here the emotional
distress does not res(lt in ph)sical in7(r)
EacationGEnt"rtain"nt
'arvis v. Swan %ours+ "td., WLR, 5772 3+1A078

M contracted 9ith L for a pacAa"e holida) in S9itHerland. The holida) 9as a flop- the
food 9as terrible and 5 9as left all alone for the second 9eeA

+ental distress dama"es allo9ed in contract for a vacation, or an) other contract to
provide entertainment and en7o)ment

(easoning> Pe1ation and bein" disappointed in a partic(lar thin" )o( have set )o(r mind
on are relevant considerations the co(rt sho(ld (se in assessin" dama"es for breach

Deitsch v. *usic "o. :p.3*';> 5 entitled to recover mental distress dama"es for distress,
inconvenience, and dimin(tion of val(e of 9eddin" reception ca(sed 9hen hired band
failed to sho9 (p at their 9eddin" reception
<17 Li0uidat"d &aag"!

-iquidated damages clause> Sets o(t the dama"es for contract breach ahead of time

3eneral r(le seems to be that the)=re enforceable onl) insofar as the) come close to 9hat
the dama"es 9o(ld have been calc(lated at 9hen the contract 9as formed and aren=t
(nconscionable later
o ,o(rt calls them Eli4(idated dama"es cla(sesF 9hen valid- EpenaltiesF 9hen
invalidate

,o(rts th(s limit freedom of parties to contract o(tside of the le"al s)stem
o .h) does the co(rt Ano9 more than the parties abo(t the appropriateness of
certain dama"es :li4(idated dama"es as calc(lated allocation of risA;B The co(rt
looAs onl) at le"all) reco"niHed harms :narro9;, 9hereas parties mi"ht have
9anted to contract for other Ainds of harm

.hen forecastin" dama"es, sho(ld parties forecast the legal loss :i.e., 9hat the co(rts
9ill thinA )o(r loss 9as; or actual loss :there=s a lot of harm not covered b) the le"al
s)stem;B #f parties tr) to forecast le"al loss, options m(ch narro9er

/airness arguments in support of %udicial oversight of liquidated damages clauses>

o .e don]t 9ant to maAe 5 better off after breach :if (nreasonabl) hi"h dama"es;
4*
o 2i"h li4(idated dama"es is evidence the parties (nderestimated chance of breach-
had the) tho("ht it o(t beforehand the) 9o(ld not have a"reed to these terms
o To allo9 s(ch hi"h dama"es 9o(ld be oppressive or point to coercion, d(ress, etc.
:i.e., concern abo(t (neven bar"ainin" po9er;

Why !e might like liquidated damages clauses>

o Efficient :don=t have to "o to co(rt;
o +a)be the parties are in a better position to determine dama"es than a co(rt is

SFr("> Parado1> #f )o( estimate somethin" that=s diffic(lt to prove and come close to
act(al dama"es, then it=s probabl) not diffic(lt to prove :is a penalt);. 8n the other hand,
if )o(r estimate ends (p bein" 9a) off?base, then it=s probabl) not reasonable :is a
penalt);. This seems to be a ,atch?22. Either 9a) the li4(idated dama"es cla(se is a
penalt).T
Ealidit. o$ Li0uidat"d &aag"! and P"nalti"! 3RS 4AB<8

Dama"es for breach b) either part) ma) be li4(idated in the a"reement b(t onl) at an
amo(nt that is reasonable in li"ht of :1; the anticipated or act(al loss ca(sed b) the
breach and :2; the diffic(lties of proof of loss.

0 term fi1in" (nreasonabl) lar"e li4(idated dama"es is (nenforceable on "ro(nds of

p(blic polic) as a penalt)

,omment> Parties to a contract are not free to provide penalties for its breach. The
central ob7ective behind contract remedies is compensatory, not p(nitive.
UCC 42675?358 3Li0uidation or liitation o$ daag"!8

Dama"es for breach b) either part) ma) be li4(idated in a"reement b(t onl) at an amo(nt
9hich is reasonable in li"ht of :1; anticipated or act(al harm ca(sed b) breach, :2; the
diffic(lties of proof of loss, and :3; the inconvenience or non?feasibilit) of other9ise
obtainin" an ade4(ate remed)
o 0ct(al dama"es in the cla(se m(st be reasonable :Wasserman0s;
o #t m(st be hard to determine 9hat the act(al remed) is :-ee 1ldsmobile;

0 term fi1in" (nreasonabl) lar"e li4(idated dama"es is void as a penalt)

(asseran/s ,nc. v. !iddletown, N/ SC, 577@ 3+1A0?8

5 leased a tract of m(nicipall)?o9ned propert), on 9hich it operated its b(siness.

,ontract contained a li4(idated dama"es cla(se of 2[ of "ross sales for one )ear.
+(nicipalit) breached the lease contract and sold the land for a lar"e profit

Holding> ,o(rt a9arded dama"es for improvements to propert) b(t @8T the 2[ of
"ross receipts bKc the "ross receipts did not reflect the propert)=s act(al losses, since the
compan) 9as not profitable
o .itho(t the li4(idated dama"es cla(se, dama"es 9o(ld be lost profits or cost to
ac4(ire ne9 lease, move, etc

0 stip(lated dama"e cla(se m(st constit(te a reasonable forecast of the provable in7(r)
res(ltin" from the breach- other9ise the cla(se 9ill be (nenforceable as a penalt) cla(se
and the a""rieved part) 9ill be limited to conventional dama"e meas(re
41
o Parties to a contract ma) not fi1 a penalt) for its breach :penalt) cla(ses
disallo9ed;. Parties ma), ho9ever, fi1 a li4(idated dama"es cla(se
o -iquidated damages> Reasonable estimate of the act(al dama"es that 9ill
probabl) ens(e from the breach- le"all) recoverable as a"reed dama"es if the
breach occ(rs
o Penalty> @ot a pre?estimate of probable act(al dama"es, b(t a p(nishment, the
threat of 9hich is desi"ned to prevent the breach- not le"all) recoverable
o 0bsent concerns abo(t (nconscionabilit), co(rts fre4(entl) need asA no more than
9hether a stip(lated dama"es cla(se is reasonable

G(stification for stip(lated dama"es cla(ses> Efficienc) :avoids cost and (ncertaint) of
liti"ation;
"ee &ldsobile+ ,nc. v. Kaiden, (&, 577< 3+1A5B8

M p(t deposit on Rolls Ro)ce, b(t ended (p b()in" another after a dela)- s(es for deposit

Holding> Seller cannot Aeep deposit even tho("h li4(idated dama"es cla(se said he co(ld
bKc at the time contract 9as made, it 9as clear that the nat(re of an) dama"es 9hich
9o(ld res(lt from a possible f(t(re breach 9ere easily ascertainable
Hutchison v. %o0kins, FL, 5772 3+1A5<8

!()er a"reed to b() propert) from seller, p(t do9n a J1*,*** deposit. ,ontract incl(ded
provision sa)in" that if b()er failed to perform, seller co(ld retain the J1*,***. !()er
failed to perform

Holding> $i4(idated dama"es cla(se allo9ed bKc dama"es not ascertainable at time
contract dra9n

(easoning> ,o(rt re7ects Pembroke r(le that sa)s if dama"es are readil) ascertainable at
the time of breach, a li4(idated dama"es cla(se is a penalt) ca(se, even if dama"es 9ere
not ascertainable at the time of contract. #dea is that validit) of li4(idated dama"es
cla(se depends on 9hether dama"es 9ere readil) ascertainable at the time of contract, not
9hether the)=re readil) ascertainable at the time of breach
S0ll above cases ass(me that 9e are tr)in" to estimate le"al dama"es accordin" to the
e1pectation interest :other meas(res are possible;T

2nderliquidated damages provisions> $imit dama"es to less than act(al estimated

dama"es
o @ormall) enforced (nless the limitation or e1cl(sion is (nconscionable :4267578
426757> $imitation of conse4(ential dama"es for in7(r) to the person :in
the case of cons(mer "oods; is prima facie (nconscionable, b(t limitation
of dama"es 9here loss is commercial is not.

0lso, provisions that limit remedies are (nenforceable 9here

circ(mstances ca(se the remed) so limited to Efail of its essential
p(rpose.F
71 S+"ci$ic P"r$oranc"

,eneral (ule> Specific performance 9ill not be ordered (nless other dama"es are
inade4(ate, (s(all) beca(se the "oods involved are (ni4(e
42
o #n the &S, "enerall), dama"es are the r(le and specific performance the e1ception
o &nidroit and ,#S3 taAe opposite approach, favor specific performance over
dama"es
o &.S. strate") lo9ers the cost of breach

Specific performance is reall) abo(t chan"in" the price of dama"es, since it forces
ne"otiation bet9een the parties and the price settled on is liAel) to be hi"her than
dama"es determined b) co(rt :ne"otiation is different 9hen one part) has a decree
entitlin" them to performance;

The onl) time co(rts 9ill never order specific performance is in a personal service
contract :RS 4A<7> 0 promise to render personal service 9ill not be specificall) enforced;

M can, ho9ever, "et an in7(nction preventing someone from doin" somethin"

Ad"0uac. o$ &aag"!

RS 4AB7 3E$$"ct o$ ad"0uac. o$ daag"!8> Specific performance or an in7(nction 9ill

not be ordered if dama"es 9o(ld be ade4(ate to protect the e1pectation interest of the
in7(red part)

RS 4A<0 3Factor! a$$"cting ad"0uac. o$ daag"!8> #n determinin" 9hether the remed)

in dama"es 9o(ld be ade4(ate, the follo9in" circ(mstances are si"nificant>
o The diffic(lt) of provin" dama"es 9ith reasonable certaint)
,omment> E1amples 9here dama"es ma) not be able to proved 9ith
reasonable certaint)> loss of heirlooms, 9orAs of art 9ith stron"
sentimental attachment, shares of stocA that res(lt in loss of control of
corporation, etc.
o The diffic(lt) of proc(rin" a s(itable s(bstit(te performance b) means of mone)
a9arded as dama"es, and
o The liAelihood that an a9ard of dama"es co(ld not be collected
"ondon #ucket Co. v. Stewart, I;, 57B5 3+1A2<8

L breached contract to install a heatin" s)stem for a lar"e motel

Holding> ,o(rt ref(sed to order specific performance, statin" Econtracts for b(ildin"
constr(ction 9ill not be specificall) enforced beca(se ordinaril) dama"es are an ade4(ate
remed) and, in part, beca(se of the incapacit) of the co(rt to s(perintend the
performanceF
(algreen Co. v. Sara Creek Pro0erty Co., 7
th
Cir, 5772 3+1A2?8

5 operated a dr(" store in mall on 3*?)ear lease that said mall cannot open another dr("
store. +all o9ner losin" lar"est tenant in mall, so informed 5 it intends to replace that
lar"est tenant 9ith a h("e dr(" store. 5 s(ed for breach of contract and so("h in7(nction
to prevent ne9 dr(" store from enterin"

Holding> ,o(rt "rants in7(nction, as determinin" 5=s dama"es for breach 9o(ld be costl)
and hi"hl) (ncertain. #n contrast, the onl) s(bstantial cost of in7(nction is that it ma) set
off ne"otiations bet9een parties :beca(se in7(nction so("ht is a enforcement of a
Ene"ative e1cl(sivit) cla(seF;

(easoning>
43
o !enefits of in7(nctive relief> Shifts b(rden of determinin" costs of L=s cond(ct
from co(rt to the parties :as parties 9o(ld then enter ne"otiations to dissolve
in7(nction;, and prices more acc(ratel) determined b) the marAet than b)
"overnment
o @e"atives of in7(nctive relief> +an) in7(nctions are costl) bKc the) re4(ire
contin(in" co(rt s(pervision, and in7(nctions ma) impose costs on third parties.
0lso, in case of a bilateral monopoly, parties have incentive to p(sh
to9ards the limits :ma)be to develop relationship as a Ehard bar"ainerF;,
even to the point of ca(sin" ne"otiation to breaA do9n
o !enefits of dama"es> 0voids costs of contin(in" co(rt s(pervision and third?part)
effects and also avoids costs and potential problems 9Kbilateral monopol) effects
o @e"atives of dama"es> Diminished acc(rac) in determination of val(e, and costs
of parties= preparin" and presentin" evidence to co(rt and time of co(rt in
eval(atin" the evidence
S+"ci$ic P"r$oranc" and Uni0u"n"!! o$ Location
4an (agner -dvertising Cor0. v. S$! 7nter0rises, N;, 57?< 3+1AAA8

M advertiser leased space on e1terior 9all of L=s b(ildin" to erect a billboard. L breached
contract and 5 so("ht in7(nctive relief beca(se the space in the contract 9as F(ni4(e as to
locationF

Holding> ,o(rt ref(ses to order specific performance

The point at 9hich breach of a contract 9ill be redressable b) specific performance m(st
lie not in an) inherent ph)sical (ni4(eness of propert) b(t instead in unc"rtaint. o$
-aluing it
o The mere fact that the s(b7ect of a contract ma) be (ni4(e as to location does not
b) itself entitle 5 to the remed) of specific performance

(easoning> The diffic(lt) in establishin" dama"es for breach of a contract involvin" real
propert) arises, not beca(se propert) is not interchan"eable 9ith mone), b(t bKc it is ver)
diffic(lt for the co(rt to obtain, at a reasonable cost, eno("h information abo(t s(bstit(tes
to permit it to calc(late an a9ard of dama"es 9itho(t imposin" an (nacceptabl) hi"h risA
of (nder?compensation of the a""rieved part)
E$$"ct o$ Contract Clau!"! S+"ci$.ing InJuncti-" R"li"$

Stokes v. !oore, AL, 577B 3+1AAA8

o 0 contract cla(se that specifies in7(nctive relief for breach is not bindin" on the
co(rt, tho("h it 9ill liAel) infl(ence the co(rt=s e1ercise of its discretionar) po9er
to "rant an in7(nction
UCC 426707 3Action $or +ric"8

#f b()er breaches, seller can recover price of "oods alread) accepted

UCC 42675< 3'u."rK! right to !+"ci$ic +"r$oranc"8

Specific performance ma) be decreed 9here the "oods are (ni4(e or in Eother proper
circ(mstancesF :relativel) liberal stance;
o Test taAes into acco(nt the b()er=s abilit) to proc(re a s(itable s(bstit(te, the
item=s certaint) of val(e, etc.
44
o Problem> Ever)thin"=s (ni4(e and ever)thin"=s the same at the same time :aAin to
problem of findin" a EcomparableF 7ob;
"aclede Gas Co. v. -oco &il Co., ?
th
Cir1, 577B 3+1AAB8

8il compan) breached on a contract to meet ho(sin" development=s propane needs

Holding> ,o(rt ordered specific performance bKc there=s a p(blic interest in providin"
propane to retail c(stomers, s(bstit(tes are (navailable, and the amo(nt of co(rt
s(pervision re4(ired 9o(ld be Efar from onero(sF

.hile a co(rt ma) ref(se to "rant specific performance 9here s(ch a decree 9o(ld
re4(ire contin(in" co(rt s(pervision, this is a discretionar) r(le fre4(entl) i"nored 9hen
the p(blic interest in involved
(eathersby v. Gore, B
th
Cir1, 5777 3+1AA78

8n +arch 3, . contracted 9ith 3 for . to b() the cotton 3 prod(ced on ** acres of

land for 3* centsKlb. 8n +a) /, 3 informed . that he 9as cancellin" the contract bKc .
had failed to provide a re4(ired pa)ment bond. . co(ld have covered then, or later, b(t
did not- s(ed for specific performance

Holding> . co(ld have covered 9hen 3 informed him of the breach, b(t did not. Th(s, if
. is entitled to dama"es at all, he m(st settle for difference bet9een contract price and
marAet price at time of breach. 0lso, (nder UCC 42675< , . cannot "et specific
performanceKreplevin bKc he has not made reasonable effort to cover.

Specific performance 9ill not be a9arded 9here dama"es ma) be recovered and the
remed) at la9 is ade4(ate to compensate the in7(red part)
S+"ci$ic P"r$oranc" o$ Contract! $or Sal" o$ Land and $or E+lo."nt

,ontracts for the sale of land>

o #t=s "enerall) 9ell?established that in a contract for sale of land, the b()er can "et
a decree specificall) orderin" the seller to e1ec(te a deed in b()er=s favor :tho("h
in some 7(risdictions this r(le is comin" (nder attacA;
o #n most states, a seller can also "et a decree orderin" b()er to taAe title to the land
and pa) the a"reed price

Emplo)ment contracts>
o Emplo)ment contracts are not specificall) enforced at the s(it of either emplo)er
or emplo)ee, (nder idea that it=s (n9ise to attempt to e1tract, from an (n9illin"
part), a performance involvin" personal relations
o ,o(rts 9ill, ho9ever, en7oin an emplo)ee from 9orAin" for a competitor, tho("h
not in cases 9here s(ch en7oinder 9o(ld leave emplo)ee 9ith no option b(t to
9orA for emplo)er or not 9orA at all
Argu"nt! ForGAgain!t S+"ci$ic P"r$oranc"

/or specific performance>

4
o /airness> Specific performance is the best 9a) to p(t plaintiff in the position he
9o(ld have been in had the contract been performed :dama"es are an imperfect
s(bstit(te, as seen in Peevyhouse;

Against specific performance>

o ,o(rts don=t liAe to force people to do thin"s since it=s a bad polic) and hard to
enforce
o "onsequentialist> Specific performance prolon"s liti"ation- if someone breaches,
the) often have a "ood reason and are 9illin" to pa) dama"es. !) forcin" them
to do somethin" the) don=t 9ant to do, the co(rt raises the cost of breach, "ivin" 5
too m(ch po9er in s(bse4(ent ne"otiations
?1 Th" R"lianc" and R"!titution ("a!ur"!
R"lation!hi+ ,"t#""n E*+"ctation, R"lianc", and R"!titution &aag"!

:1; Reliance dama"es cannot be "reater than e1pectation dama"es :e1pectation dama"es
as cap on reliance dama"es;
o People enter into contracts that the) e1pect to be profitable
o ,o(rts ma) lo9er reliance dama"es if L can sho9 contract 9o(ld be (nprofitable

:2; Restit(tion can e1ceed e1pectation if the contract has not been completed
o E."., b()er "ives seller J1*** for a ton of bricAs, seller breaches. Price then drops
to J%**Kton. Seller m(st "ive b()er J1***, not J%** :e1pectation val(e;-
other9ise 9o(ld lead to seller=s (n7(st enrichment :J3**;.
#dea is that a part) sho(ld not profit from breach

:3; Restit(tion dama"es cannot e1ceed e1pectation dama"es if contract is complete

o This sometimes leads to perverse res(lts, as 9hen the person 9ho finishes a
contract "ets less than person 9ho doesn=t :see Algernon Blair, 1liver v.
"ampbell;.

:4; 0n a""rieved part) can sometimes "et restit(tion and e1pectation dama"es, if one
part) pa)s do9n pa)ment and other part) breaches, first part) ma) "et both do9n
pa)ment bacA :restit(tion; and be p(t in position he 9o(ld have been in had the contract
been performed :e1pectation;
?15 R"lianc" &aag"! in a 'argain Cont"*t

#dea is to p(t in7(red part) in as "ood a position he 9o(ld have been in if the contract had
never been made

RS 470, co"nt d> Relief ma) be limited to restit(tion dama"es or to specific relief
meas(red b) the e1tent of the promisee=s reliance rather than b) the terms of promise

,an maAe reliance dama"es lar"e or small :often depends on siHe of opportunity costs;
Security Stove $ !fg. Co. v. -erican 1ys. 7*0ress Co., IS Ct1 o$ A++"al!, 57A2 3+1A@58

L breached b) not shippin" f(rnace to convention 9here 5 had e1hibit

Holding> ,o(rt a9ards reliance dama"es :costsKe1penses associated 9ith settin" (p the
e1hibit; even tho("h these e1penses 9o(ld have been inc(rred even had L not breached
4/

#n instances of special circ(mstances, the method for estimatin" dama"es sho(ld be that
9hich is :1; most definite and certain and :2; best achieves the Ef(ndamental p(rposes of
compensationF

(easoning> E1pectation dama"es are (ncertain :and 9o(ld liAel) be J*;- ho9ever 9e can
ass(me that 5 9o(ld have made mone) from demonstration, so b) "ivin" 5 reliance
dama"es the co(rt is act(all) "ivin" 5 less :5 breaAs even rather than profits;
-nglia %elevision "td. v. 1eed, England, 5775 3+1A@B8

M contracted to have L star in a film. L rep(diated contract before filmin" be"an, and 5
(nable to find replacement and had to cancel film. M s(ed for e1penses inc(rred before
cancellation.

Holding> 5 "ets dama"es for all e1penses inc(rred bKc it=s reasonable to imp(te to L the
Ano9led"e that if he broAe his contract, the f(nds 5 had spent in pre?prod(cin" the film
9o(ld be 9asted
#eefy %rail v. #eefy King ,nt/l+ ,nc1 FL, 5772 3+1A@B8

(easoning> Rationale for choosin" reliance dama"es over e1pectation dama"es> #n some
cases the amo(nt of profit 5 9o(ld have made from the contract cannot be determined
9ith reasonable certaint) and th(s cannot be allo9ed. #n s(ch cases, ho9ever, the
amo(nt of "ain 9hich 9o(ld have reimb(rsed 5 for his e1penses inc(rred in preparation
and part performance of the contract can be determined b) the e1tent of s(ch e1penses,
and therefore this amo(nt can be allo9ed in recover).
". -lbert $ Son+ v. -rstrong 1ubber Co., 2
nd
Cir, 57@7 3+1A@<8

M had contract 9ith L to recondition r(bber. #n anticipation of the contract 5 b(ilt a

fo(ndation. L rep(diated, claimed in defense that 5 9o(ld have lost mone).

#n a case 9here 5 9o(ld have lost mone) had the contract been performed, he can still
recover his o(tla), s(b7ect to L=s privile"e to red(ce dama"es b) as m(ch as he can sho9
5 9o(ld have lost had the contract been performed.
?12 Th" R"!titution ("a!ur" 3 3uantu !eruit , "tc18
?1215 R"!titutionar. &aag"! $or 'r"ach o$ Contract
R"!titution Int"r"!t

+ubstantively, refers to the recapt(re of a benefit conferred on L b) 5

(emedially, refers to recoveries that are meas(red b) the amo(nt of the defendant=s
(n7(st enrichment :idea of dis"or"in" benefit;
o 0n action for restit(tion of the benefit 5 conferred is often effectivel) meas(red
b) 5=s costs

3uantum meruit> reasonable val(e of 9orA, labor and services- refers to both the doctrine
and the form of complaint :claim a"ainst (n7(st enrichment;

$mplied in fact promise> 0 real promise, b(t implicit rather than e1press
4%

$mplied in la! promise :quasi)contract;> Promise created b) the co(rts 9here it=s in the
interests of 7(stice that L pa) 5, even tho("h there 9as no le"al contract
o #.e., $a9 reads a promise into a sit(ation 9here in fact no promise
o T9o re4(irements for co(rt to read implied?in?la9 promise>
L has received a benefit
Retention of that benefit is ine4(itable :e."., 5 paid L mone) b) mistaAe;
&"t"rining R"!titution &aag"!

RS 4A@@ 3Pur+o!"! o$ r""di"!8> P(rpose of the restit(tion interest is to restore benefits

conferred to the other part)

RS 4A@B 3/udicial r""di"! a-aila,l"8> G(dicial remedies available incl(de a9ardin"

mone) or restorin" somethin" previo(sl) conferred in order to prevent (n7(st enrichment

RS 4A70 3R"0uir""nt that ,"n"$it ," con$"rr"d8> 0 part) is entitled to restit(tion

dama"es onl) to the e1tent that he has conferred a benefit on the other part) b) 9a) of
part performance or reliance

RS 4A75 3("a!ur" o$ r"!titution int"r"!t8> Restit(tion dama"es can be meas(red b)

either>
o :1; The reasonable val(e to L of 9hat he received :i.e., 9hat it 9o(ld have cost
him to obtain it from someone else in 5=s position;, or
o :2; The e1tent to 9hich the other part)=s propert) has been increased in val(e or
his other interests advanced

@8TE> The part) a"ainst 9hom restit(tion is so("ht ma) not red(ce his liabilit) b)
s(btractin" his e1pendit(res from the amo(nt of benefit he has received from the other
part)
Hael v. %4- :Fr(" e1ample, not in te1t;

+an "ot microfilm made of TP0=s records for J3*W- tho("h not a(thoriHed b) TP0

+icrofilm delivered to TP0 librar) 9here it remained for 3 da)s before bein" taAen o(t

TP0 ref(sed to pa) for services, so 5 s(ed for restit(tion dama"es :even tho("h there 9as
no contract;

Holding> 5 a9arded reasonable val(e of his services :also J3*W;- co(rt fo(nd TP0
benefitedB
&steen v. 'ohnson, CO Ct1 o$ A++"al!, 5770 3+1A@?8

L=s onl) partiall) performed its promise to promote 5=s da("hter=s m(sic

Holding> ,o(rt a9ards 5 restit(tion dama"es, b(t notes that L did partiall) perform
contract so sho(ld be allo9ed compensation for the reasonable val(e of his services

#n receivin" restit(tion dama"es, 5 m(st ret(rn to L the val(e of the services 5 has
received as part?performance
Nuantu ("ruit

3uantum meruit> SeeAs recover) for the reasonable val(e of 9orA, labor, and services
performed at L=s re4(est
o 8ne 9ho is 9ron"f(ll) dischar"ed and prevented from f(rther performance of his
contract ma) elect to treat the contract as rescinded and ma) s(e (pon a quantum
4'
meruit as if the special contract of emplo)ment had never been made and r"co-"r
th" r"a!ona,l" -alu" o$ th" !"r-ic"! +"r$or"d "-"n though !uch r"a!ona,l"
-alu" "*c""d! th" contract +ric"
o &nder this doctrine, a 5 that has onl) partl) performed is "ranted restit(tion for
services rendered even if that restit(tion :i.e., the val(e of the services rendered; is
an amo(nt in e1cess of the contract price for f(ll performance

8S v. -lgernon #lair+ ,nc1, @

th
Cir1, 577A 3+1AB58
o S(bcontractor ceased to perform after contractor ref(sed to pa)- contractor
breached. 2o9ever, had s(bcontractor finished 9orAin", he 9o(ld have lost
s(bstantial amo(nt of mone)
o Holding> 5 can recover for his services rendered to L, min(s 9hat L has alread)
paid, despite the fact that 5 9o(ld have lost mone) had the contract been
performed.
M is entitled to recover restit(tion dama"es, in other 9ords, even tho("h
he 9o(ld be (nable to recover e1pectation dama"es
o (easoning> 8ther9ise L 9o(ld have received benefits 9itho(t pa)in" for them,
and 5 9o(ld have inc(rred e1penses 9ith no compensation
o Nuantu "ruit r"co-"r. i! undiini!h"d ,. an. lo!! #hich #ould ha-"
,""n incurr"d ,. co+l"t" +"r$oranc"

&liver v. Ca0bell, CA, 57B@ 3+1ABA8

o 5 a"reed to represent L as her la9)er in divorce action for J'*. Trial lasted 26
da)s :m(ch lon"er than 5 anticipated;, after 9hich L breached a"reement. 5 s(ed
for reasonable val(e of his services :JW;
o Holding> ,o(rt onl) a9arded 5 mone) not paid :J3**;. !Kc trial had ended, 5 had
completed his performance of the contract, and th(s all he co(ld recover 9as the
J3**.
o Onc" a contract ha! ,""n co+l"t"d, r"!titution daag"! cannot "*c""d th"
-alu" o$ th" contract
E*+"ctation &aag"! a! Ca+ on R"lianc" &aag"!, ,ut Not on R"!titution &aag"!

E1pectation dama"es as cap on reliance dama"es>

o #f L can prove amo(nt 5 9o(ld have lost thro("h performance, L can have that
amo(nt s(btracted from 5=s reliance dama"es :i.e., e1penses inc(rred in reliance
of the contract;

E1pectation dama"es not cap on restit(tion dama"es>

o 0s in Algernon, a 5 9ho has entered into a losin" contract in 9hich he has
conferred a benefit on L :breachin" part); can recover the marAet val(e of the
benefit even if it e1ceeds the contract price
o #n other 9ords, the e1pectation meas(re does not set a cap on restit(tion dama"es
in a s(it in (n7(st enrichment a"ainst a breachin" promisor
o Th(s, in case of a losin" contract the promisee ma) be better off s(in" for
restit(tion dama"es than for e1pectation dama"es
46
?1212 R"!titution in Fa-or o$ a O in &"$ault
Kut.in v. Pirnie, N/ SC, 5775 3+1ABB8

M entered contract to b() ho(se from L, made a J3/,*** deposit on the ho(se- contract
did not contain a li4(idated dama"es cla(se. M later rep(diated the contract and s(ed to
"et deposit bacA

Holding> 5=s deposit e1ceeded L=s dama"es b) abo(t J1',***, and the contract did not
contain a li4(idated dama"es cla(se. Therefore, 5 is entitled to the J1',*** b) 9hich his
deposit e1ceeded 5=s losses.

0 breachin" part) is entitled to restit(tion for an) benefit he has conferred on another
part) b) 9a) of part performance or reliance in excess of the loss he has ca(sed b) his
o9n breach

Even in cases 9here part pa)ment e1ceeds the other part)=s dama"es, if the contract has a
li4(idated dama"es cla(se, that cla(se "overns so lon" as it 9as reasonable in li"ht of the
anticipated loss ca(sed b) the breach and the diffic(lties of the proof of loss
8S v. Cal State 7lectric, 7
th
Cir1, 5775 3+1A<28

#f a breachin" part) has conferred a benefit on the innocent part) rather than a detriment,
the breachin" part) ma) recover bKc other9ise it 9o(ld (n7(stl) enrich the innocent part)
and (nd(l) p(nish the breachin" part)

#n no case, ho9ever, ma) a breachin" part) recover more than the contract price :i.e.
breachin" part) cannot force innocent part) to pa) more than the contract price;
4ines v. &rchard Hills+ ,nc., CT, 57?0 3+1A<A8

5 9ho defa(lted on propert) p(rchase entitled to restit(tion of do9n pa)ment min(s

dama"es seller s(ffered bKc of 5=s defa(lt

(easoning> 8ther9ise, a part) 9ho breached after part performance 9o(ld be m(ch
9orse off than the part) 9ho breached 9itho(t performin" at all :b(rden of proof on 5;
UCC 42675? 3'u."r!K daag"! in ca!" o$ ,r"ach ,. ,u."r8

.here a seller 7(stifiabl) 9ithholds deliver) of "oods beca(se of b()er=s breach, b()er is
entitled to restit(tion of an) amo(nt b) 9hich the s(m of his pa)ments e1ceeds>
o The amo(nt to 9hich seller is entitled b) a li4(idated dama"es cla(se
o #n absence of s(ch a cla(se, 2*[ of the val(e of the b()er=s total obli"ation or
J**, 9hichever is less

#.e., b()er "ets mone) bacA min(s the dama"es he imposed on L

*
III1 A!!"nt
71 An Introduction to Int"r+r"tation
715 Su,J"cti-" and O,J"cit-" El""nt! in th" Princi+l"! o$
Int"r+r"tation in Contract La#
ST9o basic 4(estions to asA in contract interpretation>

Did the parties a"ree to a contract, or notB

#f the parties did in fact a"ree to a contract, 9hat did the) a"ree toBT
Su,J"cti-" -!1 O,J"cti-" Int"ntion

This section hi"hli"hts the tension bet9een s(b7ective and ob7ective intention
o +ub%ective intention> .hat the parties reall) meant :state of mind;
o 1b%ective intention> .hat parties act(all) 9rote in the contract or seem to have
meant

16
th
cent(r) classical theorists tho("ht intent of the parties 9as too (nreliable, that it
9o(ld be nearl) impossible to base contracts on the s(b7ective idea of intent

!(t in 2*
th
cent(r), theorists tho("ht 9ords 9ere (nreliable and be"an looAin" at
intention of the parties. The) realiHed that b) (sin" the ob7ective 9ords of a part), the)
9ere often interpretin" contracts to mean somethin" the parties obvio(sl) did not intend
Si* Standard! o$ Int"r+r"tation 3RS 4227, Co"nt a8

Standard of "eneral (sa"e

Standard of limited (sa"e> 0s to partic(lar localit) or occ(pation;

+(t(al standard> ,onforms to intention common to both parties

#ndivid(al standard> 0ttaches meanin" accordin" to 9hat person emplo)in" manifestation

intended to e1press or 9hat person receivin" the comm(nication (nderstood from it
:point of vie9 of act(al "iver or receiver of comm(nication;

Standard of reasonable e1pectation> 0ttaches meanin" 9hich the part) emplo)in"

manifestation :or 9ords; sho(ld reasonabl) have (nderstood that the) 9o(ld conve) to
the other part) :point of vie9 of reasonable "iver of comm(nication;

Standard of reasonable (nderstandin"> 0ttaches meanin" to 9hich person receivin" the

comm(nication mi"ht reasonabl) "ive to it :point of vie9 of reasonable receiver of
comm(nication;
&"t"rining ("aning! in Ca!" o$ a (i!und"r!tanding

RS 420 3E$$"ct o$ a i!und"r!tanding8> @o m(t(al assent Sno contractT if parties attach

different meanin"s to their manifestations and neither Ano9s or has reason to Ano9
meanin" attached b) other, or both parties Ano9 or have reason to Ano9 meanin"
attached b) other :i.e., if e4(all) innocent or e4(all) "(ilt), la9 doesn=t choose;
1
o E."., Ha!kins v. *c,ee
L "(aranteed 1**[ perfect hand in 3 or 4 da)s. #s this a contractB

M> E1**[F 9as the final ind(cement to operate.

L> E1**[F is 7(st a fi"(re of speech, 7(st for reass(rance :there=s

no 9a) to achieve EperfectionF;.

M> E3?4 da)sF so(nds liAe an e1plicit promise and affected 5=s
decision to have s(r"er)

L> 5 sho(ld have Ano9n time is relativel) (ncertain

,o(rt holds time isn=t a contract, b(t E1**[ perfectF is. &nderstandin" of
the parties :Ereason to Ano9F; is cr(cial to this determination. .hether
there is a contract is never a ne(tral positionU

RS 4205 3Who!" "aning +r"-ail!8=

o #f parties s(b7ectivel) attach the same meaning to an e1pression, that meaning
prevails even though it is unreasonable> RS 4205358 and *""
So, reasonableness becomes relevant onl) 9here there is not a m(t(all)
held s(b7ective meanin"
o #f the parties s(b7ectivel) attach different meanings to an e1pression, neither part)
Ano9s that the other attaches a different meanin", and both meanin"s equally
reasonable, neither meanin" prevails> RS420358 and Peerless
o #f the parties s(b7ectivel) attach different meanings to an e1pression, neither part)
Ano9s that the other attaches a different meanin", and the both meanin"s are not
equally reasonable, the more reasonable meanin"s prevails> RS 4205328
o #f the parties, 0 and !, attach different meanings, + and @, to an e1pression, and
0 Ano9s that ! attaches meanin" @ 9hile ! does not Ano9 that 0 attaches
meanin" +, +eanin" @ prevails even if it is less reasonable> RS 420328
Fa(lt anal)sis> ! ma) have been at fa(lt in attachin" meanin" @ to the
e1pression, b(t 0 9as more at fa(lt :blame9orth); for allo9in" ! to
proceed on the basis of an interpretation that 0 Ane9 ! held, at least 9hen
! did not Ano9 that 0 held a different interpretation.
"ucy v. 5eher, EA SC, 57B@ 3+1A708

Dr(nA "() a"rees to sell land to ac4(aintance for J*W, b(t tho("ht a"reement 9as a
7oAe

Holding> 0"reement bindin" beca(se L=s o(t9ard intention manifested real a"reement
:he "ot 9ife to cosi"n a"reement, made reasonable price for offer that 9as m(ch better
than previo(s offers, re9rote beca(se first draft didn=t looA ri"ht;

0 person cannot set (p that he 9as merel) 7estin" 9hen his cond(ct and 9ords 9o(ld
9arrant a reasonable person in believin" that he intended a real a"reement
!&T, Keller v. Holderan, (I, 5?<A 3+1A7@8

,hecA 9as made o(t in 7(st to b() J1 9atch for J3**.

Holding> .hen a 9hole transaction is a frolic made in 7est b) both parties :b()er never
intendin" to b() and seller never intendin" to sell;, the co(rt sho(ld concl(de :1; no
2
contract 9as ever made b) the parties and :2; no ca(se of action e1isted (pon the checA
to the b()er
1affles v. (ichelhaus, England, 5?<@ 3+1A7@8

5 contracted to sell cotton to L- cotton 9as to be bro("ht from !omba) on a ship called
the EPeerless.F &nbeAno9nst to both parties, there 9ere in fact t9o ships in !omba)
called the EPeerless.F The first, the one L meant, arrived in 8ctober- the second, the one
5 meant, arrived in December.

Holding> ,ontract (nenforceable since there 9as a Elatent ambi"(it)F in the contract that
prevented a Emeetin" of the mindsF

+odel e1ample of RS 420<neither side Ane9 or had reason to Ano9<so e4(all)

reasonable
Frigalient ,0orting Co. v. #.N.S. ,ntern. Sales Cor0., US &C S&N;, 57<0 3+1A7<8

M entered into contract to b() EchicAenF from L. M 9anted )o(n" chicAens for broilin"
and fr)in"- L delivered Este9in" chicAensF

Holding> Definitions of EchicAenF that incl(de ste9in" chicAen are fo(nd in dictionaries,
in D80 re"(lations to 9hich the contract referred, to some trade (sa"e, and 9ith 9hat 5=s
spoAesman said. Th(s, L=s s(b7ective intent as to the meanin" of the 9ord EchicAenF
coincides 9ith a reasonable interpretation of the 9ord in li"ht of the circ(mstances,
meanin" that L performed the contract s(fficientl) 9ell

#n a disp(te over the meanin" of a contract 9ord, L=s s(b7ective intent is s(fficient to
escape liabilit) so lon" as its s(b7ective intent corresponds 9ith a reasonable
interpretation of the 9ord in disp(te

SFr("> #t ma) 9ell be that no side is more reasonable than the other :ma) 9ell be )o(
Ano9 )o( need to specif) t)pe )o( 9ant- ma) 7(st as 9ell be 9hen person=s pa)in" that
Aind of mone) he 9ants fr)ers and boilersT
&swald v. -llen, 2
nd
Cir1, 57<7 3+1A?08

M tho("ht he 9as b()in" all of L=s coins- L tho("ht she 9as sellin" onl) part of her coins

#f there is no reasonable basis for choosin" bet9een conflictin" (nderstandin"s, contract

is held (nenforceable
Colfa* 7nvelo0e Cor0. v. "ocal No, 7
th
Cir1, 577@ 3+1A?58

#f neither part) can be assi"ned the "reater blame for mis(nderstandin", then there is no
nonarbitrary basis for decidin" 9hich part)=s (nderstandin" to enforce, so the parties are
allo9ed to abandon the contract 9itho(t liabilit)
7bry v. Hargadine+ !cKittrick Dry Goods Co1, (O, 5707 3+1A?58

.hen 5 9ent to talA to L abo(t rene9in" 5=s emplo)ment contract, L said> E3o ahead,
)o(=re all ri"ht. 3et )o(r men o(t, and don=t let that 9orr) )o(.F M, (nderstandin" L=s
response as acceptin" 5=s demand for re?emplo)ment, sta)ed on- a co(ple months later he
9as terminated.

Holding> For emplo)ee, bKc Eno reasonable man 9o(ld constr(e that ans9er to Embr)=s
demand that he be emplo)ed for another )ear, other9ise than as an assent to the demandF
:connection to RS 4205328> emplo)er had reason to kno! emplo)ee 9o(ld thinA his
statement meant he 9as hired for another )ear;
3

#f a part), irrespective of his tr(e intentions, :1; cond(cts himself in s(ch a 9a) that a
reasonable person 9o(ld believe he 9as assentin" to the terms proposed b) the other
part), and :2; the other part) (pon s(ch reasonable belief enters into a contract 9ith him,
the contract is enforceable
712 Pro,l"! o$ Int"r+r"ting Pur+o!i-" Languag"
S$iteral?meanin" vs. intentKp(rpose?of?the?9ords approachT
Willia!= A Cat"gori"! o$ Contract T"r!

Term parties probabl) had in mind b(t did not tro(ble to e1press

Terms parties 9o(ld probabl) have e1pressed if the 4(estion had been bro("ht to their
attention :Fr("> 9hen 9e sa) 9e=re interpretin" the contract as the parties 9o(ld have,
9e=re reall) 7(st interpretin" it ho9 !e thinA it sho(ld be interpreted;

Terms implied b) the ,o(rt beca(se of the ,o(rt=s vie9 of fairness or polic) or r(les of
la9
Su++l.ing an Oitt"d T"r 3RS 420@8

.hen the parties to a contract have not a"reed to a term essential to a determination of
their ri"hts and d(ties, the co(rt s(pplies a term that is reasonable in the circ(mstances

The co(rt sho(ld s(ppl) terms in accordance 9ith comm(nit) standards of fairness and
p(blic polic) :ma) conflict 9ith RS 4205;. #.e., co(rts aren=t limited b) 9hat the parties
had in mind
Haines v. N6, N; Ct1 o$ A++"al!, 5777 3+1A778

@N, had a"reed in 1624 to provide the se9a"e services for t9o to9ns, 9hich then "re9
a "reat deal and b) the 16%*=s the se9a"e plant in place co(ld not accommodate more
"ro9th

Holding> @N, had to maintain the e1istin" plant, b(t not b(ild a ne9 one

#n determinin" ho9 to s(ppl) an omitted term, the co(rt looAs to :1; s(rro(ndin"
circ(mstances, :2; the parties= intent, and :3; reasonableness

#n absence of e1press term fi1in" d(ration of contract, co(rt s(pplies reasonable time

S@8TE> Ereasonable timeF standard doesn=t appl) to emplo)ment contractsT

S0aulding v. !orse, (A Su+1 /ud1 Ct1, 57@7 3+1@028

Follo9in" divorce, L a"reed to pa) specified stipend to his son :then 1*; (ntil his son
entered hi"her ed(cation. Son entered militar) immediatel) (pon "rad(ation from hi"h
school

Holding> Proper constr(ction of the a"reement, then, is that L is not re4(ired to perform
provision for maintenance and ed(cation of son 9hile he=s in the militar) bKc father co(ld
onl) have intended to pa) son if he 9ent to colle"e and needed JJ.

#f an instr(ment as a 9hole indicates a partic(lar res(lt 9as fi1edl) desired tho("h not
e1pressed b) formal 9ords, that defect ma) be s(pplied b) implication and the
(nderl)in" intention ma) be effect(ated, provided it is s(fficientl) declared b) the entire
instr(ment
"awson v. !artin %iber Co., LA, 57B7 3+1@0@8
4

,ontract stated that 5 9o(ld "et another )ear to c(t timber if there 9as hi"h 9ater

Holding> ,o(rt r(led a"ainst clear 9ords of a contract and looAed at conte1t to determine
parties meant that 5 9o(ld "et another )ear if hi"h 9ater and it prevented from removin"
timber
71A Th" Rol" o$ U!ag", Cour!" o$ &"aling, and Cour!" o$
P"r$oranc" in Int"r+r"tation
Fo*co ,ndustries+ "td.+ v. Fabric (orld+ ,nc., B
th
Cir1, 5777 3+1@0<8

Fabric store a"reed to b() Efirst 4(alit)F "oods from fabric man(fact(rer. Store ret(rned
one order and threatened to ret(rn another beca(seKif the) fo(nd even one fla9.
Standards prom(l"ated b) Wnitted Te1tile 0ssociation :WT0; allo9 certain t)pes and
amo(nts of fla9s in first?4(alit) fabric

Holding> The standards of the WT0, an ind(str) "ro(p 9ith over 1** members, 4(alif)
as trade (sa"es. Th(s, the definition of Efirst 4(alit)F "overned b) the WT0=s definition.
That 5 didn=t Ano9 WT0=s definition is irrelevant since 5 sho(ld have been a9are of it as
a ma7or member of the te1tile ind(str) :even tho("h 5 9asn=t a member of WT0;

0 co(rse of dealin" bet9een parties and an) (sa"e of trade in the vocation or trade in
9hich the)=re en"a"ed or of 9hich the) sho(ld be a9are "ive meanin" to the terms of an
a"reement
Hurst v. (.'. "ake $ Co., OR, 57A2 3+1@078

!()er and seller made contract for sale of horse meat scrape of Eminim(m *[ protein.F
Several tons 9ere bet9een 46. and *[ protein, and b()er s(ed for dama"es.

Holding> For seller, bKc (nder common trade (sa"e, Eminim(m *[ proteinF means not
less than 46.[ protein

#t is safe to ass(me that, absent evidence to the contrar), that 9hen tradesmen emplo)
trade terms the) attach to them their trade si"nificance. #f the) meant to strip them of
their trade si"nificance, it 9o(ld be reasonable to believe the) 9o(ld state so in their
a"reement
Flower City Painting Contractors v. Guina, 2
nd
Cir1, 5777 3+1@558

,ontractor hired brand ne9 paintin" compan) to paint (nits in comple1 contractor 9as
b(ildin". Painter compan) painted onl) interior 9alls of the (nits. ,ontractor ref(sed to
pa), sa)in" contract also covered la(ndr) rooms, hall9a)s, stora"e rooms, etc.

Trade (sa"e for constr(ction ind(str) in Rochester, @N :9here b(ildin" 9as; 9as that
paintin" contracts be a9arded on basis that contract covered all rooms in the b(ildin".
Paintin" compan) :9hich 9as brand ne9; claimed not to Ano9 this trade (sa"e.

Holding> !Kc this 9as paintin" compan)=s first contract, co(rt finds compan) did not
have reason to Ano9 of the trade (sa"e, and so doesn=t adopt it. Th(s, the term in
4(estion, 9hich is material, co(ld mean or represent t9o different thin"s, so no contract
had been formed
U!ag" o$ Trad", Cour!" o$ &"aling, and Cour!" o$ P"r$oranc"
RS 4220 3U!ag" r"l"-ant to int"r+r"tation8>

0n a"reement is interpreted in accordance 9ith a relevant (sa"e if :1; each part) Ane9 or
had reason to Ano9 of the (sa"e and :2; neither part) Ane9 or had reason to Ano9 that
the meanin" attached b) the other 9as inconsistent 9ith the (sa"e
o #nterpretation is limited to meanin"s intended b) at least one part). @either part)
is bo(nd b) a meanin" (nless he Ano9s or has reason to Ano9 of it
RS 4222 3U!ag" o$ trad"8>

0 (sa"e of trade is a (sa"e have s(ch re"(larit) of observance in a place, vocation, or

trade as to 7(stif) an expectation that it 9ill be observed 9ith respect to a partic(lar
a"reement
o &nless other9ise a"reed, a (sa"e of trade in the trade in 9hich the parties are
en"a"ed or one 9hich the) Ano9 or have reason to Ano9 "ives meanin" to the
parties= a"reement

,omment>
o #t is not re4(ired that a (sa"e of trade be consistent 9ith the meanin" the
a"reement 9o(ld have apart from the (sa"e
o .hen the (sa"e consists of a s)stem of r(les, it=s not necessar) that parties be
a9are of a partic(lar r(le, so lon" as the) have reason to Ano9 :1; the s)stem and
:2; the partic(lar r(le is 9ithin the scheme of the s)stem
RS 422A 3Cour!" o$ d"aling8>

0 co(rse of dealin" is a se4(ence of previo(s cond(ct bet9een the parties to an

a"reement 9hich is fairl) to be re"arded as establishin" a common basis of (nderstandin"
for interpretin" their e1pressions and other cond(ct
o &nless other9ise a"reed, a co(rse of dealin" bet9een the parties "ives meanin" to
or s(pplements or 4(alifies their a"reement
RS 4225 3Cour!" o$ +"r$oranc"8>

0n a"reement is s(pplemented or 4(alified b) a reasonable (sa"e 9ith respect to

a"reements of same t)pe if parties Ano9 or have reason to Ano9 of (sa"e and neither
Ano9s or has reason to Ano9 that other part) has an intention inconsistent 9ith the (sa"e
UCC

456205 3>"n"ral d"$inition!8= E0"reementF means the bar"ain of the parties in fact as
fo(nd in their lan"(a"e or b) implication from other circ(mstances incl(din" :1; co(rse
of dealin" or :2; (sa"e of trade or :3; co(rse of performance as provided in this 0ct

45620B 3Cour!" o$ d"aling and u!ag" o$ trad"8>

o E,o(rse of dealin"F is a se4(ence of previo(s cond(ct bet9een the parties fairl)
to be re"arded as establishin" a common basis of (nderstandin" for interpretin"
their e1pression and other cond(ct
o E&sa"e of tradeF is a practice or method of dealin" havin" s(ch re"(larit) of
observance in a place, trade, or vocation as to 7(stif) an e1pectation that it 9ill be
observed 9ith respect to the transaction in 4(estion
o ,o(rse of dealin" bet9een parties and (sa"e of trade "ive meanin" to the terms of
an a"reement
/

42620? 3Cour!" o$ +"r$oranc"8> .here the contract for sale involves repeated
occasions for performance b) either part) 9ith Ano9led"e of the nat(re of performance
and opport(nit) for ob7ection to it b) the other, an) co(rse of performance accepted or
ac4(iesced in 9itho(t ob7ection shall be relevant to determine the meanin" of the
a"reement
501 Th" ("chanic! o$ a 'argain 3I8 2 O$$"r and
R"-ocation

For a contract, )o( m(st have both consideration and the re4(irements of
offerKacceptance :classical vie9;
o !et9een offer and acceptance is the po9er to terminate acceptance

,lassicall), offeror is the master of the bar"ain, b(t elements of reliance are present,
providin" protection to the offeree as 9ell
5015 What Con!titut"! an O$$"r
S#f 9e call somethin" an offer, it maAes the offeror ver), ver) v(lnerable to an acceptance and
therefore a contract so 9hat 9e=re "oin" to do is maAe s(re there are not too man) thin"s that
are offersT
O$$"r &"$in"d 3RS 42@8

0n offer is the manifestation of 9illin"ness to enter into a bar"ain, so made as to 7(stif)

another person in (nderstandin" that his assent to that bar"ain is invited and 9ill
concl(de it

Test is 9hether a reasonable person 9o(ld thinA he can accept it and concl(de dealin"s
:definition looAs at the offer from the point of the offeree;
Pr"liinar. N"gotiation! 3RS 4 2<8

0 manifestation of 9illin"ness to enter into a bargain is not an offer if the person to

9hom it is addressed Ano9s or has reason to Ano9 that the person maAin" it does not
intend to concl(de a bar"ain (ntil he has made a f(rther manifestation of assent

,omment>
o 0dvertisement of "oods b) displa), si"n, handbill, ne9spaper, radio, or television
are not ordinaril) intended or (nderstood as offers to sell
o There m(st ordinaril) be some lan"(a"e of commitment or some invitation to taAe
action 9itho(t f(rther comm(nication to co(nt as offer
o 0 price E4(oteF is commonl) (nderstood as invitin" an offer rather than maAin"
one
"onergan v. Scolnick, CA, 57B@ 3+1@5@8
%

L p(t ad in paper for sale of land, 5 responded- L then sent letter invitin" disc(ssions :E#f
)o( are reall) interested, )o( 9ill have to decide fast, as # e1pect to have a b()er in the
ne1t 9eeA or soF;- 5 accepted, b(t L sold land to another

Holding> L=s second letter manifests intention to find o(t 9hether 5 9as interested, not
intention to maAe definite offer. $an"(a"e of letter s(fficient to advise 5 that some
f(rther manifestation of assent 9as necessar). So, L never made offer, so no contract

#f from a promise or manifestation of intention the promisee has reason to Ano9 the
promisor does not intend it as an e1pression of his fi1ed p(rpose (ntil he has "iven a
f(rther e1pression of assent, promisor has not made an offer
Hurley v. 7ddingfield, in6cla!! "*a+l"

.ife AnocAs on doctor=s door, sa)in" Ecome helpUF Doctor ref(ses to come. 2(sband
dies- 9ife s(es for breach of contract.

#here !as a contract> 8ffer 9as to be on call 9hen needed :o(tstandin" offer;.
0cceptance occ(rs 9hen 9ife AnocAs, so doctor breached.

.o contract> 8ffer 9as AnocAin" on door :offer to b() services;. @o acceptance bKc
doctor ref(sed to come. @o contract and therefore no liabilit)
1egent "ighting Cor0. v. C!% Cor0., %%%, 5777 3+1@5<8

0n offer m(st be made (nder circ(mstances evidencin" an e1press or implied intention

that its acceptance shall constit(te a bindin" contract. Th(s, a +ro+o!al that r"!"r-"! a
right not to acc"+t i! not an o$$"r, ,ut rath"r an in-itation to !u,it an o$$"r
Ad-"rti!""nt a! O$$"r

The "eneral r(le is that ads are not offers- based on polic) considerations

!&T, "efkowit. v. Great !innea0olis Sur0lus Store, (N SC, 577B 3+1@578

o 5 responded to t9o ne9spaper ads b(t L ref(sed to sell merchandise bKc of Eho(se
r(leF that sales co(ld "o onl) to 9omen- 5 s(ed for breach
o Holding> L=s ad constit(tes an offer, 9hich 5 accepted 9hen he attempted to
p(rchase the items.
o .here an advertisement offer is clear, definite, and e1plicit, and leaves nothin"
open for ne"otiation, it constit(tes an offer, acceptance of 9hich 9ill complete the
contract and create obli"ation in the offeror to perform accordin" to the terms of
the p(blished offer
o .hile an advertiser has a ri"ht an) time before acceptance to modif) his offer, he
does not have the ri"ht after acceptance to impose ne9 or arbitrar) conditions not
contained in the p(blished offer

,F, Ford !otor Credit Co. v. 1ussell, (N, 577@ 3+1@578

o Dealership advertised car at 11[ financin". R defa(lted, and Ford repossessed. R
s(ed, claimin" dealership breached contract to sell car at 11[ financin"
o Holding> !Kc not ever)one 4(alifies for financin" and dealership does not have
(nlimited n(mber of Escorts, not reasonable for b()er to believe ad 9as an offer
bindin" the advertiser
o 3enerall), if "oods are advertised at a sale price it=s an invitation to bargain rather
than an offer
'

Donovan v. 11" Cor0., CA, 2005 3+1@208

o "ommon)la! rule> 0n advertisement that simpl) identifies "oods and specifies a
price is an invitation to ne"otiate
o 0dvertisements have been held to constit(te offers 9here the) :1; invite the
performance of a specific act :2; 9itho(t f(rther comm(nication and :3; leave
nothin" for ne"otiation
0ds for re9ards t)picall) fall in this cate"or), as did ad in -efko!it4

Fisher v. #ell, England, 57<0 3+1@258

o The e1hibition of a Anife in a 9indo9 9ith a price listin" does not constit(te an
offer to sell, b(t rather an invitation to EtreatBF
Sal" ,. Auction 3UCC 426A2?8

3eneral r(le> The act of an a(ctioneer in p(ttin" an item (p for sale is not an offer, b(t
onl) an invitation to bid

Auction !ith reserve> 0(ctioneer ma) 9ithdra9 the "oods at an) time (ntil he anno(nces
completion of the sale. Th(s, a(ctioneer not le"all) bo(nd to sell the item if the hi"hest
bid is (nsatisfactor).

Auction !ithout reserve> after a(ctioneer calls for bids on an article or lot, that article or
lot cannot be 9ithdra9n (nless no bid is made 9ithin reasonable time. Th(s, 9o(ld?be
seller le"all) bo(nd to sell an item, once it has been p(t (p for a(ction, 9hatever the
hi"hest bid.

Defa(lt r(le is that an a(ction is 9ith reserve (nless declared to be 9itho(t reserve
5012 T"rination o$ th" O$$"r""K! Po#"r o$ Acc"+tanc"= La+!",
R"J"ction, and Count"r6O$$"r
("thod! o$ T"rinating th" O$$"r""K! Po#r o$ Acc"+tanc" 3RS 4A<8

0n offeree=s po9er of acceptance ma) be terminated b)>

o Re7ection or co(nter offer b) offeree
o $apse of time
o Revocation b) offeror
o Death or incapacit) of either part) :this r(le is harsh to9ards offerees;
o @on?occ(rrence of an) condition of acceptance (nder the terms of the offer

RS 4A? 3R"J"ction8> 8fferee=s po9er of acceptance is terminated b) his re7ection of the

offer, (nless offeror has manifested contrar) intention
o +anifestation of an intent not to accept an offer is a re7ection (nless the offeree
manifests an intention to taAe it (nder f(rther advisement
o 0 re7ection terminates the offeree=s po9er of acceptance, even if the re7ection is
comm(nicated before the offer 9o(ld other9ise have lapsed

RS 4A7 3Count"r6o$$"r8> 8fferee=s po9er of acceptance terminated b) his maAin" of a

co(nter?offer
6
o 0 mere in4(ir) re"ardin" the possibilit) of different terms, a re4(est for a better
offer, or a comment (pon the terms of the offer, is ordinaril) not a co(nter?offer

RS 4B7 3Pur+ort"d acc"+tanc" #hich add! condition!8> 0 repl) to an offer 9hich

p(rports to accept it b(t is conditional on the offeror=s assent to terms additional to or
different from those offered is not an acceptance b(t is a co(nter?offer
o !&T, a definite e1pression of acceptance is operative despite statement of
additional or different terms if acceptance is not made to depend on assent to the
additional or different terms :rather, seen as proposal for modification;
o ,8@TR0ST UCC 426207= #n sale of "oods, an acceptance 9ith conditions is still
an acceptance and sometimes the conditions become part of the act(al a"reement

RS 4@5 3La+!" o$ ti"8> 8fferee=s po9er of acceptance is terminated at time specified in

the offer, or, if no time is specified, at the end of a reasonable time
o .hen offer is made orall), no acceptance (nless made immediatel) :(nless
circ(mstances indicate offer is intended to last lon"er;
o 8ffer b) mail seasonabl) accepted if acceptance mailed at an) time before
midni"ht on da) on 9hich offer is received
Price v. &K College of &steo0athic !edicine, OI, 57?< 3+1@A@8

#n si"nin" contract rene9al letter, emplo)ee (nder si"nat(re 9rote Esi"ned in protest that
SDTF and ret(rned the letter

Holding> Emplo)ee=s si"nin" constit(ted acceptance, since the protest lan"(a"e did not
p(rport to alter an) term of the offer, b(t merel) artic(lated emplo)ee=s opinion of one of
the terms :i.e., E# don=t liAe )o(r offer, b(t # accept it.F;
T"rination o$ Po#"r o$ Acc"+tanc" Und"r an O+tion Contract 3RS 4A78

@ot9ithstandin" II 3'?46, the po9er of acceptance (nder an option contract is not

terminated b) re7ection or co(nter?offer, b) revocation, or b) death or incapacit) of the
offeror, (nless the re4(irements are met for the dischar"e of a contract(al d(t)
501A T"rination o$ th" O$$"r""K! Po#"r o$ Acc"+tanc"= R"-ocation
R"-ocation ,. Counication $ro O$$"r"" to O$$"ror 3RS 4@28

0n offeree=s po9er of acceptance is terminated 9hen the offeree receives from the
offeror a manifestation of an intention not to enter into the proposed contract

RS 4@A 3Indir"ct counication o$ r"-ocation8> 0n offeree=s po9er of acceptance is

terminated 9hen the offeror taAes definite action inconsistent 9ith an intention to enter
into the proposed contract and the offeree ac4(ires reliable information to that effect
O+tion Contract Cr"at"d ,. Part P"r$oranc" or T"nd"r 3 RS 4@B8

#f an offeror invites acceptance Sonl)T b) performance, an option contract is created 9hen

offeree be"ins performance, at 9hich point offer becomes irrevocable b) offeror even
tho("h offeree not bo(nd to complete the contract
/*

!e"innin" preparations for performance are not eno("h to precl(de revocation- some
de"ree of act(al performance is re4(ired :tho("h be"innin" preparations can constit(te
7(stifiable reliance to maAe contract bindin" (nder RS 4?7328;

1ption contract 0n irrevocable offer :an offer the offeror promises not to revoAe for a
period of time;
o 0n option contract protects the offeree b) prohibitin" revocation once the offeree
be"ins performance
O$$"r! $or Unilat"ral Contract!

2nilateral contract> 0n offer for a contract to be formed b) the e1chan"e of a promise :in
the form of an offer; and an act, rather than an offer for a contract to be formed b) an
e1chan"e of promises

RS 4@B> 0n offer for a (nilateral contract carries 9ith an implied promise that if part of
the re4(ested performance is "iven or tendered, the offeror 9ill not revoAe the offer.
Renderin" :or tenderin"; part performance completes a bar"ain for that promise and th(s
maAe=s offeror=s promise to hold the offer open (ntil completion bindin"
o +ere preparations, ho9ever, don=t c(t it- has to be be"innin" of actual
performance

#rackenberry v. Hodgkins+ in6cla!! "*a+l"

o +om sa)s, ENo( can have m) place if )o( taAe care of me for the rest of m) life.F
Da("hter comes and taAes care of mom
o "lassical rule> +om can revoAe (ntil the moment of her death :scar) for offeree;
o *odern rule> &nder RS 4@B, mom can=t revoAe :even if da("hter=s reall) mean;,
and da("hter can cease performance at an) time :reliance;, &@$ESS there is
some 4(estion as to 9hether it=s a (nilateral or a bilateral contract :RS 4A2;, in
9hich case if da("hter ceases performance she breaches :RS 4<2;

#+P8RT0@T> #f offer is clearl) for a (nilateral contract, RS 4@B "overns :and offeree
ma) cease performance 9itho(t breachin";- #f, ho9ever, there is do(bt as to 9hether
offer is for a (nilateral or a bilateral contract :i.e., 9hen offeree can accept either b)
promise or b) performance;, then RS 44A2 and <2 "overns :meanin" that if offeree
ceases performance, she breaches;
1agosta v. (ilder, ET SC, 5775 3+1@@28

L told 5 he 9o(ld sell EThe ForA ShopF if he came to banA 9ith J''W before @ov. 1
st

M be"an sec(rin" financin", L called bacA and said he 9as no lon"er sellin"- 5 had
inc(rred J%** in loan closin" costs at this point

Holding> @o contract bKc 5 onl) prepared to accept L=s co(nteroffer- did not act(all)
accept it

Preparation to perform is not the same as performance

O+tion Contract Cr"at"d Through R"lianc" 3RS 4?73288

0n offer 9hich the offeror sho(ld reasonabl) e1pect to ind(ce action or forbearance of a
s(bstantial character on the part of the offeree before acceptance and 9hich does ind(ce
s(ch action or forbearance is bindin" as an option contract to the e1tent necessar) to
avoid in7(stice
/1

Ei!"n,"rg> #n comparin" I'%:2; 9ith I4, it appears that the framers of RS believed that
9here offeree has act(all) begun to perform p(rs(ant to an offer for a (nilateral contract,
he=s a(tomaticall) entitled to expectation damages, 9hile in other cases of reliance on an
offer :preparation;, the offeree ma) appropriatel) be limited to reliance damages
Drennan v. Star Paving Co., CA SC, 57B? 3+1@@?8

3eneral contractor (ses s(bcontractor=s bid in maAin" its o9n bid, 9ins. .hen "eneral
contractor tells s(bcontractor it 9on the bid, s(bcontractor 9ants to revoAe, sa)in" it
mistaAenl) bid too lo9

Holding> S(bcontractor cannot revoAe bid. 3eneral contractor=s reliance made

s(bcontractor=s bid an option contract, so not revocable.
o So, s(bcontractor bo(nd to his promise not to revoAe even tho("h "eneral
contractor not bo(nd to s(bcontractor

8ne part)=s reliance on another=s offer ma), (nder RS 470 , maAe that offer irrevocable if
the offeror Ane9 or sho(ld have Ano9n the offer 9o(ld ind(ce the offeree to taAe real and
s(bstantial action in reliance on the offer

Pavel &nterprises v. A.+. 5ohnson "o., +D, 166/ :p.42;> Drennan has come (nder
criticism for lacA of s)mmetr) bKc leaves "eneral contractor free to bid shop, bid chop,
and to enco(ra"e bid peddlin", to the detriment of the s(bcontractors

Preload #ech v. AB 6 5 "onstruction,

th
,ir., 16'3 :p.44;> .hen "eneral contractor
attempts to bid chop or bid chisel recover) (nder RS 470 :reliance; ma) be barred
Fir O$$"r! 3UCC 42620B8

/irm offer> #rrevocable offer

0n offer :1; b) a merchant to b() or sell "oods :2; 9hich is in 9ritin" and :3; b) its
terms "ives ass(rance that it 9ill be held open is not revocable for the time stated, or if no
time is stated, then for a reasonable time :b(t no more than three months;
o 0n) s(ch term or ass(rance on a form s(pplied b) the offeree m(st be separatel)
si"ned b) the offeror
o 8ral offers remain revocable (nder this I, even tho("h (nder co(rses of dealin"
or trade (sa"es oral offers are common
551 Th" ("chanic! o$ a 'argain 3II8 2 Tran!acting at a
&i!tanc"

,eneral rule :mailbox rule;> 0cceptance becomes effective (pon dispatch :9hen mailed;
and revocation becomes effective (pon receipt
o &nder this r(le, an offeree can safel) be"in to perform as soon as he dispatches
his acceptance
o R(le applies even in cases of dela) or fail(re of transmission :i.e., contract still
e1ists;
o ,ontract can be 9orded to maAe acceptance effective onl) (pon receipt
/2
For o$ Acc"+tanc" In-it"d 3RS 4A08

8ffer can invite acceptance to be made b) an affirmative ans9er in 9ords, b) performin"

or refrainin" from performin" a specified act, or b) offeree=s choice

&nless lan"(a"e or circ(mstances sa) other9ise, offeree ma) accept b) an) means
reasonable

RS 4<0> #f the offer states e1plicitl) a place, time, or manner of acceptance, these terms
must be complied 9ith in order to create a contract :b(t if these thin"s are merel)
suggested, another method of acceptance is not precl(ded;
o #f an offer prescribes the onl) 9a) in 9hich the offer can be accepted, an
acceptance in an) other 9a) is a co(nteroffer

UCC 42620<358> &nless other9ise (nambi"(o(sl) indicated b) lan"(a"e or

circ(mstances, a contract invites acceptance in an) 9a) reasonable (nder the
circ(mstances
E$$"ct o$ &"la. in Counication o$ an O$$"r 3RS 4@78

#f there=s a dela) in the comm(nication of an offer, the period 9ithin 9hich contract can
be accepted is not extended if the offeree Ano9s :or has reason to Ano9; of the dela).

!&T, if the dela) is the offeror=s fa(lt, and the offeree doesn=t Ano9 of dela) :nor has
reason to Ano9;, then offeree "ets time to accept
Acc"+tanc" E$$"cti-" U+on &i!+atch 3RS 4<A8

0n acceptance taAes effect as soon as it leaves offeree=s possession :i.e. (pon dispatch;,
even if it never reaches offeror

!&T, acceptance (nder option contract is not valid (ntil receipt

Fr("> This r(le maAes no sense- in the rest of the 9orld acceptance is effective (pon
receipt

,omment> Revocation of acceptance after acceptance is dispatched is "enerall) not

operative. Rather, it 9ill amo(nt to an offer to rescind the contract, or to a rep(diation

RS 4 << 3Acc"+tanc" u!t ," +ro+"rl. di!+atch"d8> 0cceptance b) mail onl) taAes
effect (pon dispatch if properl) addressed, stamped, etc.

RS 4<7 3E$$"ct o$ r"c"i+t o$ acc"+tanc" i+ro+"rl. di!+atch"d8> #mproperl)

dispatched acceptance still treated as operative (pon dispatch if received 9ithin the time
in 9hich a properl) dispatched acceptance 9o(ld normall) have arrived

Acc"+tanc" ,. Phon" 3RS 4<@8> Follo9s r(les of face?to?face contract formation

R"a!ona,l"!! o$ ("diu o$ Acc"+tanc" 3RS 4<B8> +edi(m of acceptance is reasonable

if it is c(stomar) in similar transactions

&D$ 7&lectronic Data $nterchange8 *odel Agreement> Tries to deal 9ith the problems
posed in this area b) comp(ter comm(nication. Recommends that all ED# transmissions
are effective onl) 9hen received b(t that verification of the receipt is also necessar)
Point! to Pond"r

Send acceptance b) mail and chan"e mind so revoAe b) a faster medi(m. @ot effective.
/3
o ,an=t retrieve mail from mailbo1 either. Prevent spec(lation :RS 4<A, co"nt
c;

Send a re7ection and an acceptance :re7ect 1

st
and accept later;. .hichever arrives first
controls, since other side mi"ht rel) on receivin" the re7ection :RS 4 @0;

Point is to protect offeror from offeree=s mistaAe. R(les overlap, ho9ever :can retract
re7ection b(t not acceptance;. @eed to fi"(re o(t 9hich o(tcome 9e 9ant
521 Th" ("chanic! o$ a 'argain 3III8 2 (od"! o$
Acc"+tanc"
In-itation o$ Proi!" or P"r$oranc" 3RS 4A28

#n case of do(bt an offer is interpreted as invitin" the offeree to accept either b)

promisin" to perform or b) performance, as the offeree chooses

,omment>
o .here performance taAes time, the be"innin" of performance ma) constit(te a
promise to complete it
o 0 promise ma) be ineffective as acceptance in circ(mstances 9here a promise b)
itself is 9orthless to the offeror :e."., re9ard promise;

RS 4<2> .here an offer invites the offeree to choose bet9een acceptance b) promise and
acceptance b) performance, the be"innin" of the invited performance is an acceptance b)
performance and o+"rat"! a! a +roi!" to r"nd"r co+l"t" +"r$oranc"
:,8@TR0ST 9ith RS 4@B, 9hich "overns clearl) (nilateral contract> offeree 9ho be"ins
performance not bo(nd to complete it;

UCC 42620<358> &nless other9ise (nambi"(o(sl) indicated b) lan"(a"e or

circ(mstances, a contract invites acceptance in an) 9a) reasonable (nder the
circ(mstances
521< Sil"nc" a! Acc"+tanc"
Wh"n Sil"nc" O+"rat"! a! Acc"+tanc" 3RS 4<78

.here an offeree fails to repl) to an offer, silence or inaction operates as acceptance if>
o The offeree taAes the benefit of the offered services 9ith reasonable opport(nit)
to re7ect them and reason to Ano9 that the) 9ere offered 9ith e1pectation of
compensation
o The offeror has stated or "iven offeree reason to (nderstand that assent ma) be
manifested b) silence or inaction and the offeree in remainin" silent and inactive
intends to accept the offer
o !eca(se of previo(s dealin"s or other9ise it is reasonable that offeree sho(ld
notif) the offeror if he does not intend to accept

0n offeree is bo(nd in accordance 9ith the offered terms if he acts inconsistentl) 9ith the
offeror=s o9nership of the propert) :(nless offered terms manifestl) (nreasonable;
/4

Doesn=t appear to re4(ire belief that other person 9o(ld ever 9ant to pa) for services
rendered

Enforced polic) a"ainst officious intermeddlers :sho(ldn=t be paid for (nsolicited

services
4ogt v. !adden, I&, 57?B 3+1@758

5 had e1plicit sharecrop a"reement 9ith L to farm his land in 16%6 and 16'*

#n 16'1 both a"reed 9asn=t the best "ro(nd b(t 5 said he intended to raise beans there

Holding> @o contract e1isted for 16'1 since M=s and L=s previo(s dealin"s al9a)s
res(lted in a contract onl) 9hen both parties e1pressl) a"reed, and there 9as no e1plicit
a"reement for 16'1

(easoning> ,ase doesn=t fall 9ithin an) of the e1ceptions of RS 4<7358

SFr("> !(t s(rel) )o( can sa) the sharecropper relied on the farmer=s silence. !&T, 9as
that reliance reasonableBT
"aurel 1ace Courses v. 1egal Construction Co., (&, 577B 3+1@7B8

R a"rees to fi1 $=s tracA and proposes that if additional 9orA re4(ired, $ 9ill pa). $
responds 9ith silence. R fi1es tracA, and $, a9are that 9orA 9as done, never re7ects R=s
proposal

Holding> $ tooA benefit of R=s 9orA and s(rel) Ane9 R 9as doin" the 9orA in
e1pectation of bein" compensation. Th(s, (nder RS 4<73583a8, $=s silence 9orAed a
contract.
Cole)!c,ntyre Co. v. Holloway, TN, 5757 3+1@7B8

!()er made an order from travelin" salesman that 9as neither accepted nor re7ected.
Salesman contin(ed visitin" b()er each 9eeA to taAe ne9 orders, b(t never mentioned
the partic(lar order

Holding> Seller=s silence and fail(re to re7ect offer 9ithin reasonable time constit(ted
acceptance.
o Reliance, prior co(rse of dealin", c(stomar) trade (sa"e, etc. all floatin" thro("h
this case

0ssent is re4(ired in order to form a contract, E)et s(ch assent is a condition of the mind,
and ma) be either e1press or evidenced b) circ(mstances from 9hich the assent ma) be
inferredF
Kukuska v. Hoe !utual ,nsurance Co., WI, 57A5 3+1@7?8

Farmer applied for hail ins(rance, re4(ired to incl(de checA to pa) in advance, so limited
his abilit) to shop aro(nd. #ns(rance compan) did not re7ect (ntil the mornin" of 0("(st
1
st
, da) a h("e storm destro)ed farmers= crops.

Holding> #ns(rer had d(t) to inform farmer 9ithin a reasonable time 9hether it had
accepted his application so that he co(ld protect himself else9here. @ot re7ectin" him
9ithin that reasonable time 9as silence amo(ntin" to acceptance
Hobbs v. !assosoit (hi0 Co., (A, 5?7A 3+1@778

5 had shipped eelsAins 9itho(t specific orders on several occasions, and L had paid. L
retained latest shipment for months, then lost them and ref(sed to pa)
/

Holding> Past dealin"s of the parties had created a Aind of Estandin" offerF for the
eelsAins. Th(s, sendin" the sAins imposed on L a d(t) to act on them. Silence on L=s
part, co(pled 9ith retention of them for a lin" time, amo(nts to an acceptance
-ustin v. #urge, (O, 5755 3+1@778

L had ne9spaper s(bscription that e1pired- L directed that s(bscription be stopped, b(t
ne9spaper co. nevertheless Aept sendin" papers and L Aept readin" them (ntil he moved

Holding> L accepted and (sed the ne9spaper, 9ith no pretense b) the ne9spaper that it
9as a "rat(it). #n receivin" this benefit, an obli"ation arose on L=s part to pa) for it,
not9ithstandin" his direction to stop sendin".
5217 Acc"+tanc" ,. El"ctronic Ag"nt

Recent stat(tes maAe it clear the contracts can be formed b) comm(nications bet9een a
person and a comp(ter, or even bet9een t9o comp(ters
5A1 I+li"d6in6La# and I+li"d6in6Fact Contract!:
Unilat"ral Contract! R"-i!it"d

$mplied)in)fact contract> 0 tr(e contract, 9hich differs from a r(n?of?the?mill contract

onl) in the fact that the parties= assent, 9hile real, is implicit :(nartic(lated; rather than
e1plicit
o E."., b()in" an apple on the r(n

$mplied)in)la! contract @ot a contract at all, b(t rather a label "iven to certain Ainds of
cond(ct that "ives rise to liabilit) for (n7(st enrichment
o (orri!on> @othin" the parties sa) or do implies a contract e1ists, and nothin" the
parties sa) or do 9arrants o(r inferrin" a contract e1ists. Rather, the co(rt simpl)
sa)s there=s a contract in order to avoid (n7(st enrichment
o @o need for assent
o ,ontract terminolo") (sed beca(se of histor), b(t not reall) a contract
o 3uasi)contract> action at la9 based on (n7(st enrichment
o 0"ain, problems of the officio(s intermeddler<notable e1ception is emer"enc)
aid

SS4(ee"ee e1ample C does a contract e1ist 9hen man cleans 9indshield and asAs for J1B
NesT

S2ierarch)> E1press contract stron"er than implied?in?fact stron"er than implied?in?la9T

!aroney v. !aroney+ in6cla!! "*a+l"!

,o(ple lives to"ether for 2 )ears, b(t never marr)- 9oman p(ts man thro("h dental
school and raised Aids- he leaves after 2 )ears. She s(es for breach of contract.
o &xpress "ontract> Did the) talA abo(t relationship termsB #f no e1press deal, no
contract
//
o $mplied)in)/act> Did parties intend to be married :she chan"ed name;, or is either
free to 9alA at an) timeB
o $mplied)in)-a!> She paid for his school and tooA care of Aids- (n7(st enrichment

0bove list is the hierarch) of contracts> E1press, #mplied?in?Fact, #mplied?in?$a9

E"rg"nc. Aid 3I+li"d6in6La# Contract!8

Nursing Care Services+ ,nc. v. Dobos, FL, 57?0 3+1B0@8

o L received n(rsin" services after accident b(t never si"ned or orall) a"reed to
them
o Holding> Tho("h L never assented, there 9as a contract implied?in?la9 bKc it
9o(ld be (nconscionable to den) 5 recover) for the val(e of the n(rsin" services
o E8fficio(s intermeddler doctrineF> .here a person performs labor for another
9itho(t the latter=s re4(est or implied consent, the person providin" the service
cannot recover therefrom
E^,EPT#8@> .hen the service provided is emer"enc) aid :if s(pplier of
the benefit has no reason to Ano9 the person bein" benefited 9o(ld not
consent to receivin" them if mentall) competent;:polic)?based e1ception;

+ceva v. #rue, @2, 1'%3 :p.*/;> 0n insane person, an idiot, or a person (tterl) bereft of
all sense and reason b) the s(dden stroAe of accident or disease, ma) be held liable for
necessaries f(rnished to him in "ood faith 9hile in that (nfort(nate and helpless
condition
I+li"d6in6La# Contract!

Day v. Caton+ (A, 5?7< 3+1B558

o L 9atched 5 b(ild a 9all on both of their lots of land that both 9o(ld benefit
from. M s(es for half of costs of constr(ction
o Holding> L liable to 5 bKc L had ample notice 5 9as b(ildin" the 9all and ample
opport(nit) to tell 5 he didn=t 9ant it and Ane9 5 9o(ld 9ant mone) for the 9all..
Th(s, the circ(mstances Ecalled on L to speaAF if he did not 9ant to pa) for the
9all
o .hen one stands in silence, and sees val(able services rendered (pon his real
estate b) the erection of a str(ct(re :of 9hich he m(st necessaril) avail himself
after9ards in his proper (se thereof;, s(ch silence accompanied 9ith the
Ano9led"e on his part that the part) renderin" the services e1pects pa)ment
therefrom, ma) fairl) be treated as acceptance
o !&T, ,ompensation for benefits conferred 9ith E"rat(ito(s intentF not
appropriateKallo9ed
+parks v. ,ustafson> M mana"ed center decedent o9ned for t9o )ears
after decedent=s death. ,o(rt held 5 co(ld recover beca(se the services he
performed for decedent=s estate 9ere not the sort one 9o(ld ordinaril)
e1pect to receive from a friend as a Emere "rat(it).F
I+li"d6in6Fact Contract!

#astian v. Gafford, I&, 5777 3+1B5@8

/%
o 5 made e1press a"reement 9ith L to dra9 (p plans to constr(ct office- ho9ever,
no loan obtained so plans not needed. M s(es for dama"es
o Holding> G(r) finds for L bKc no (n7(st enrichment. ,o(rt reserves bKc (n7(st
enrichment irrelevant to contract implied in fact
o Enrichment is necessar) for recover) based (pon a contract implied in la9, b(t
irrelevant to a contract implied in fact
&aag"! in I+li"d6in6La# -!1 I+li"d6in6Fact Contract!

Hill v. (a*enburg, 7
th
Cir1, 57B< 3+1B5B8
o Dama"es for implied?in?fact contracts are 9hat the parties intended
:compensator) dama"es;
o Dama"es for implied?in?la9 contracts are restit(tion of the benefit received

1asey v. 7llis, WI, 5772 3+1B5B8

o Difference bet9een (n7(st enrichment and quantum meruit claims>
Dama"es for an (n7(st enrichment claim are meas(red b) the benefit
conferred (pon the defendant,
Dama"es in a quantum meruit claim :implied?in?fact contract to pa)
reasonable compensation for services rendered; are meas(red b) the
reasonable val(e of the 5=s services
E+lo."nt6at6Will P Fand,oo) (odi$ication!

(agenseller v. Scottsdale !eorial Hos0ital, AH, 57?B 3+1B5<8

o M hired as an Eat?9illF emplo)ee :one 9itho(t a specific contract(al term;. 0fter
9orA part) 9here 5 ref(sed boss=s entreaties to moon other emplo)ees, 5 fired
o Holding> ,ompan)=s emplo)ment man(al laid o(t termination process. There
9as an implied?in?fact contract to follo9 the termination process, 9hich the
compan) didn=t do, so compan) liable. Al!o, $iring $or ,ad cau!" 3$or r"$u!ing
to ,r"a) th" la#8 contra-"n"! +u,lic +olic.
o :Personnel polic) man(al e1ception;> 0n emplo)er=s polic) statements on matters
liAe 7ob sec(rit) and disciplinar) proced(res ma) become part of the emplo)ment
contract, s(pplementin" the verbaliHed at?9ill a"reement and limitin" the
emplo)ers= absol(te ri"ht to dischar"e an at?9ill emplo)ee

8ne e1ception to the at?9ill r(le is that emplo)ees cannot dischar"e an at?9ill emplo)ee
for a reason prohibited b) stat(te :incl. 9histleblo9in";

Pine 1iver State #ank v. !ettille, (N, 57?A 3+1BA58

o 5 hired at?9ill- claimed dischar"e violated emplo)ee contract as modified in ne9
handbooA
o Holding> @e9 handbooA provisions enforced 9itho(t need for ne9 consideration.
2andbooA in effect an offer of chan"ed conditions of ori"inal contract
,o(rt fo(nd consideration in services contin(ed to be performed,
increased lo)alt), etc. ,o(rt also fo(nd :silent; acceptance in the fact that
emplo)ee didn=t 4(it in protest

#nterestin" since (nliAel) to find silent acceptance if handbooA too

a9a) benefits
/'

+odifications in emplo)ee handbooAs>

o Asmus v. Pacific Bell, ,0, 2*** :p.31;> ,ontin(in" to 9orA after emplo)ment
polic) modification constit(tes acceptance of the ne9 emplo)ment terms
:availabilit) of contin(in" emplo)ment servin" as consideration from the
emplo)er;
o !&T, Demasse v. $##, 0V, 1666 :p.32;> +anifestin" consent to an offer
modif)in" an e1istin" emplo)ment a"reement re4(ires taAin" affirmative steps,
be)ond contin(ed 7ob performance, to accept

Disclaimers in emplo)ee handbooAs>

o 0n emplo)ee handbooA that 9o(ld other9ise "ive rise to contract(al liabilit) ma)
not do so if it incl(des a disclaimer a"ainst s(ch liabilit)
o !&T, the disclaimer m(st be s(fficientl) clear and provide s(fficient notice :and
these t9o condition can be ver) demandin";
A 'ri"$ Word on Unilat"ral Contract!

The onl) limit on the (se of (nilateral contract theor) is the co(rt=s 9illin"ness to find the
alle"ed implied promise
5@1 Pr"liinar. N"gotiation!, Ind"$init"n"!!, and th"
&ut. to 'argain in >ood Faith
5@15 Ind"$init"n"!!

#ndefiniteness is relevant in t9o senses>

o .hether the e1pression looks like an a"reement in the first place
o .hether the res(ltin" bar"ain 9as definite eno("h to allo9 co(rts to fashion a
remed) for its breach
C"rtaint.
RS 4AA 3C"rtaint.8> 0 manifestation of intention cannot be accepted so as to form a contract
(nless the terms of the contact are reasonably certain

Terms of a contract are reasonabl) certain if the) Eprovide a basis for determinin" the
e1istence of a breach and for "ivin" an appropriate remed)F

The fact that one or more terms of contract is left (ncertain may sho9 that manifestation
of intention is not intended to be (nderstood as an offer or acceptance
RS 4A@ 3C"rtaint. and choic" o$ t"r!: "$$"ct o$ +"r$oranc" on r"lianc"8>

Terms ma) be reasonabl) certain even tho("h the) allo9 one or both parties to maAe a
selection of terms in the co(rse of performance

Part performance ma) remove (ncertaint) and establish an enforceable contract

Reliance ma) maAe a contract(al remed) appropriate even tho("h (ncertaint) isn=t
removed
UCC Rul"! on C"rtaint.
/6

&,, allo9s a contract to be formed 9ith ver) open terms

42620@ 3Foration in g"n"ral8> ,ond(ct b) parties that reco"niHes the e1istence of a

contract is s(fficient to sho9 a contract e1ists
o Even tho("h one or more terms are left open a contract for sale doesn=t fail for
indefiniteness if parties have intended to maAe a contract and there=s r"a!ona,l"
,a!i! $or gi-ing an a++ro+riat" r""d. :even if moment of maAin" of contract
is (ndetermined;

426A0B 3O+"n +ric" t"r8> #f the parties so intend, the) can concl(de a contract for sale
even tho("h the price is not settled :(s(. then the price is a reasonable price at the time of
deliver);

426A0? 3A,!"nc" o$ !+"ci$ic +lac" o$ d"li-"r.;> &nless other9ise a"reed, the place for
deliver) of "ood is the seller=s place of b(siness or if he has none his residence

426A07 3A,!"nc" o$ !+"ci$ic ti" +ro-i!ion!8> Time for shipment or deliver), if not
specified, shall be a reasonable time

426A50 3Ti" $or +a."nt8> &nless other9ise a"reed, pa)ment is d(e at the time and
place at 9hich the b()er is to receive the "oods, even if the place of shipment is the place
of deliver)

Ei!"n,"rg=s note on p. 4 provides a "ood disc(ssion abo(t the problems of

determining !hat is reasonable. 8ne co(ld define it as the terms reasonable parties in
that position 9o(ld have 9anted or as 9hat the act(al parties 9o(ld have a"reed to had
the) bar"ained on the iss(e. Eisenber" sa)s &,, seems to taAe second position, b(t he
believes former is better Ebeca(se it is so diffic(lt to determine 9hat terms specific
parties 9o(ld have a"reed to on the basis of their relative bar"ainin" po9er, de"ree of
risA aversion, and the liAeF
-cadey Chicago Publishers v. Cheever, IL SC, 5775 3+1BA78

0"reement created to p(blish h(sband=s short stories, tho("h va"(e for valid reasons
:9ife had to "o find short stories, didn=t Ano9 ho9 man) there 9ere, etc.;

Holding> 0"reement not a contract bKc terms too indefinite

0ltho("h parties ma) have had and manifested intent to maAe a contract, if content of
a"reement is (nd(l) (ncertain and indefinite no contract is formed

0 contract ma) have open terms, b(t there m(st be eno("h to sho9 co(rt the intent of the
parties and "ive it a basis for decidin" 9hether the a"reement has been Aept or broAen

"riticism> #t=s impossible to identif) every term in a contract

1idgway v. (harton, %%%, 5?B< 3+1B@58

0n a"reement to enter into an a"reement (pon terms to be after9ards settled is a

contradiction in terms. &ntil the terms of an a"reement are settled, a part) is at perfect
libert) to retire from the bar"ain
S"heever case is follo9ed b) man) that seem to r(le the opposite C is "heever 9ron"BT
#erg. v. Slee0world, NF, 577B 3+1B@58

E#t is not necessar) for a 9ritin" to contain ever) possible contract(al provision to cover
ever) contin"enc) in order to 4(alif) as a completed bindin" a"reementF
%*

ESo lon" as basic essentials are s(fficientl) definite, an) "aps left b) parties sho(ld not
fr(strate their intention to be bo(nd. S(ch is the 7(st and fair res(ltF
1ego v. Decker, AI, 5775 3+1 B@58

E8n the one hand, co(rts sho(ld fill "aps in contracts to ens(re fairness 9here the
reasonable e1pectations of the parties are fairl) clearF
o Parties often cannot ne"otiate and draft sol(tions to all problems that ma) arise

E8n the other hand, co(rts sho(ld not impose on a part) an) performance to 9hich he did
not and probabl) 9o(ld not have a"reedF
o 0 "reater de"ree of certaint) is re4(ired for specific performance than for
dama"es
Saliba v. -llen, CA, 5775 3+1B@28

S(bcontractor ref(sed to perform bid at stated price, sa)in" the bid 9as too indefinite to
form the basis for a contract, since it stated onl) price :left man) other matters liAe
ins(rance, ho9 pa)ments 9o(ld be made, etc. to be determined;

Holding> M 9ins bKc price is the principal item of the contract, and it is c(stomar) for
bids to be made b) a brief telephone call in 9hich price onl) is stated
Crook v. !ortenson)Neal, AI, 57?< 3+1B@A8

0nother case 9ith a s(bcontractor tr)in" to "et o(t of deal 9ith a "eneral contractor after
s(bmittin" a bid

S(bcontractor ar"(ed the 9ritten s(bcontract the "eneral proffered after the bid contained
man) additional terms not described in the biddin" doc(ments, incl(din" time for
performance, pa)ment sched(le, and lien 9aivers

Holding> For "eneral contractor> 0t time of bid, s(bcontractor sho(ld have e1pected to be
bo(nd b) additional terms "overnin" standard conditions implicit in the relationship
bet9een "eneral and s(bcontractor
o #+P8RT0@T> 3eneral contractor had not tried to e1pand the s(bcontractor=s
d(ties be)ond that reasonabl) to be inferred or re4(ired b) c(stom
L"a!" R"n"#al O+tion!
'ose0h !artin Delicatessen v. Schuacher, N;, 57?5 3+1B@<8

$andlord and tenant si"ned lease 9ith rene9al cla(se that said tenant co(ld rene9 Eat
ann(al rentals to be a"reed (ponF

Holding> Rene9al cla(se not enforceable bKc left no room for le"al constr(ction or
resol(tion of ambi"(it) :method of remed);

0 mere a"reement to a"ree, in 9hich a material term is left for f(t(re ne"otiations is
(nenforceable
!&T, !oolenaar v. Co)#uild, EI, 57<7 3+1B@78

Tenant si"ned five?)ear lease 9ith option to rene9 for an additional )ears- rene9al
cla(se provided the rent for the rene9al period Eshall be rene"otiated.F Tenant had been
pa)in" J3%Kmo, ne9 landlord 9anted J1%,***Kmo
%1

Holding> +arAet conditions are ascertainable 9ith s(fficient certaint) to determine a

Ereasonable rentF and th(s maAe the cla(se specificall) enforceable

:+inorit) r(le, 9hich co(rt adopts;> 0 rene9al cla(se that doesn=t specif) a rene9al rate
intends rene9al at a EreasonableF rent

+a7orit) r(le;> 0 cla(se that doesn=t stip(late the rent is void for (ncertaint) and
indefiniteness
SThe s4(ibs disa"ree on 9hether a lease 9ith option to rene9 at a reasonable rent is enforceable.
The stron"er ar"(ment seems to be that it is enforceable beca(se other9ise the landlord co(ld
impose a ridic(lo(sl) hi"h rent to maAe the term meanin"less. 0lso, the rene9al cla(se provided
part of the consideration that ca(sed the tenant to enter into the lease in the first placeT
5@12 Pr"liinar. N"gotiation! and th" &ut. to 'argain in >ood
Faith

SFr("> The +a"ic +oment #dea> There=s all this st(ff leadin" (p to the contract that=s
meanin"less bKc there=s no contract :7(st preliminar) ne"otiationsKa"reement to a"ree;
then there=s the ma"ic moment of the maAin" of the contract then there are all these
ne"otiations after the maAin" of the contract that are also meanin"less :bKc )o( have a
contract;

Theories actin" in opposition to this idea>

o D(t) to "o for9ard in "ood faith once a EdealF is str(cA :abide b) the "eneral
terms of the deal;, b(t bKf act(al contract drafted :"hannel Homes;
o Reliance :Hoffman;T
Channel Hoe Centers v. Grossan, A
rd
Cir1 ,57?< 3+1B@?8

L 9anted 5 to e1ec(te a letter of intent L co(ld sho9 to banAs in order to obtain leasin".
#n letter, L promised to ne"otiate in "ood faith and 9ithdra9 premises from marAetplace.
0fter 5 had made considerable e1pendit(res, L p(lled offer on technicalit) to lease to
other part).

Holding> 0 letter of intent that 9as of si"nificant val(e to the propert) o9ner :allo9ed L
to sec(re financin"; is enforceable as a m(t(all) bindin" obli"ation to ne"otiate in "ood
faith :d(t) to "o for9ard in "ood faith once a deal is str(cA b(t before the act(al contract
is drafted;- lia,ilit. ,"$or" contract

Parties ma) be bo(nd b) a letter of intent to ne"otiate in "ood faith 9here>

o !oth parties manifest an intention to be bo(nd
o The terms are s(fficientl) definite to be enforced
o There is consideration :i.e., letter of intent of s(bstantial val(e to both sides;
!&T, -0othekernes v. ,.!.C., 7
th
Cir1, 57?7 3+1BB<8

E0 letter of intent did impose (pon the parties an obli"ation to ne"otiate in "ood faithF

1bligation to negotiate in good faith> 2as been "enerall) described as preventin" one
part) from reno(ncin" the deal, abandonin" the ne"otiations, or insistin" on conditions
that do not conform to the preliminar) a"reement
1acine $ "araie v. C- De0t. of Parks, CA, 5772 3+1B?A8
%2

E3enerall), parties do not have a d(t) to ne"otiate in "ood faith 9hen the) be"in
ne"otiations. 2o9ever, d(rin" the co(rse of ne"otiations thin"s ma) be done 9hich do
impose a d(t) of contin(ed bar"ainin" onl) in "ood faith.F

E."., #n the co(rse of ne"otiations it=s possible for a part) to so mislead another b)
promises or representations, (pon 9hich the second part) detrimentall) relies, as to brin"
into pla) the concept of promissor) estoppel
R"lianc" 3+roi!!or. "!to++"l8 and th" &ut. to 'argain in >ood Faith
Hoffan v. 1ed &wl Stores+ ,nc., WI SC, 57<B 3+1B7A8

5 repeatedl) relied (pon promises from L to let him open a "rocer) store :e."., sold
baAer);. L then increased re4(ired pa)ment far be)ond 9hat had orall) a"reed to, endin"
ne"otiations

Holding> Even tho("h no breach of contract :bKc no contract formed;, 5 can recover
reliance dama"es- lia,ilit. ,"$or" contract
o #+P8RT0@T> Reliance is (sed here not as a s(bstit(te for consideration :as in
RS 470;, b(t to find assent :to find liabilit) before contract;

0n action "ro(nded in promissor) estoppel :reliance; doesn=t have to be so

comprehensive that it 9o(ld meet all the re4(irements of an offer than 9o(ld ripen into a
contract if accepted b) the promisee

.here dama"es are a9arded in promissor) estoppel instead of specificall) enforcin" the
promise, the) sho(ld be onl) s(ch as in co(rt=s opinion are necessar) to prevent in7(stice

!8TT8+ $#@E> This case involves the imposition of liabilit) d(rin" the co(rse of
precontract(al ne"otiations, based on reliance enforcement

0$TER@0T#PE P#E.> 5 9as a s(cAer and sho(ld have "otten a contract before rel)in"
so m(ch
Gruen ,ndustries+ ,nc. v. #iller, 7
th
Cir1, 5777 3+1B?58

L told 5 the) had firm a"reement, so 5 contracted attorne) to draft deal- L then bacAed
o(t

Holding> @o dama"es since man) other contin"encies co(ld have th9arted deal
o @o alle"ation that L=s 9ere (n7(stl) enriched beca(se of 5=s reliance

(easoning> M not entitled to recover (nder promissor) estoppel bKc it=s not the case that
in7(stice can be avoided onl) b) enforcement of L=s promise of a firm offer. 2ad L=s
Aept their alle"ed offer, the deal ma) have fallen thro("h for an) other n(mber of
reasons, and 5 9o(ld still have lost the e1penses inc(rred in draftin" the 9ritten
a"reement. #t 9o(ld be (n7(st, in fact, to place 5 in better position than the) ma) have
been in even had L=s promise been Aept beca(se, a"ain, had L=s promise been Aept the
deal mi"ht still not have "one thro("h. !asicall), the conditional promise alle"ed is not
reasonable "ro(nds for reliance
5B1 Th" Parol E-id"nc" Rul" and th" Int"r+r"tation o$
Writt"n Contract!
5B15 Th" Parol E-id"nc" Rul"
%3
Parol E-id"nc" Rul"

3eneral r(le> $ater 9ritten a"reements n(llif) all prior 9ritten and oral a"reements
o 0pplies onl) to integrated contracts, and there are specific r(les of 9hen to appl)
the r(le :so, first 4(estion to asA in determinin" 9hether PE r(le applies is> E#s
this an #0BF;
o Does not appl) if there=s no 9ritten a"reement
o @8TE> @ot a r(le of evidence, b(t rather deals 9ith 9hat the a"reement act(all)
is :i.e., iss(e is, E9hat=s the real dealBF;
o The idea 9ith the parol evidence r(le is that 9e 9ant e1cl(de a"reementsK
evidence that mi"ht be liAel) to mislead the 7(r)

Willi!tonK! -i"#> $ooA onl) at the 9ritin" :EFo(r corners r(leF;> #f the 9ritin" appears to
be complete, it is deemed a total inte"ration, representin" intent of the parties.
o Simplifies role of co(rts
o !&T, conversation can "ive context to 9ritten 9ords, and 9hat if the 9ritten
a"reement doesn=t acc(ratel) reflect the tr(e a"reement of the parties :ma)be the
Ereal dealF is the conversation;

Cor,inK! -i"#> ,o(rt sho(ld foc(s on the tr(e intent of the parties, 9hich can be "leaned
both from the a"reement and from relevant evidence of intent o(tside of the 9ritin"
itself.

!oth are 9orried abo(t fra(d. .illiston, that the parties 9ill fra(d(lentl) claim certain
promises that 9ere never made. ,orbin, that one part) 9ill maAe a fra(d(lent oral
promise to the other to ind(ce a 9ritten a"reement
Int"grat"d Agr"""nt! and Parol E-id"nc"
RS 4207 3Int"grat"d agr"""nt!8> 0n #0 is a 9ritin" constit(tin" a final e1pression of one or
more terms of an a"reement

.hether there is an #0 is to be determined b) the co(rt as a 4(estion preliminar) to

determination of a 4(estion of interpretation or to application of the parol evidence r(le

.here parties red(ce an a"reement to a 9ritin" 9hich in vie9 of its completeness and
specificit) reasonabl) appears to be a complete a"reement, it is taAen to be an inte"rated
a"reement (nless it is established b) other evidence that it did not constit(te a final
e1pression :be"ins .illiston and ends ,orbin;

,omment> >"n"rall., d"t"rination o$ #h"th"r th"r" i! an int"grat"d agr"""nt i! a

0u"!tion $or a Judg", not a Jur.
RS 4250 3Co+l"t"l. and +artiall. int"grat"d agr"""nt!8

0 completel) inte"rated a"reement is an #0 adopted b) the parties as a complete and

e1cl(sive statement of the terms of the a"reement

0 partiall) inte"rated a"reement is an #0 other than a completel) inte"rated a"reement

.hether or not an a"reement is completel) or partiall) inte"rated is to be determined b)

co(rt prior to determination of a 4(estion of interpretation or to application of PE r(le

,omment> 0 9ritin" cannot of itself prove its o9n completeness, and 9ide latit(de m(st
be allo9ed for in4(ir) into circ(mstances bearin" on the intention of the parties :,orbin;
%4
RS 425A 3E$$"ct o$ an int"grat"d agr"""nt on +rior agr"""nt! 3PE rul"88

0 bindin" :partiall); inte"rated a"reement dischar"es inconsistent prior a"reements

0 bindin" completel) inte"rated a"reement dischar"es a"reements that are in its scope

,omment>
o PE r(le renders inoperative prior 9ritten as 9ell as prior oral a"reements
o PE r(le is not a rule of interpretation b(t rather defines the sub%ect matter of
interpretation :i.e., 9hat 9ill and 9ill not be interpreted;
RS 425@ 3E-id"nc" o$ +rior cont"+oran"ou! agr"""nt! and n"gotiation!8

0"reements and ne"otiations prior to or contemporaneo(s 9ith adoption of a 9ritin" are

admissible evidence to sho9 the 9ritin" is or is not an inte"rated a"reement or is
completel) or onl) partiall) inte"rated
RS 425B 3Contradiction o$ int"grat"d t"r!8

Evidence of prior or contemporaneo(s a"reements or ne"otiations is not admissible to

contradict a term of a 9ritin" that is completel) or partiall) inte"rated

,omment> 0dditional evidence that is not contradictor) ma) be (sed for interpretation
RS 425< 3Con!i!t"nt additional t"r!8

Evidence of a consistent additional term is admissible to s(pplement an inte"rated

a"reement (nless the co(rt finds the a"reement 9as completel) inte"rated

0n a"reement is not completel) inte"rated if the 9ritin" omits a consistent additional

a"reed term that is either a"reed to for separate consideration or in the "iven
circ(mstances mi"ht nat(rall) be omitted from the 9ritin"
S@8TE> Determinin" 9hether there is an inte"rated a"reement, 9hether an inte"rated a"reement
is partiall) or completel) inte"rated, and 9hether a prior a"reement is consistent 9ith the
inte"rated a"reement or 9ithin its scope is to be made in accordance 9ith all the relevant
evidence and re4(ires interpretation of both the inte"rated a"reement and the prior a"reement.
S(ch determinations are to be made b) the co(rt, not 7(r)T
!itchill v. "ath, N; Ct1 o$ A++"al!, 572? 3+1B?@8

5 claimed that in a"reement to b() ho(se, L had orall) a"reed to remove an iceho(se
across the street

Holding> Parol evidence not admissible to determine if iceho(se 9as part of the
a"reement, beca(se a"reement to move the iceho(se is somethin" that one 9o(ld e1pect
the parties 9o(ld normall) p(t in the contract :.illistonian;

For a parol a"reement to var) a 9ritten contract entered into at the same time, three
conditions m(st be met>
o The a"reement m(st in form be a collateral one
o The a"reement m(st not contradict the e1press or implied provisions of the
9ritten contract
o The a"reement m(st be one that the parties 9o(ld not ordinaril) be e1pected to
p(t into the 9ritten a"reement :i.e., it m(st not be so connected 9ith the principal
transaction so as to be Epart and parcelF of it;

(easoning> Third condition not satisfied. #f L did indeed maAe the alle"ed promise, it
9o(ld seem most nat(ral for it to be incl(ded in the 9ritten contract to sell the land. The
%
9ritten contract sho9s a complete and f(ll a"reement, one that 9o(ld lead one to
concl(de that the reciprocal obli"ations of the parties 9ere f(ll) detailed.

Dissent> $ooAin" onl) at the 9ritten contract not s(fficient- the co(rt m(st e1amine prior
ne"otiations to determine inte"ration. 0 9ritten contract for conve)ance of land doesn=t
cover a field so broad as to incl(de prior a"reements to do other acts on other property
after conve)ance 9as made :,orbines4(e;
o No( can=t determine if the 9ritten a"reement 9as a final e1pression (ntil )o(
fi"(re o(t 9hat the) intended it to cover, and the 9a) to fi"(re o(t 9hat the
parties intended it to cover it to looA to circ(mstances o(tside the 9ritten contract
Hatley v. Stafford, OR, 577? 3+1B7A8

EThe co(rt sho(ld ass(me that the 9ritin" 9as intended to be a complete inte"ration, at
least 9hen the 9ritin"=s complete on its face, and sho(ld admit evidence of consistent
additional terms onl) if there=s s(bstantial evidence that the parties didn=t intend the
9ritin" to embod) the entire a"reement.F
!asterson v. Sine, CA SC, 57<? 3+1B7B8

5 sold propert) to sister b(t retained option to p(rchase bacA 9ithin ne1t ten )ears-
retention cla(se intended to Aeep the propert) in the famil), tho("h this intention 9as not
stated in 9ritin"

5 9ent banAr(pt, so tr(stee e1ercised p(rchase option a"ainst ori"inal intent of parties- 5
s(ed

Holding> Parol evidence allo9ed. !Kc deed not eas) to add terms to, it 9o(ld be nat(ral
for parties not to incl(de a"reement that p(rchase option is not assi"nable in the deed
itself, so fact finder :7(r); not liAel) to be misled b) the parol evidence.

Even 9hen there=s no e1plicit a"reement that contract(al d(ties shall be personal, co(rts
9ill effect(ate a pres(med intent to that effect if the circ(mstances indicate that
performance b) a s(bstit(ted person 9o(ld be different from that contracted for

Evidence of oral collateral a"reements sho(ld be e1cl(ded onl) 9hen the fact finder is
liAel) to be misled

(easoning> Reasons 9h) ma) leave o(t e1tremel) inte"ral a"reements incl(de> Parties
not sAilled in 9ritin" contracts, terms so basic don=t thinA to incl(de it, (ns(re 9here to
p(t in form contract, etc.

Dissent> EThere 9as nothin" ambi"(o(s abo(t the "rantin" lan"(a"eF

Parol E-id"nc" Und"r th" UCC

UCC 426202 3Final Writt"n E*+r"!!ion= Parol or E*trin!ic E-id"nc"8

o Terms set forth in a 9ritin" intended b) the parties to be a Efinal e1pressionF of
the a"reement ma) not be contradicted b) evidence of prior or contemporaneo(s
oral a"reement, b(t ma) be explained or supplemented b)>
,o(rse of performance, co(rse of dealin", or (sa"e of trade
Evidence of consistent additional terms, (nless co(rt finds that the 9ritin"
9as intended to be a Ecomplete and e1cl(siveF statement of the terms of
the a"reement
o ,omment>
%/
,omment adopts a ver) liberal standard> Parol evidence not allo9ed onl)
if the additional terms E9o(ld certainl) have been incl(ded in the
doc(mentF
.o re4(irement that the co(rt find the lan"(a"e of the a"reement
ambi"(o(s in order to admit evidence to e1plain or s(pplement the
meanin" of terms (sed in the a"reement
,o(rse of act(al performance b) the parties considered to be the best
indication of 9hat the) intended the 9ritin" to mean
Th" ("aning o$ LIncon!i!t"ntM
ST9o different readin"s of the meanin" of EconsistentF (nder UCC 426202T
Hunt Food and ,ndustries+ ,nc. v. Doliner, N;, 57<< 3+1B778

5 9as afraid L 9o(ld (se p(rchase offer to solicit hi"her bids, so "ot option to p(rchase
L=s stocA. L claims 5 orall) a"reed to (se option onl) if L solicited o(tside offer.

5 s(ed to e1ercise the option, claimin" parol evidence r(le prevents reco"nition of the
p(rported oral condition

Holding> 8ral condition not inconsistent 9ith 9ritten a"reement, so evidence of the
condition ma) be considered :UCC 426202;

(easoning> ETo be inconsistent the term m(st contradict or ne"ative a term of the
9ritin"F
o @arro9 readin" of Econsistent.F ,o(rt maAes bar impossibilit), not merel)
impla(sibilit) :i.e., the claimed condition m(st be impossible in li"ht of the
9ritin", not merel) impla(sible;
-laska Northern Develo0ent v. -lyeska Pi0eline Service Co., AI, 57?A 3+1<058

,o(rt re7ects Hunt=s definition of inconsistenc) (nder UCC 426202- claims the narro9
readin" has been criticiHed

#nconsistenc) defined as Ethe absence of reasonable harmon) in terms of the lan"(a"e

and respective obli"ations of the partiesF
o !road readin" of Econsistent,F so more parol evidence 9ill be barred.
("rg"r Clau!"!

*erger clause> .ritten provision statin" that the 9ritten contract is the entire contract
bet9een the parties :i.e., all a"reements bet9een the parties have been mer"ed or
inte"rated into the 9ritin";
o 8ften is a EboilerplateF provision at the bottom of a contract

3eneral r(le > Doesn=t necessaril) maAe an a"reement inte"rated, b(t does provide
evidence to s(pport inte"ration

!asic 4(estions are 9hether mer"er cla(se 9as act(all) assented to and if an inte"ration

SDo 9e 9ant mer"er cla(ses to be bindin"B

o Nes> People sho(ld read the contract
o @o> The)=re 7(st a tricAT
-1# ,nc. v. 7)Systes ,nc., &C Cir1, 57?0 3+1<028
%%

E#nte"ration cla(ses, tho("h not absol(tel) concl(sive, are indicative of the parties= intent
to finaliHe their complete (nderstandin" in the 9ritten contract that there 9as no other
prior or contemporaneo(s a"reement not incl(ded in the 9ritten contractF

The central iss(e is> E.hether or not the inte"ration cla(se, at the time it 9as a"reed
(pon, represented the intention of the partiesF
Siebl v. "ayne $ #owler+ ,nc., OR, 57?2 3+1<0A8

0n inconspic(o(s mer"er cla(se provides little or no evidence of the parties= intentions.

To be acceptable, a mer"er cla(se m(st be conspic(o(s eno("h to prevent s(rprise,
other9ise (nconscionable :point of (nconscionabilt) doctrine is to prevent (nfair
s(rprise;
,nternational !iller, in6cla!! "*a+l"

F(ss) b()er orders flo(r 9ith no b("s- seller repeatedl) affirms lacA of b("s in
conversations. Parties si"n a"reement 9ith no mention of b("s and a mer"er cla(se-
flo(r comes and has b("s. 5 s(es

Holding> #nvocation and insistence of mer"er cla(se is fra(d "iven seller=s ass(rances
o Demonstrates contempt some co(rts have for mer"er cla(ses

0$TER@0T#PE$N> ,o(rt co(ld have 7(st interpreted Eflo(rF as meanin" flo(r and not
b("s
Th" Fraud E*c"+tion 3RS 425@3d88

PE r(leKmer"er cla(ses cannot be (sed to e1cl(de evidence of fra(d, d(ress, mistaAe, lacA
of consideration, or other invalidatin" ca(se
Condition6to6L"gal6E$$"cti-"n"!! E*c"+tion

PE r(le does not appl) to a parol a"reement (nder 9hich the occ(rrence or
nonocc(rrence of some state of events is a condition to maAin" the 9ritten a"reement
bindin" or effective

This e1ception applies onl) to a condition that affects the legal effectiveness
:operativeness; of a contract :i.e., a condition precedent that m(st be satisfied for the
contract to become operative; and not one that affects the performance of the contract
LNo Oral (odi$icationM Clau!"! 3UCC 4262078

0n si"ned a"reement 9hich e1cl(des modification or rescission e1cept b) a si"ned

9ritin" cannot be other9ise modified or rescinded.

2o9ever, even if an attempt at modification or rescission does not satisf) the above it can
still operate as a !aiver

@ot part of PE r(le since oral modification made after ori"inal a"reement
5B12 Th" Int"r+r"tation o$ Writt"n Contract!
Int"r+r"tation o$ Writt"n Contract!

,o(rts m(st interpret all contracts to determine 9hat the) mean :interpretation al!ays
lies o(tside the PE r(le;
%'
o #+P8RT0@T> PE rul" norall. do"!nKt "*clud" "-id"nc" o$ th"
circustances und"r #hich a contract #a! ad", onl. "-id"nc" o$ agreeents
not ",odi"d in th" #ritt"n contract

Plain *eaning approach> $ooA at 9ords of the contract, and if the)=re (nambi"(o(s then
)o(=re done :i.e., e1trinsic evidence is inadmissible to interpret, var), or add to the terms
of an (nambi"(o(s inte"rated 9ritten instr(ment;
o Pro ar"(ments>
(ole of the courts> #t=s not the role of the co(rts to re?9rite a contract in
conflict 9ith the plain meanin" of the terms
"onsequentialist> .itho(t the plain meanin" r(le, an) a"reement 9o(ld
be at risA of a part) later havin" its tr(e meanin" obf(scated (nder "(ise of
e1aminin" e1trinsic evidence
o ,on ar"(ments>
.hether the lan"(a"e of an a"reement is clear or ambi"(o(s ma) not be
apparent 9itho(t reference to the conte1t in 9hich the a"reement arose

$ntent approach> 0l9a)s e1amine e1trinsic evidence and the circ(mstances to interpret an
a"reement
o ,on ar"(ments>
,asts a lon" shado9 of (ncertaint) over all b(siness deals and maAes
m(ch liti"ation
,hips a9a) at the fo(ndations of o(r le"al s)stem, the basic principal that
lan"(a"e provides a meanin"f(l constraint on p(blic and private cond(ct
RS ado+t! th" int"nt a++roach
o RS 4252> #nterpretation of an #0 m(st be made in li"ht of the circ(mstances
o ,omment> E0n) determination of meanin" or ambi"(it) sho(ld onl) be made in
the li"ht of the relevant evidence of the sit(ation and relations of the parties, the
s(b7ect matter of the transaction, preliminar) ne"otiations and statements made
therein, (sa"es of trade, and the co(rse of dealin" bet9een the partiesF
o #ll(stration> &nder the RS, if 0 and ! a"ree orall) that Eb()F means EsellF and
EsellF means Eb(),F if the) then maAe a contract in accordance 9ith that oral
a"reement, the) are then bo(nd in accordance 9ith that oral a"reement
Plain ("aning A++roach
Steuart v. !cChensy, PA SC, 57?2 3+1<0?8

L entered into a"reement 9ith 5 that "ave 5 ri"ht of first ref(sal. 0"reement specified
that the price 5 9o(ld be able to p(rchase at 9o(ld be determined b) co(nt) ta1 rolls. L
fo(nd a bona fide p(rchaser- the amo(nt determined b) co(nt) ta1 rolls 9as far belo9
the p(rchaser=s offered price :i.e., amo(nt determined b) co(nt) ta1 rolls 9as far belo9
tr(e marAet val(e;. L ref(sed to let 5 b() at s(ch a lo9 price. M s(ed.

Holding> ,o(rt ordered conve)ance, bKc lan"(a"e of a"reement 9as clear and
(nambi"(o(s

.here lan"(a"e is clear and (nambi"(o(s, the foc(s of interpretation is (pon the terms
of the a"reement as manifestly expressed , rather than as, perhaps, silentl) intended
%6

(easoning> ,ontracts m(st be relied (pon and contractors m(st be "iven sec(rit) that the
final e1pression E9ill not be constr(ed to import a meanin" other than that clearl)
e1pressedF
Int"nt A++roach
!ellon bank v. -etna, A
rd
Cir1, 57?0 3+1<5@8

E#f a reasonable alternative interpretation is s(""ested :to a meanin" of a phrase or term;,

even tho("h it ma) be alien to the 7(d"e=s lin"(istic e1perience, ob7ective evidence in
s(pport of that interpretation sho(ld be considered b) the fact finderF
-oco v. (estern Slo0e, 50
th
Cir1, 57?B 3+1<5@8

Und"r th" UCC , the lack of facial ambiguity in the contract lan"(a"e is basicall)
irrelevant to 9hether or not e1trinsic evidence o("ht to be considered b) the co(rt

E&nder UCC 426202, there is no lon"er an ass(mption that the parties intended a 9ritin"
to be the complete e1pression of their a"reement. #n fact, the ass(mption is to the
contrar) (nless the co(rt e1pressl) finds that the parties intended the contract to be
completel) inte"rated.F
Pacific Gas v. G. (. %hoas Drayage $ 1igging, CA SC, 57<? 3+1<5B8

#n t(rbine contract, L a"reed to indemnif) 5 a"ainst all loss res(ltin" from in7(r) to
propert) arisin" o(t of the repairs. D(rin" 9orA the cover fell and in7(red the e1posed
rotor of 5=s t(rbine- 5 s(ed for repairs

$ssue> ,an L admit evidence sho9in" that Edama"e to propert)F act(all) meant Edama"e
to 3
rd
part) propert)BF

Holding> E1trinsic evidence admissible Ebeca(se of the imprecision of lan"(a"e and

beca(se the plain meanin" ma) not reflect the intentions of the partiesF
o ERational interpretation re4(ires at least a preliminar) consideration of all
credible evidence offered to prove the intention of the partiesF

The test of admissibilit) of e1trinsic evidence to e1plain the meanin" of a 9ritten

instr(ment is not 9hether it appears to the co(rt to be Eplain and (nambi"(o(sF on its
face, b(t 9hether the offered evidence is relevant to prove a meanin" to 9hich the
lan"(a"e of the instr(ment is Ereasonabl) s(sceptibleF

The trend is for 7(ries, not 7(d"es, to looA at e1trinsic evidence to interpret an a"reement
Garden State Pla.a Cor0. v. S.S.Kresge, N/, 57<A 3+1<5?8

Th" +arol "-id"nc" rul" do"!nKt "-"n co" into +la. until it i! $ir!t d"t"rin"d #hat
th" tru" agr"""nt o$ th" +arti"! i!, i1"1, #hat th". "ant ,. #hat th". #rot" do#n
o Th(s, constr(in" a contract of debatable meanin" b) resort to s(rro(ndin" and
antecedent circ(mstances and ne"otiations for li"ht as to the meanin" of the
9ords (sed is never a violation of the parol evidence r(le
%rident Center v. C% General "ife ,ns., 7
th
Cir1, 57?? 3+1<578

,o(rt follo9s P, 6 & r(le, even tho("h it thinAs it=s d(mb> 0 contract can never have a
plain meanin" discernible to a co(rt 9itho(t resort to e1trinsic evidence
Fi!h> #t is a feat(re of cases liAe this that t(rn on the iss(e of 9hat is and is not Ee1pressl)F said
that the proclamation of an (ndisp(ted meanin" al9a)s occ(rs in the midst of a disp(te abo(t it
'*
5B1A Trad" U!ag", Cour!" o$ P"r$oranc", and Cour!" o$ &"aling a!
Part o$ a Writt"n Contract
UCC 4562053A8 3&"$inition o$ Lagr"""ntM8> E0"reement means the bar"ain of the parties in
fact as fo(nd in their lan"(a"e or b) implication from other circ(mstances incl(din" co(rse of
dealin" or (sa"e of trade or co(rse of performanceDF C ,orbines4(e
UCC 45620B 3Cour!" o$ d"aling and u!ag" o$ trad"8

"ourse of dealing> E0 se4(ence of previo(s cond(ct bet9een the parties to a partic(lar

transaction 9hich is fairl) re"arded as establishin" a common basis of (nderstandin" for
interpretin" their e1pressions and other cond(ctF

2sage of trade> E0n) practice or method of dealin" havin" s(ch re"(larit) of observance
in a place, vocation or trade as to 7(stif) an e1pectation that it 9ill be observed 9ith
respect to the transaction in 4(estionF

0 co(rse of dealin" andKor (sa"e of trade of 9hich the parties Eare or sho(ld be a9are
"ives partic(lar meanin" to and s(pplements or 4(alifies terms of an a"reementF

.hen the e1press terms of an a"reement are inconsistent 9ith co(rse of dealin" or (sa"e
of trade, Ee1press terms control both co(rse of dealin" and (sa"e of trade and co(rse of
dealin" controls (sa"e of tradeF
UCC 42620? 3Cour!" o$ +"r$oranc"8

E.here the contract for sale involves repeated occasions for performanceD, an) course
of performance accepted or ac4(iesced in 9itho(t ob7ection shall be relevant to
determine the meanin" of the a"reementF
UCCK! ord"r o$ +r"$"r"nc"

:1; E1press :9ritin";

:2; Performance

:3; Dealin"

:4; Trade
1%
SThe cases interpretin" the &,, don=t al9a)s seem to follo9 this list of priorities. #n fact,
9ritin" is often not "iven eno("h 9ei"ht.T
Nanakuli Paving and 1ock Co. v. Shell &il, 7
th
Cir, 57?5 3+1<2<8

Parties contracted that 5 9o(ld b() asphalt from L at Eposted price at the time of
deliver).F #nd(str) practice at the time 9as for s(ppliers to price protect contractors :i.e.,
9hen the contractor 9as in the middle of a 7ob, to not increase their posted price;. Shell
price?protected 5 on several occasions, b(t on t9o occasions did not- 5 s(ed

Holding> Trade (sa"e and co(rse of performance 9ere eno("h to sho9 the parties
act(all) intended that there be price protection, even tho("h this 9as not in the contract
o Flips the hierarch)> here, trade (sa"e "overns e1press terms
'1

Evidence of trade (sa"e and co(rse of dealin" and performance is admissible (nder parol
evidence r(le 9hen it can be Ereasonabl) constr(edF as consistent 9ith the e1press terms
of the a"reement :no re4(irement of ambi"(it);
o .here standard b(siness practices contradict form cla(ses on forms, the b(siness
practices "overn
o ,o(rse of performance is the most important evidence of an a"reement=s meanin"
:more important than trade (sa"e or co(rse of dealin";

0$TER@0T#PE$N> The parties had a "ood faith obli"ation

C)%hru Container Cor0. v. !idland, IA, 577B 3+1<A<8

E0 trade (sa"e ma) supplement an inte"rated contract Seven to the point of addin" a ne9
contract termT as lon" as the trade (sa"e does not contradict the contract=s e1press termsF
STrade (sa"e obliterates literalism- if 1,*** is one 9all in the trade, 9e follo9 that, not the literal
meanin" of the 9ords. #n line 9ith ,orbin=s idea of intent of the partiesT
'2
IE1 FOR( CONTRACTS
571 Int"r+r"tation and Uncon!ciona,lit. in a For
Contract S"tting
S!asic _(estion> To 9hat e1tent are these 9ritin"s enforceableBT
SDoes the d(t) lie 9ith the drafter, to tell the reader if the doc(ment is someho9 inconsistent
9ith his ass(mptions, or does is lie 9ith the reader, to maAe s(re the contract he=s si"nin" is 9hat
he thinAs he=s si"nin"B #ss(e is 9hether 9e=re more concerned abo(t :1; potential ab(se of
po9er, or :2; people=s abilit) to rel) on 9ritten contracts.T
StandardiQ"d Agr"""nt!
RS 4255= StandardiHed a"reements are normall) considered inte"rated a"reements, b(t if one
part) Ano9s that the second part) 9o(ld not a"ree to a specific term if he Ane9 the 9ritin"
contained it, that term is not part of the a"reement

,omment>
o StandardiHed terms are constr(ed a"ainst the draftsman and s(b7ect to an
overridin" obli"ation of "ood faith
o ,(stomers are Enot bo(nd to (nAno9n terms 9hich are be)ond the ran"e of
reasonable e1pectation-F val(e is c(ttin" transactionKtime and promotin"
(niformit)

0 presentin" part)=s reason to believe that the adherin" part) 9o(ld not assent to the
a"reement if he Ane9 that the 9ritin" contained a partic(lar term ma) be inferred from
the fact that the term is>
o :1; !iHarre or oppressive,
o :2; Eviscerates the non?standard terms e1plicitl) a"reed to, or
o :3; Eliminates the dominant p(rpose of the transaction

This inference is reinforced if the adherin" part) never had an opport(nit) to read the
term, or if it is ille"ible or other9ise hidden from vie9
Sardo v. Fidelity $ De0osit Co., N/, 572< 3+1<728

Ge9elr) store o9ner asAed for ins(rance a"ainst theft of 7e9elr)- polic) he "ot made no
mention of 7e9elr). Store s(bse4(entl) robbed- o9ner s(es to "et ins(rance compan) to
reform polic)

#n order to reform an ins(rance contract, it m(st appear that the minds of the parties to the
contract have met and that a m(t(al mistaAe of the contractin" parties has been made in
!riting out the contract, i.e., that the act(al contract did not conform to the 9ritin"

Holding> There=s no evidence that the compan) :not a"ent; intended to iss(e an) polic)
other than the one iss(ed, so there 9as no m(t(al mistaAe of the contractin" parties.
Th(s, co(rt doesn=t reform the contract.
o ,o(rt s(""ests storeo9ner sho(ld have read the contract to see if incl(ded 7e9elr)
'3
(eaver v. -erican &il Co., IN, 5775 3+1<7<8

3as station o9ner si"ned lease 9ith oil compan) that incl(ded Ehold harmlessF cla(se
:no liabilit) for "as compan) for ne"li"ence on premises;. ,ompan) emplo)ee spra)ed
"as, b(rnin" o9ner. ,ompan) to determine o9ner=s liabilit)

Holding> Fine print contained (nAno9n and (nconscionable provisions, so hold harmless
cla(se (nenforceable. 89ner had less bar"ainin" po9er, did not read or Ano9 9hat
si"nin" so mere formalit)

0 part) 9ith s(perior bar"ainin" po9er that seeAs to enforce a contract 9ith (n(s(al or
(nconscionable terms m(st sho9 that the other :9eaAer; part) had Ano9led"e of those
terms and Ano9in"l) and 9illin"l) accepted them.

E#t seems a deplorable ab(se of 7(stice to hold a man of poor ed(cation, to a contract
prepared b) the attorne)s of 0merican 8il, for the benefit of 0merican 8il 9hich 9as
presented to .eaver on a `taAe it or leave it basis=F C contrar) to p(blic polic)
Darner !otor Sales v. 8niversal 8nderwriters, AH, 57?@ 3+1<778

#ns(rance polic) 9as handed to Darner as a booA, 9hich he did not read, instead rel)in"
on statements of ins(rance salesman on 9hat the covera"e 9as

Holding> ,o(rt looAs at parties= reasonable e1pectations that ind(ced maAin" of promise,
reforms contract to that 9hich Darner tho("ht he 9as b()in"

PE r(le does not appl) to enforce an ill(sor) Ebar"ainF set forth in a standardiHed contract
9hen the Ebar"ainF :1; 9as never reall) made and :2; 9o(ld, if applied, defeat the true
agreement 9hich 9as s(pposedl) contained in the contract

,o(rt (ses RS 4255, promissor) estoppel and "ood faith d(t) to adopt a r(le that Eboiler
plate terms 9hich are contrar) to either the e1pressed a"reement or the p(rpose of the
transactionF are not "iven effect
o ,o(rt th(s allo9s reformation of ins(rance contract 9hen there is a mistaAe on
the part of one part) and fra(d or ine4(itable cond(ct on the part of the other
Far #ureau !utual ,nsurance v. Sandbulte, IA, 57?5 3+17528

ERational" $or th" r"a!ona,l" "*+"ctation! doctrin" is that, in a contract of adhesion,

s(ch as an ins(rance polic), form m(st not be e1alted over s(bstance, and that the
reasonable e1pectations of the ins(red ma) not be fr(strated even tho("h painstaAin"
st(d) of the polic) provisions 9o(ld have ne"ated those e1pectationsM

EReasonable e1pectations "ivin" rise to applications of the doctrine ma) be established

b) proof of the (nderl)in" ne"otiations or inferred from the circ(mstancesF
Ll"#"ll.n> The fine print 9hich has not been read has no b(siness (nderc(ttin" the meanin" of
the dicAered terms, 9hich constit(te the dominant and onl) real e1pression of a"reement

#n a contract from 9ith boilerplate cla(ses there are act(all) t!o contracts>
o :1; The dicAered terms, and
o :2; 0n a"reement that the :(nread; boilerplate :a; does not alter or impair the fair
meanin" of the dicAered terms 9hen read alone and :b; is not in its terms
(nreasonable or (nfair

,o(rt sho(ld effect(ate onl) the tr(e intention of the parties

'4
E1 (ISTAIE AN& UNEDPECTE&
CIRCU(STANCES
5?1 (i!ta)"
SThe remed) for mistaAe is recission, (nless the mistaAe 9as a mistaAe in transcription, in 9hich
case the remed) is reformation.T
Argu"nt! $or Liit"d U!" o$ th" (i!ta)" &octrin"

/airness> !oth sides are e4(all) innocent, so one sho(ld err on the side of the contract.
,o(rt sho(ldn=t be bab)in" people.

"onsequentialist> .e 9ant people to protect themselves, ass(me responsibilit), and

investi"ate before the) enter into a contract. People are al9a)s maAin" mistaAes, so a
limited mistaAe doctrine leads to a more stable contract s)stem.

&fficiency> The marAet and the maAin" of contracts best allocate risAs

(ole of the courts> ,o(rts sho(ld foc(s on the deal and not "o deeper
Argu"nt! $or a 'roadG>"n"rou! La# o$ (i!ta)"

&fficiency> 8nl) so m(ch fact?findin" )o( can do :i.e., )o( EcanF al9a)s do more to
protect )o(rself, b(t this is (nrealistic;. #f the la9 made )o( be too caref(l, inefficienc)
9o(ld res(lt beca(se )o( 9o(ld 9aste too man) reso(rces in d(e dili"ence :checAin"
thin"s over and over a"ain;

"onsequentialist> Don=t 9ant to allo9 9indfall for one part)K(n7(st enrichment. 0lso,
people 9ill contract more freel) if the) don=t have to 9orr) abo(t bein" bo(nd b)
mistaAes.

/airness> Doesn=t reflect the parties= tr(e intentions, so co(rts sho(ld not enforce. 0lso,
helps avoid (n7(st enrichment o9in" to the other part)=s mistaAe
5?15 Unilat"ral (i!ta)"! 3("chanical Error!8
*echanical errors> Ph)sical or intellect(al bl(nders that res(lt from transient errors in the
mechanics of an actor=s internal machiner)
Wh"n !istake of &ne Party (a)"! a Contract Eoida,l"
RS 45BA> .here a mistaAe of one part) at the time a contract 9as made as to a basic assumption
on 9hich he made the contract has a material effect on the a"reed e1chan"e of performance that
is adverse to him, the contract is voidable b) him if he does not bear the ErisA of the mistaAeF
(nder the r(le stated in RS 45B@, and the

The effect of the mistaAe is s(ch that enforcement of contract 9o(ld be (nconscionable,
or
'

The other part) had reason to Ano9 of the mistaAe or his fa(lt ca(sed the mistaAe
RS 45B@ 3Wh"n a +art. ,"ar! th" ri!) o$ a i!ta)"8>
0 part) bears the risA of a mistaAe 9hen>
o The risA is allocated to him b) a"reement of the parties- or
o 2e is a9are, at time the contract is made, that he has onl) limited Ano9led"e 9ith
respect to the facts to 9hich the mistaAe relates b(t treats his limited Ano9led"e
as s(fficient- or
o The risA is allocated to him b) the co(rt on the "ro(nd that it is reasonable to do
so

,omment> RS 45B@3,8 distin"(ishes bet9een mistaAe and Econscious ignoranceF

Donovan v. 11" Cor0., CA SC, 2005 3+175B8
,ar dealership advertised car in a ne9spaper at a price far lo9er than it intended beca(se
of a proofreadin" mistaAe b) the ne9spaper. M attempted to b() the car at the advertised
price, dealership ref(sed to sell at that price
Holding> Dealership not re4(ired to sell car at the advertised price beca(se an error of
price constit(tes a mistaAe re"ardin" a basic ass(mption (pon 9hich the contract 9as
made, and the dealer=s mistaAe in this case made the contract far less desirable to him and
far more desirable to 5.
.here 5 has no reason to Ano9 of and does not ca(se L=s (nilateral mistaAe of fact, L
m(st establish the follo9in" in order to rescind the contract>
o 1. L made a mistaAe re"ardin" a basic ass(mption (pon 9hich he made the
contract
o 2. The mistaAe has a material effect (pon the a"reed e1chan"e of performances
that is adverse to L
o 3. The L does not bear the risA of the mistaAe
o 4. The effect of the mistaAe is s(ch that enforcement 9o(ld be (nconscionable
(easoning> #mposin" liabilit) on L for L=s fail(re to proofread the advertisin" proof
9o(ld amo(nt to strict liabilit) for an) t)po in the price of an advertised car
S0eckel v. Perkins, (N, 57?B 3+172B8
M re7ected L=s settlement offer of J*,***, then b) mistaAe proceeded to maAe the e1act
same offer in ret(rn :meant to maAe a J1,*** co(nteroffer;- L immediatel) accepted
Holding> @o contract had been formed beca(se L sho(ld have Ano9n it 9as not 5=s
attorne)=s intention to offer J*,***. #nternal inconsistenc) of letter raised a pres(mption
of error that imposed on L a d(t) to in4(ire.
0 d(t) to in4(ire ma) be imposed on the person receivin" an offer 9hen there are factors
that reasonabl) raise a pres(mption of error
o E0n offeree 9ill not be permitted to snap (p an offer that is `too "ood to be tr(e=F
Nolan 1yan #aseball Card Case 3+172<8
M o9ned baseball card store, had @olan R)an rooAie card 9orth J12**. ,ard 9as
marAed E12**,F L came in and asAed store attendant if card 9as 9orth J12. Store
attendant said )es and sold L card :L 9as 12?)ear?old bo);. M s(ed to recover the card.
Holding> ,ase settled
'/
S0ll the s4(ibs in this section allo9 rescission in the case of m(t(al mistaAe- ho9ever, a note b)
Eisenber" s(""ests it 9o(ld not be allo9ed if the other part) relied on the mistaAen fi"(re Eor
cannot be restored to his pre?contract(al position b) the a9ard of reliance dama"esFT
5?12 (i!ta)"! in Tran!cri+tion: R"$oration
#n certain sit(ations, co(rts ma) allo9 r"$oration so the contract reflects tr(e
a"reement
o Problems arise 9here a"reements other than the 9ritten contract inform the
a"reement
o #ncredible tension bet9een this and PE r(le :so Aeep this iss(e narro9;
Wh"n (i!ta)" o$ 'oth Parti"! a! to Writt"n E*+r"!!ion /u!ti$i"! R"$oration
RS 45BB> .here a 9ritin" embod)in" an a"reement fails to e1press the a"reement beca(se of a
mistaAe of both parties as to the contents or effect of the 9ritin", the co(rt ma) at the re4(est of a
part) reform the 9ritin" to e1press the a"reement, e1cept to the e1tent that ri"hts of the parties
s(ch as "ood faith p(rchasers for val(e 9ill be (nfairl) affected
%ravelers ,ns. Co. v. #ailey, ET SC, 57<@ 3+172?8
5 mistaAenl) 9rote ins(rance polic) "rantin" L m(ch more than had act(all) bar"ained
for. @either part) discovered the mistaAe for over thirt) )ears- then 5 s(ed to reform
contract
Holding> Reformation allo9ed since error did not lead to pre7(dicial chan"e on part of L
E.here there has been established be)ond reasonable do(bt a specific contract(al
a"reement and a s(bse4(ent erroneo(s rendition of its terms, the part) penaliHed b) error
is entitled to reformation, if there has been no pre7(dicial chan"e in position b) the other
part) 9hile i"norant of mistaAeF
(easoning> The error in this case 9as a mistaAen belief of the parties abo(t the
correctness of the !ritten instrument, not the clerical error in transcribin" it
Chiart -ssociates v. Paul, N;, 57?< 3+17A58
E!eca(se the thr(st of a reformation claim is that a 9ritin" does not set forth the act(al
a"reement of the parties, "enerall) neither the parol evidence r(le nor the SKF applies to
bar proof of the claimed a"reementF
To prevent fra(d, therefore, reformation has been limited both s(bstantivel) and
proced(rall)
o +ubstantively, reformation based (pon mistaAe is not available 9here the parties
p(rposel) contract based (pon (ncertain or contin"ent events
o Procedurally, there is a heav) pres(mption that a deliberatel) prepared and
e1ec(ted 9ritten a"reement manifests the tr(e intention of the parties, and a
correspondin"l) hi"h order of evidence is re4(ired to overcome that pres(mption
:the proponent of reformation m(st sho9 in no (ncertain terms, :i; not onl) that
mistaAe or fra(ds e1ists, :ii; b(t e1actl) 9hat 9as reall) a"reed (pon bet9een the
parties;
5?1A (utual (i!ta)"! 3Shar"d (i!ta)"n A!!u+tion!8
'%
Wh"n a (i!ta)" o$ #oth Parties (a)"! a Contract Eoida,l"
RS 45B2> .here a mistaAe of both parties at the time a contract 9as made as to a basic
assumption on 9hich the contract 9as made has a material effect on the a"reed e1chan"e of
performances, the contract is voidable b) the adversel) affected part) unless he bears the risA of
the mistaAe (nder the r(le stated in RS 45B@
#n determinin" 9hether the mistaAe has a material effect on the a"reed e1chan"e of
performances, acco(nt is taAen of an) relief b) 9a) of reformation, restit(tion, or
other9ise
,omment> This I applies onl) 9here both parties are mistaAen as to the same basic
ass(mption. Their mistaAes need not be identical, tho("h. #f, ho9ever, the)=re mistaAen
as to different ass(mption, RS 45BA "overns
RS 45B@ 3Wh"n a +art. ,"ar! th" ri!) o$ a i!ta)"8>
0 part) bears the risA of a mistaAe 9hen>
o The risA is allocated to him b) a"reement of the parties- or
o 2e is a9are, at time the contract is made, that he has onl) limited Ano9led"e 9ith
respect to the facts to 9hich the mistaAe relates b(t treats his limited Ano9led"e
as s(fficient- or
o The risA is allocated to him b) the co(rt on the "ro(nd that it is reasonable to do
so
,omment> RS 45B@3,8 distin"(ishes bet9een mistaAe and Econscious ignoranceF
Sherwood v. (alker, (I SC, 5??7 3+17AA8
Parties contracted for the sale of co9 both tho("ht barren- t(rned o(t co9 9asn=t barren,
so m(ch more val(able
Holding> The parties= mistaAe 9ent to the ver) nat(re of the co9 :a barren co9 is
s(bstantiall) a different creat(re from a fertile co9;, so seller can rescind.
0 contract made E(pon the mistaAe of a material factDas to the substance of the thin"
bar"ained forF so that Ethe thin" act(all) delivered or received is different in substance
from the thin" bar"ained for, and intended to be sold, there is no contractF
#f, ho9ever, the mistaAe is as onl) to the quality :and not the s(bstance; of the thin"
bar"ained for, the contract remains bindin"
Dissent> The b()er tooA chance that co9 9as not barren and sho(ld th(s be re9arded not
p(nished b) the fact that his risA paid off
SEver) other case re7ects +her!ood. #t is not "ood la9T
Griffith v. #ryer, England, 570A 3+17A78
Parties a"reed to rent room for Ain"=s procession, not Ano9in" it 9as alread) cancelled
Holding> ,o(rt r(led contract void as there 9as Ea miss(pposition of the state of facts
9hich 9ent to the 9hole root of the matterF
o ,o(rt allocated the risA to the seller
(ood v. #oynton, WI, 5??B 3+17@08
Poor lad) fo(nd stone and sold to 7e9eler for J1, both thinAin" that it 9as near 9orthless.
Stone later t(rned o(t to be diamond 9orth J%**
''
Holding> co(rt ref(sed to void the sale, claimin" that altho("h both sides 9ere i"norant,
lad) 9as responsible for failin" to f(rther investi"ate the val(e
o $ad) Ecannot rep(diate sale 9hen it t(rns o(t that she made bad bar"ain-F co(rt
allocates risA to seller
"enawee County #oard of Health v. !esserly, (I SC, 57?2 3+17@A8
5 bo("ht a b(ildin" that t(rned o(t to have a defective se9a"e s)stem
Holding> Parties made a m(t(al mistaAe as to the present condition of the propert), so
Eco(rt re4(ired to determine 9hich blameless part) sho(ld ass(me the loss res(ltin" from
the misapprehension the) sharedF
o RisA allocated to the p(rchaser beca(se (nder Eas isF cla(se in the contract, 5
ass(med the risA of mistaAe. So L 9ins.
#eachcober Coins v. #oskett, N/, 5777 3+17@78
,oin dealer bo("ht a coin :Denver dime; that t(rned o(t to be faAe- neither part) Ane9 it
9as a faAe
Holding> Dealer allo9ed to rescind contract beca(se neither part) considered coin co(ld
be faAe :and so did not incorporate that possibilit) into the val(e of the e1chan"e;
E.ell established that a part) to a contract can ass(me risA of bein" mistaAen as to val(e
of thin" sold, b(t for the stated r(le to appl), both parties m(st be conscio(s that the
pertinent fact ma) not be tr(e and th(s maAe their a"reement at the risA of that
possibilit)F
Warranti"!
EDPRESS WARRANTIES
UCC 426A5A 3E*+r"!! Warranti"! ,. A$$iration, Proi!", &"!cri+tion, Sa+l"8
E1press 9arranties b) the seller are created as follo9s>
o 0n) affirmation of fact or promise made b) seller to b()er that relates to the
"oods and becomes part of basis of bar"ain creates an express !arranty that good
shall conform to the affirmation or promise
o 0n) description of "ood that is made part of basis of bar"ain creates an express
!arranty that goods shall conform to the description
o 0n) sample or model that is made part of basis of bar"ain creates an express
!arranty that !hole of the goods shall conform to the sample or model
#t is not necessar) to the creation of an e1press 9arrant) that the seller (se formal 9ords
s(ch as E9arrantF or E"(aranteeF or that he have a specific intention to maAe a 9arrant),
b(t an affirmation merel) of the val(e of "oods or a statement p(rportin" to be merel) the
seller=s opinion or commendation of the "oods does not create a 9arrant)
,omment> The principles behind this r(le need not be confined to sales contracts
I(PLIE& WARRANTIES
UCC 426A5@ 3I+li"d Warrant.= ("rchanta,ilit.: U!ag" o$ Trad"8
'6
&nless e1cl(ded or modified :UCC 42625<;, a 9arrant) that the "oods shall be
merchantable is implied in a contract for their sale if seller is a merchant 9ith respect to
"oods of that Aind
To be merchantable, "oods m(st be at least s(ch as
o :a; Pass 9itho(t ob7ection in the trade (nder the contract description, and
o :b; #n the case of f(n"ible "oods, are of avera"e 4(alit) 9ithin the description,
and
o :c; 0re fit for the ordinar) p(rposes for 9hich s(ch "oods are (sed, and
o :d; R(n, 9ithin the variations permitted b) the a"reement, of even Aind, 4(alit),
and 4(antit) 9ithin each (nit and amon" all (nits involved, and
o :e; 0re ade4(atel) contained, pacAa"ed, and labeled as the a"reement ma)
re4(ire, and
o :f; ,onform to the promise or affirmations of fact made on the container or label
if an)
&nless e1cl(ded or modified :UCC 42625<;, other implied 9arranties ma) arise from
co(rse of dealin" of (sa"e of trade
,omment>
o 0 person maAin" an isolated sale of "oods is not a EmerchantF 9ithin the meanin"
of this I, and th(s no 9arrant) of merchantabilit) 9o(ld appl)
o Sales of second?hand "oods involves onl) s(ch obli"ations as is appropriate to
s(ch "oods for that is their contract description :if second?hand "oods are
E"(aranteedF to be in a certain condition, tho("h, that chan"es thin"s;
UCC 426A5B 3I+li"d Warrant.= Fitn"!! $or Particular Pur+o!"8
.here seller at time of contractin" has reason to Ano9 an) partic(lar p(rpose for 9hich
"oods are re4(ired and that b()er is rel)in" on seller=s sAill or 7(d"ment to select or
f(rnish s(itable "oods, there is (nless e1cl(ded or modified (nder the ne1t section :UCC
426A5<; an implied 9arrant) that "ood shall be fit for s(ch p(rpose
,omment>
o !()er=s reliance on seller is a re4(irement here
o 0 Eparticular purposeF is one pec(liar to the nat(re of the b()er=s interest in
b()in" the "oods, 9hereas an Eordinary useF is one c(stomaril) made of the
"oods in 4(estion :and "oes instead to the implied 9arrant) of merchantabilit);
Sith v. Sibalist, in6cla!! "*a+l"
5 p(rchased violins from L that both tho("ht 9ere a Stradivari(s and a 3(arneri(s
,ontract lan"(a"e in combination 9ith "eneral cond(ct of parties and ac4(iescence b) 5
in declaration made b) L re"ardin" each of violins= maAe held to create e1press 9arrant)
5?1@ Nondi!clo!ur"
RS 45B7 3(i!r"+r"!"ntation d"$in"d8> E0 misrepresentation is an assertion that is not
in accord 9ith the factsF
6*
Traditionall), the r(le 9as Eb()er be9are,F that is, b()er had a d(t) to asA 4(estions, and
seller had no d(t) to disclose an)thin" that 9as not asAed. +odern trend is a9a) from
this.
0r"(ment for liberal disclos(re r(les>
o +oral obli"ation
o ,ontract s)stem 9orAs best 9hen parties have complete information
o Re4(irin" disclos(re ma) save sociall) 9astef(l costs of searchin" for
information the other part) alread) has
o The potential for mistaAe al9a)s :potentiall); increases the reso(rces 9hich m(st
be devoted to the process of allocatin" "oods to their hi"hest?val(e (sers
Wh"n Nondi!clo!ur" i! E0ui-al"nt to an A!!"rtion
RS 45<5= 0 person=s non?disclos(re of a fact Ano9n to him is an assertion that fact doesn=t e1ist
9hen>
2e Ano9s that disclos(re of the fact is necessary to prevent some previous assertion from
being a misrepresentation or from bein" fra(d(lent or material
2e Ano9s that disclos(re of the fact 9o(ld correct a mistake of the other party as to a
basic assumption on 9hich that part) is maAin" the contract and if non)disclosure of the
fact amounts to a failure to act in good faith and reasonable standards of fair dealin"
2e Ano9s that disclos(re of the fact 9o(ld correct a mistaAe of the other part) as to the
contents or effect of a 9ritin", evidencin" or embod)in" an a"reement in 9hole or in part
The other person is entitled to Ano9 the fact beca(se of the parties= relationship of tr(st
and confidence
,omment>
o @ondisclos(re 9itho(t concealment is e4(ivalent to misrepresentation onl) in the
above sit(ations
o This r(le is broader than the r(les on mistaAe in RS 445B2 and 5BA beca(se it
does not re4(ire a sho9in" of a material effect on the a"reed e1chan"e and is not
affected b) 9hether or not the part) seeAin" relief bears the risA of mistaAe :RS
45B@;
o S(bI:d; refers to relationships liAe fid(ciar) relationships :tr(stee, a"ent,
"(ardian, etc.;, famil) relationships, ph)sician and patient, and relationships
re4(irin" confidentialit) :s(ret)ship, "(arant), etc.;
Hill v. 'ones, AH, 57?< 3+17B78
M bo("ht home from L- L did not disclose that home had previo(sl) been infested 9ith
termites. M discovered termite dama"e after movin" in, s(ed
Holding> L had a d(t) to disclose to 5 that home had previo(sl) been infested 9ith
termites. +aterialit) of the dama"e a 4(estion for the 7(r).
LWh"r" th" !"ll"r )no#! o$ $act! at"riall. a$$"cting th" -alu" or d"!ira,ilit. o$ th"
+ro+"rt. #hich ar" )no#n or acc"!!i,l" onl. to hi and al!o )no#! that !uch $act!
ar" not )no#n to, or #ithin th" r"ach o$ th" dilig"nt att"ntion and o,!"r-ation o$ th"
,u."r, th" !"ll"r i! und"r a dut. to di!clo!" th" to th" ,u."rM
61
0 matter is EmaterialF if it is one to 9hich a reasonable person 9o(ld attach importance
in determinin" his choice of action in the transaction in 4(estion
(eintraub v. Krobatsch, N/, 577@ 3+17<28
L contracted to p(rchase home from 5 that 5 Ane9 9as infested 9ith termites- 5 Aept
home 9ell ill(minated 9hen 5 visited so roaches 9o(ld not appear. .hen L discovered
roach infestation, L so("ht to rescind contract.
Holding> L E e4(itabl) entitled to rescind beca(se, :1; seller 9as 9ell a9are of infestation
:2; deliberately concealed or failed to disclose the condition :3; beca(se of the liAelihood
that it 9o(ld defeat the transactionF
o Roach infestation material since of s(ch ma"nit(de that it ca(sed D=s to rescind
immediatel)
8.S. v. Dial, 7
th
Cir1, 57?B 3+17<A8
Posner> EFra(d in the common la9 sense of deceit is committed b) deliberatel)
misleadin" another b) 9ords, b) acts, or, in some instances<notabl) 9here there is a
fid(ciar) relationship, 9hich creates a d(t) to disclose all material facts<b) silence.
Lia,ilit. i! narro#"r $or nondi!clo!ur" than $or acti-" i!r"+r"!"ntationF
SFr(" thinAs the le"al s)stem sho(ld create :thro("h the la9s of mistaAe, disclos(re, 9arrant),
etc.; a marAetplace of tr(st, 9here one side cannot taAe advanta"e of the other. 2e contrasts this
9ith a ne"ative :read, conservative; vie9 of the marAetplace 9here each side is o(t for his o9n
advanta"e and 9ill cheat as m(ch as the) can "et a9a) 9ithT
571 Th" E$$"ct o$ Un"*+"ct"d Circu!tanc"!
&ne1pected circ(mstances differ from mistaAe since no ar"(ment that the parties did not
act(all) assent, b(t instead that chan"ed circ(mstances sho(ld maAe the contract
(nenforceable. 0lso, mistaAe "oes onl) to the moment of contract- (ne1pected
circ(mstances "oes on for the entire contract.
(i!ta)" $ocu!"! on a!!"nt, chang"d circu!tanc"! $ocu!"! on +"r$oranc"
o #n mistaAe, "enerall) one person can "et 9indfall- in impracticabilit) one can "et
scre9ed :beca(se of a disaster;
o UCC does not have a la9 of mistaAe, b(t it does have a la9 of chan"ed
circ(mstances. This sho(ld not be m(ch area of concern. UCC sa)s that 9hen it
does not have a section addressin" somethin" specificall), it merel) adopts the
common la9 r(le.
o +istaAe and impracticabilit) are 4(ite aliAe in practice, b(t 7(d"ed as 9orlds apart
in the common la9- impracticabilit) is a m(ch lar"er concept incl(din" an)thin"
that ma) s(pervene into the performance of the contract(al d(ties- 9itho(t s(ch a
concept )o(=d be bo(nd to a contract Eno matter 9hatF
This iss(e is a bi" deal since p(rpose of contract is to bind the parties in face of (ncertain
f(t(re
%aylor v. Caldwell, England, 5?<A 3+17<B8
+(sic hall that L had a"reed to rent to 5 for a concert b(rned do9n
62
Holding> E*i!t"nc" o$ th" u!ic hall #a! an i+li"d condition in th" contract1 The
parties m(st have contemplated the contin(in" e1istence as fo(ndation of their a"reement
!oth parties e1c(sed since Ein contract in 9hich the performance depends on the
contin(ed e1istence of a "iven person or thin", a condition is implied that the
impossibilit) of performance arisin" from the perishin" of the person or thin" shall
e1c(se the performanceF
S!88W @8TE> The problem 9ith these t)pes of cases is that o(r EAno9led"eF of the tacit
ass(mption at 9orA can be based onl) on int(ition and introspection 9e E7(st Ano9F that the
b(rnin" of the m(sic hall violated a tacit ass(mption of the parties :that the hall 9o(ld still be in
e1istence on the da) of the concert;T
I+ractica,ilit.
RS 42<5 3&i!charg" ,. !u+"r-"ning i+ractica,ilit.8> E.here, after a contract is made, a
part)=s performance is made impracticable 9itho(t his fa(lt b) the occ(rrence of an event the
non?occ(rrence of 9hich 9as a basic ass(mption on 9hich the contract 9as made, his d(t) to
render the performance is dischar"ed, (nless the lan"(a"e or the circ(mstances indicate the
contrar)F
Events the non?occ(rrence of 9hich 9ere a basic ass(mption on 9hich the contract 9as
made incl(de>
o Death or incapacit) of a person necessar) for performance :RS 42<28
o Destr(ction, deterioration, or fail(re to come into e1istence of a thin" necessar)
for performance 3RS 42<A8
o 3overnment re"(lation or order that res(lts in impracticabilit) 3RS 42<@8
RS 4275 3I+ractica,ilit. a! "*cu!" #h"n $or$"itur" #ould r"!ult8> #mpracticabilit)
e1c(ses the non?occ(rrence of a condition if the occ(rrence of the condition is not a
material part of a"reed e1chan"e and forfeit(re 9o(ld other9ise res(lt
SThe doctrine of impossibilit), 9hich is often described as 9hat allo9s a part) to "et o(t of a
contract, is an inacc(rate term. First, sometimes a part) ma) be e1c(sed for somethin" less than
act(al impossibilit) :impracticabilit), fr(stration;. Second, even if somethin" is impossible, a
part) ma) still be held, if he has ass(med the risA of impossibilit).T
&cean %ra0 %ankers v. 4& Sovfracht, England, 57<A 3+17<78
EThe theor) of an implied term has no9 been discardedDfor the simple reason that it does
not represent the tr(th. The parties 9o(ld not have said> `#t is all over bet9een (s.= The)
9o(ld have differed abo(t 9hat 9as to happen. Each 9o(ld have so("ht to insert
reservations or 4(alifications of one Aind or anotherF
!ineral Park "and Co. 4. Howard, CA, 575< 3+17708
L a"reed to p(rchase "ravel and earth necessar) to do fill and cement 9orA on brid"e
from 5. T(rned o(t onl) /*[ above 9ater :rest 9o(ld cost 1*1 as m(ch;, so L p(rchased
else9here- 5 s(ed
Holding> For L. LA thing i! i+o!!i,l" in l"gal cont"+lation #h"n it i! not
+ractica,l": and it i! i+ractica,l" #h"n it can onl. ," don" at an "*c"!!i-" and
unr"a!ona,l" co!tM
o ,o(rt drops lan"(a"e of implied condition and s(bstit(tes 9ith e1cessive cost
63
8S v. (egeatic Cor0., 2
nd
Cir, 57<< 3+17758
L a9arded comp(ter contract after detailed proposal- tried to "et o(t d(e to development
cost
Holding> @ot tr(e impracticabilit). The risA of technolo"ical diffic(lties fell on seller
o Seller ass(mes the risA "iven its affirmations that led b()er to contract 9ith it
(easoning> There is Eno basis for thinAin" that 9hen an electronics s)stem is promoted
b) its man(fact(rer as a revol(tionar) breaAthro("h, the risA of the revol(tion=s
occ(rrence falls on p(rchaserF
o E0cceptance of D=s ar"(ment 9o(ld mean a man(fact(rer is free to e1press 9hat
are onl) aspirations and "amble on their f(lfillment 9itho(t an) risA of liabilit)F
Dills v. %own of 7nfield, CT, 57?7 3+177A8
,ontract said to9n co(ld Aeep deposit if 5 failed to s(bmit acceptable constr(ction plans.
M never s(bmitted acceptable constr(ction plans beca(se (nable to "et ade4(ate f(ndin".
Holding> To9n can Aeep deposit beca(se contract e1plicitl) assi"ned risA of 5=s fail(re to
obtain f(ndin" to 5 :b) allo9in" 5 to terminate onl) after s(bmittin" acceptable
constr(ction plans to to9n;
Wh"n th" ri!) o$ $utur" i+o!!i,ilit. ha! ,""n a!!ign"d ,. th" +arti"! in a contract,
court! !hould ," !lo# to in-"nt additional #a.! to "*cu!" +"r$oranc"
%ransatlantic Financing Cor0. v. 8S, &C Cir1, 57<< 3+177@8
5 forced to ship "oods aro(nd 0frica after S(eH ,anal closed d(e to 9ar in +iddle East
Holding> ,o(rt adopts (in"ral Par) doctrin" o$ d"$ining i+o!!i,ilit. a!
i+ractica,ilit.1 @o impracticabilit) beca(se the shipper Ane9 :or sho(ld have Ano9n;
of (nrest in the +iddle East and contract did not e1pressl) condition performance (pon
availabilit) of S(eH. 0lso, the variation bet9een e1pected cost and cost of performin"
not s(bstantial eno("h
,o(rt (ses a balancin" test> EThe doctrine (ltimatel) represents the ever?shiftin" line,
dra9n b) co(rts hopef(ll) responsive to commercial practices and mores, at 9hich the
comm(nit)=s interest in havin" contracts enforced accordin" to their terms is o(t9ei"hed
b) the commercial senselessness of re4(irin" performanceF
.hen the iss(e of impossibilit) is raised, there are three conditions that m(st be met>
o :1; 0 contin"enc) :somethin" (ne1pected; m(st have occ(rred
o :2; The risA of the contin"enc) m(st not have been allocated either b) a"reement
or c(stom
Foreseeabilit) or even reco"nition of a risA does not necessaril) prove its
allocation
o :3; 8cc(rrence of the contin"enc) m(st have rendered performance commerciall)
impracticable
Accord> -erican %rading Cor0. v. Shell, 2
nd
Cir1 5772 3+177?8> Shipper 9as p(t on
notice of possibilit) of canal clos(re and co(ld have chan"ed co(rse, avoidin" the time
and cost of the +editerranean trip, b(t did not, so no impracticabilit).
o !&T, if ship enters S(eH ,anal and then canal closes, shipper=s obli"ation
dischar"ed beca(se performance no9 rendered totall) impossible
!ishara Constr. 4. %ransit)!i*ed Concrete Cor0., (A, 577@ 3+17?08
64
(easoning> #n determinin" impracticabilit), the 4(estion is> 3iven the commercial
circ(mstances in 9hich the parties dealt, E.as the contin"enc) 9hich developed one
9hich the parties co(ld reasonabl) be tho("ht to have foreseen as a real possibilit) 9hich
co(ld affect performanceB .as it one of that variet) of risAs 9hich the parties 9ere
tacitl) assi"nin" to the promisor b) the fail(re to provide for it e1plicitl)BF
o #f )es, performance 9ill be re4(ired
o #f no, performance is e1c(sed
STests :of impossibilit) K impracticabilit); in the cases above>
#mplied condition :pres(med intentions;> %aylor
,osts e1cessive and (nreasonable> !ineral Park
RisA anal)sis :9ho sho(ld bear risA;> 8.S. v. (egeatic
!alancin" test to locate the risA> %ransatlanticT
UCC 426<5A 3Ca!ualt. to id"nti$i"d good!8> #n a contract for "oods identified 9hen the
contract is made, if dama"es happen before the risA of loss passes to the b()er, then>
:1; #f the loss is total the contract is avoided, and
:2; #f the loss is partial, the b()er can choose 9hether to accept Sthe "oodsT min(s the
cost of the dama"e
UCC 426<5@ 3Su,!titut"d +"r$oranc"8> .here 9itho(t fa(lt of either part) manner of
deliver) becomes (navailableKimpracticable, b(t a commerciall) reasonable s(bstit(te is
available, the s(bstit(te performance must be tendered and accepted
,omment> This I deals 9ith incidental matters :e."., manner of deliver), method of
pa)ment; that do not "o to the heart of the matter
I+ractica,ilit. Und"r th" UCC
426<5B 3E*cu!" ,. $ailur" o$ +r"!u++o!"d condition!8> Dela) in deliver) or non?deliver) is not
a breach of d(t) if performance as a"reed has been made impracticable b) :1; the occ(rrence of
a contin"enc) the non?occ(rrence of 9hich 9as a basic ass(mption on 9hich the contract 9as
made or b) :2; compliance in "ood faith 9ith an) applicable "overnmental re"(lation :9hether
or not s(ch compliance later proves to be valid;
,omment>
o #ncreased cost alone does not e1c(se performance (nless the rise in cost is d(e to
some (nforeseen contin"enc) 9hich alters the essential nat(re of the performance
o @either a rise nor a collapse in the marAet is a 7(stification for e1c(se, tho("h a
severe shorta"e of ra9 materials or of s(pplies d(e to a contin"enc) s(ch as 9ar,
embar"o, crop fail(re, etc. is
o The e1emptions of this section do not appl) 9hen the contin"enc) in 4(estion is
s(fficientl) foreshado9ed at the time of contractin" to be incl(ded amon" the
b(siness risAs 9hich are fairl) to be re"arded as part of the dicAered terms :either
conscio(sl) or as a matter of reasonable, commercial interpretation from the
circ(mstances;
UCC 426<5< 3Proc"dur" on notic" claiing "*cu!"8= .here the b()er receives the
notice (nder 426<5B and 9here the prospective deficienc) s(bstantiall) impairs the val(e
6
of the 9hole contract, the b()er ma) terminate the contract or modif) it b) a"reein" to
taAe his available 4(ota in s(bstit(tes
Ri!) o$ Lo!! Und"r th" UCC 34426B07 and 426B508
These sections deal 9ith the specifics of allocation of risA in a contract for the sale of
"oods SFr(" sa)s 9e are not responsible for Ano9in" the specificsT.
Ei!"n,"rg> EThe ass(mption behind these sections is that the part) in control 9ill be in
the best position both to prevent loss and to ins(re the "oods a"ainst loss.F
-lbre !arble $ %ile Co. v. 'ohn #owen Co., (A Su+1 /ud1 Ct1, 57B7 3+17?A8
3eneral contractor had s(bcontractor maAe p(rchases so he co(ld inspect them before
(sin" them in hospital pro7ect. 0fter s(bcontractor had made the p(rchases, "eneral
contractor=s contract 9as voided on "ro(nds that he had misrepresented his bid
Holding> S(bcontractor can recover e1penses inc(rred in preparation for performance.
,o(rt a9ards reliance dama"es :not restit(tion dama"es beca(se L didn=t benefit;.
E@ormall), a part) cannot recover e1penses inc(rred in preparin" for performance.
Wh"r", ho#"-"r, tho!" "*+"n!"! #"r" r"0u"!t"d ,. th" oth"r +art. and lat"r
i+ractica,ilit. aro!" through $ault o$ th" oth"r +art. so as to precl(de performance,
a part) ma) recover s(ch preparator) e1pensesF
Selland Pontiac)G!C v. King, (N, 57?< 3+1?008
M contracted 9ith L to s(ppl) b(s chassis. S(perior 9o(ld s(ppl) b(s bodies to L, L
9o(ld assemble the b(sses, and 5 9o(ld retail them. M bo("ht chassis for L, b(t
S(perior 9ent o(t of b(siness before b(s bodies 9ere man(fact(red, and therefore the
b(sses 9ere never assembled.
Holding> For L. The s(ppl) of the S(perior b(s bodies 9as a basic ass(mption on 9hich
the contract 9as made, and this s(ppl) became impracticable after S(perior 9ent o(t of
b(siness.
Not" on Contract! to S"ll Cro+!
Defense of impossibilit) to s(ppl) crops d(e to crop fail(re onl) valid of if contracted for
that farmer=s specific crops- other9ise obli"ated to b() more in marAet and sell to b()er
S@e9 doctrine of Efr(stration of p(rposeF introd(ced at this point in the chapterT
Fru!tration o$ Pur+o!"
RS 42<B 3&i!charg" ,. !u+"r-"ning $ru!tration8> .here, after a contract is made, a part)=s
principal p(rpose is substantially frustrated 9itho(t his fa(lt b) the occ(rrence of an event the
non?occ(rrence of 9hich 9as a basic ass(mption on 9hich the contract 9as made, his d(t) to
render that performance is dischar"ed, (nless the lan"(a"e or the circ(mstances indicate the
contrar)
@8TE> &nder fr(stration, performance remains possible :practicable; b(t the e1pected
val(e of performance to the part) seeAin" to be e1c(sed has been destro)ed
6/
Krell v. Henry, England, 570A 3+1?028
Parties contracted for room to 9atch the Ain"=s coronation, 9hich 9as later cancelled
Holding> The procession=s happenin" 9ent to the s(bstance of the contract, Th(s, 9hen
the procession 9as cancelled, the +ur+o!" o$ th" contract #a! $ru!trat"d and the
contract is th(s void :i.e., no breach;
Different from 3riffith in past chapter since coronation had alread) been cancelled at
time of contract in that case :m(t(al mistaAe; 9hereas cancelled after contract here
(easoning> 0pplication of the r(le sho(ld be limited- Eseller sho(ld not be "(arantor of
b()er=s p(rposesF
-lfred !arks v. Hotel Heritage, N;, 575B 3+1?0<8
,ontract for advertisin" in a so(venir for the races, 9hich 9ere later cancelled d(e to 9ar
Holding> L does not have to pa) the p(blisher, even tho("h he=d alread) printed the ads
E,ancellation of the races $ru!trat"d th" "ntir" d"!ign o$ th" +roJ"ct- a so(venir cannot
recall 9hat has not taAen placeF
"a Cubre Country Club v. -bassador Hotel, CA, 572? 3+1?0<8
M co(ntr) cl(b a"reed to e1tend membership privile"es to "(ests at L hotel for the period
of the contract, and L a"reed to pa) a monthl) fee in ret(rn. L hotel b(rned do9n
Holding> L not obli"ated to Aeep pa)in" fees beca(se it 9as an implied condition of the
contract that there 9o(ld be "(ests in the hotel
Chase Precast Cor0. v. 'ohn '. Paonessa Co., (A, 5775 3+1?078
5 a"reed to s(ppl) L 9ith median barriers for constr(ction pro7ect- p(blic o(tcr) stopped
pro7ect part9a) thro("h. L paid for barriers (sed, b(t 5 s(ed to recover anticipated profit.
Holding> For L. The parties didn=t foresee complete cancellation so hadn=t allocated risA.
Th(s, both 9ere e1c(sed from performance.
E.hen an event neither anticipated nor ca(sed b) either part), the risA of 9hich 9as not
allocated b) the contract, d"!tro.! th" o,J"ct or +ur+o!" o$ th" contract, th(s
destro)in" the val(e of performance, the parties are e1c(sed from f(rther performanceDF
Power 7ngineering v. Krug ,nternational, IA, 577A 3+1?0?8
5 a"reed to maAe "ear bo1 for L, b(t 9as (na9are that the event(al b()er 9as in #ra4.
0fter 9ar broAe o(t and embar"o a"ainst #ra4, L ref(sed to pa) d(e to impracticabilit)
Holding> Doctrine of impracticabilit) not applicable beca(se 5 9as not priv) to L=s
planned (se for "ear bo1, meanin" that L m(st have ass(med the risA that its p(rchases
9o(ld not, or co(ld not, perform
EThe stop order f(rther (p the chain of contracts in this case Sdoes notT constit(te an
occ(rrence of a contin"enc) the nonocc(rrence of 9hich 9as a basic ass(mption on
9hich the contract 9as madeF
6%
EII1 Pro,l"! o$ P"r$oranc"
S8n to the !asic $a9s of Performance C @eed to &nderstand in order to &nderstand !reachT
1; 8bli"ation to Perform in 3ood Faith- 2; S(bstantial Performance- 3; E1press ,onditions
221 Th" O,ligation to P"r$or in >ood Faith
0ll le"al s)stems contain a "ood faith obli"ation that applies both to formation and
performance of contracts. 3ood faith can either have a distinct meanin" or be defined as
an e1cl(der. That is, it e1cl(des specific forms of bad faith
Fr(" sets (p a spectr(m of "ood faith re4(irements that he then anal)Hes the cases b)
o &goism> TaAe advanta"e of ever)thin" at other=s e1pense
o (ational "apitalist> TaAe advanta"e of ever) opport(nit) for profit 9ithin
contract :i.e., "ood faith is maAin" profitable decisions;
o "hivalry> ,o"niHance of effects on other parties- tr) to help others 9hen cost not
hi"h :i.e., "ood faith is treatin" )o( as tho("h 9hat=s "ood for )o( is "ood for me;
o +olidarity> !oth in contract to"ether- decisions sho(ld ma1imiHe benefits for both
o +aint> Foc(s primaril) on the interests of others not oneself
&ut. o$ >ood Faith and Fair &"aling
RS 420B 3&ut. o$ good $aith and $air d"aling8> Ever) contract imposes (pon each part) a d(t)
of "ood faith and fair dealin" in its performance and its enforcement
3ood faith performance or enforcement of a contract emphasiHes faithf(lness to an
a"reed common p(rpose and consistenc) 9ith the 7(stified e1pectations of the other
part)- it e1cl(des a variet) of t)pes of cond(ct characteriHed as involvin" Ebad faithF bKc
the) violate comm(nit) standards of decenc), fairness, and reasonableness
S(bterf("es and evasions violate the obli"ation of "ood faith in performance even tho("h
the actor believes his cond(ct to be 7(stified. !(t the obli"ation "oes f(rther> !ad faith
ma) be overt or ma) consist of inaction, and fair dealin" ma) re4(ire more than honest)
T)pes of bad faith incl(de> Evasion of the spirit of the bar"ain, lacA of dili"ence and
slacAin" off, 9illf(l renderin" of imperfect performance, ab(se of a po9er to specif)
terms, and interference 9ith or fail(re to cooperate in the other part)=s performance
UCC L>ood FaithM Standard!
7Pre)9::; version8
456205 3&"$inition!8> E,ood faithF means honest) in fact in the cond(ct or transaction
concerned
45620A 3O,ligation o$ good $aith8> Ever) contract or d(t) 9ithin this 0ct imposes an obli"ation
of "ood faith in its performance or enforcement
o This I does not s(pport an independent ca(se of action for fail(re to perform or
enforce in "ood faith- rather, the fail(re to perform or enforce in "ood faith a
specific d(t) or obli"ation (nder the contract constit(tes a breach of that contract
6'
79::; version8
456205 3&"$inition!8> E,ood faith,F e1cept as other9ise provided in 0rticle , means honest) in
fact and the observance of reasonable commercial standards of fair dealin"
Pre?2**1 version defines E"ood faithF narro9l)- 2**1 version defines it more broadl)
8nl) si1teen states have so far adopted the 2**1 version :so pre?2**1 definition of E"ood
faithF remains the standard in most states;
Patterson v. !eyerhofer, N; Ct1 o$ A++"al!, 5752 3+1??<8
M and L contracted that 5 9o(ld b() ho(ses at a(ction, 9hich ho(ses L 9o(ld then b()
from 5. L rene"ed on contract and 9ent to a(ction and bo("ht the ho(ses herself
Holding> 5 entitled to compensation for the profit he 9o(ld have made
E#n the case of ever) contract there is an implied (ndertaAin" on the part of each part)
that he 9ill not intentionall) and p(rposel) do an)thin" to prevent the other part) from
carr)in" o(t the a"reement on his partF
,ron %rade Product Co. v. (ilkoff Co. PA SC, 5722 3+1???8
L failed to deliver contracted?for rails, claimed 5=s "oin" o(t into the marAet red(ced
s(ppl), drove (p demand and the price to an e1orbitant s(m, and therefore made L=s
performance impossible :beca(se L co(ldn=t "et the rails from the s(ppliers;
Holding> L breached- that 5=s s(bse4(ent p(rchases made L=s performance more diffic(lt
is immaterial
E@o averment that 5=s p(rchases e1ha(sted the s(ppl) of rails, and the advance in price
ca(sed thereb) is no e1c(seF
Krike "a Shelle v. Paul -rstrong, NU, 57AA 3+1?708
E#n ever) contract there is an implied covenant that neither part) shall do an)thin" 9hich
9ill have the effect of destro)in" or in7(rin" the ri"hts of the other part) to receive the
fr(its of the contract, 9hich means that in every contract there exists an implied covenant
of good faith and fair dealingF
Southwest Savings and "oan -ss/n v. Sun-0, AH, 5772 3+1?7A8
EThe "ood faith performance doctrine ma) be said to permit the e1ercise of discretion for
an) p(rpose<incl(din" ordinar) b(siness p(rposes<reasonabl) 9ithin the
contemplation of the parties. 0 contract th(s 9o(ld be breached b) a fail(re to perform
in "ood faith if a part) (ses its discretion for a reason o(tside the contemplated ran"e<a
reason be)ond the risAs ass(med b) the part) claimin" breach. Thu!, a contracting
+art. a. "*"rci!" a r"tain"d +o#"r in ,ad $aith.F
#est v. 8S National #ank, OR SC, 57?7 3+1?7@8
!anA char"ed too m(ch for overdra9n checAs- 5 bro("ht s(it claimin" violated "ood
faith
Holding> For 5, b(t not beca(se the fee 9as itself e1cessivel) hi"h or hi"her than other
banAs char"ed. Rather beca(se the fee violated the reasonable e1pectations of the parties
E.hen one part) to a contract is "iven discretion in the performance of some aspect of
the contract, the parties ordinaril) contemplate that that discretion 9ill be e1ercised for
partic(lar p(rposes. #f the discretion is e1ercised for p(rposes not contemplated b) the
parties, the part) e1ercisin" the discretion has performed in bad faith.F
66
(easoning> ,(stomers reasonabl) e1pected overdraft fees 9o(ld be priced similarl) to
checAin" acco(nt fees, 9hich covered process costs pl(s allo9ance for overhead and
ordinar) profit, not more
@8TE> ,o(rt re7ects 5=s (nconscionabilit) ar"(ment- so clear difference in "ood faith
Hilton Hotels v. #utch "ewis Productions+ ,nc., NE, 5775 3+1?778
EWh"n on" +art. +"r$or! a contract in a ann"r that i! un$aith$ul to th" +ur+o!"
o$ th" contract and th" Ju!ti$i"d "*+"ctation! o$ th" oth"r +art. ar" thu! d"ni"d,
daag"! a. ," a#ard"d again!t th" +art. #ho do"! not act in good $aith1 .hether
the controllin" part)=s actions fall o(tside the reasonable e1pectations of the dependent
part) is determined b) the vario(s factors and special circ(mstances that shape these
e1pectationsF
>ood Faith and Out+ut, R"0uir""nt!, and E*clu!i-" &"aling! Contract!
UCC 426A0< 3Out+ut, r"0uir""nt!, and "*clu!i-" d"aling!8> 0 la9f(l a"reement b) either
the seller or the b()er for e1cl(sive dealin" in the Aind of "oods concerned imposes (nless
other9ise a"reed an obli"ation b) the seller to (se best efforts to s(ppl) the "oods and b) the
b()er to (se best efforts to promote their sale
#loor v. Falstaff #rewing Cor0., 2
nd
Cir1, 5777 3+17008
L a"reed to (se Ebest effortsF to sell !allantine beer after b()in" ever)thin" b(t bre9er).
L then "reatl) c(t do9n advertisin"Kdistrib(tion to increase profit thro("h other beers.
Holding> L violated "ood faith obli"ation to (se best efforts to sell !allantine beer
EL 9o(ld be 7(stified, in "ood faith, in ceasin" prod(ction of the sin"le item prior to
cancellation onl. i$ it! lo!!"! $ro continuanc" #ould ," or" than tri-ialM
(ood v. "ucy+ N;, 5757 3+170B8
Despite the lacA of m(t(alit), co(rt r(led that promise 9as not ill(sor) beca(se the one
side :tho("h technicall) not bo(nd b) contract terms; had obli"ation to perform in "ood
faith
!arket Street -ssociates v. Frey, 7
th
Cir1, 5775 3+170B8
,ontract cla(se said that if ne"otiations to improve premises breaA do9n, lessee 9o(ld be
able to rep(rchase the propert) from the lessor. @e"otiations broAe do9n and lessee
invoAed rep(rchase cla(se, at liAel) 9indfall. 0t no time did lessee notif) lessor of
rep(rchase cla(se and the conse4(ences of the fail(re of ne"otiations
Holding> #f lessee believed lessor Ane9 or 9o(ld learn of rep(rchase cla(se, it 9as not
opport(nistic :and th(s not a breach of "ood faith; for the lessee to fail to fla" the cla(se.
E3ood faithF re4(ires that a part) not taAe opport(nistic advanta"e of another in a 9a)
that co(ld not have been contemplated at the time of the draftin" of the contract, and
9hich therefore 9as not resolved e1plicitl) b) the parties :the central idea is to forbid
opport(nistic behavior;
o Deliberatel) to taAe advanta"e of a contractin" partner=s mistaAe d(rin" the
performance sta"e is a breach of "ood faith :i.e., if )o( Ano9 the other part) is
maAin" a mistaAe, "ood faith re4(ires )o( to tell them;
(easoning> !efore a contract is made, sharp dealin" ma) be e1pected- after, ho9ever,
no9 that the relationship has chan"ed and become cooperative :tr(stin";, sharp dealin" is
not e1pected, and silence on the part of one part) is liAel) to be deceptive
1**
SThe "+lo.""6at6#ill r"lation!hi+ does not mean the emplo)er has to have "ood ca(se to fire
an emplo)ee- he can still fire the emplo)ee for no reason, b(t he cannot fire an emplo)ee in bad
faith. 8ther cases 9e=ve read in other sections deal 9ith the emplo)ee?at?9ill relationship. The)
incl(de Grouse :bad faith of emplo)er to chan"e mind before an emplo)ee act(all) started
9orAin", b(t after emplo)ee acted in reliance on offer of emplo)ee b) t(rnin" do9n other 7ob
offers;, Pine 1iver and %ho0son :both involvin" emplo)ee handbooAs, 9hich are held to
chan"e the emplo)ee?at?9ill relationship b) re4(irin" the emplo)er to follo9 several proced(res
before he can fire an emplo)ee;, and Foley :policies follo9ed b) emplo)er in the past "ave rise
to obli"ation to not fire 9itho(t "ood ca(se;T
SEmplo)er in an emplo)ee?at?9ill relationship is limited in his abilit) to fire for no reason not
7(st b) "ood faith cla(se, b(t also b) discrimination stat(tes and holdin"s that an emplo)er
cannot fire for a reason that is a"ainst p(blic polic) :e."., testif)in" in co(rt;T
2A1 Th" &octrin" o$ Su,!tantial P"r$oranc"
2A15 Th" >"n"ral Princi+l"
Tension bet9een Eperfect tender ruleF and the Esubstantial performance ruleF
o Pros for perfect tender r(le> Simplifies the r(les of breach
o Problems 9ith perfect tender r(le> @o econom) co(ld r(n this 9a) beca(se ever)
contract 9o(ld become a liti"ation :no tender is ever totall) EperfectF;
+ost co(rts have adopted s(bstantial performance. !(t s(bstantial performance m(st be
interpreted since it is not self evident ho9 m(ch 9orA constit(tes s(bstantial performance
o SFr(" thinAs this a pra"matic approach since perfect tender shifts all of the risA to
the seller, 9hile the b()er can "et o(t on trivialities :allo9s to ref(se if price is
fallin", etc.;T
Stron" incentive to "et s(bstantial performance and s(e on the contract rather than to s(e
for restit(tion as the contract breacher and onl) "et val(e of services not tied to contract
price
R""di"!
#f substantial performance> 5 "ets Scontract price TC Sdimin(tion of val(eT
#f not +P, then restitution> 5 "ets Sbenefits providedT C Scost of completionT
'acob $ 6oungs v. Kent, N; Ct1 o$ A++"al!, 5725 3+175B8
!(ilder (nAno9in"l) (sed 9ron" Aind of pipe in home, tho("h same 4(alit) and price
Holding> 5 made s(bstantial performance, so L entitled to dama"es for dimin(tion of
val(e, 9hich is trivial
LIn a ca!" o$ i+"r$"ct +"r$oranc", a +art. i! "ntitl"d to th" on". #hich #ould
allo# hi to co+l"t" th" +"r$oranc", unl"!! th" co!t o$ co+l"tion i! gro!!l. and
un$airl. out o$ +ro+ortion to th" good to ," attain"dM
Factors to 9ei"h 9hen determinin" dama"es for imperfect performance>
1*1
o The p(rpose to be served
o The desire to be "ratified
o The e1c(se for deviation from the letter
o The cr(elt) of enforced adherence
#runer v. Hines, AL, 577B 3+175?8
Th" doctrin" o$ !u,!tantial +"r$oranc" r"$l"ct! !oci"t.K! n""d $or $acilitating
"conoic "*chang". EThe 9isdom of its application adds le"al efficac) to promises b)
enforcin" the essential p(rposes of contracts and b) eliminatin" trivial e1c(ses for
nonperformanceF
'ardine 7states v. Donna #rook Cor0., N/, 57B< 3+17578
ESu,!tantial +"r$oranc" i! co+lianc" in good $aith #ith all i+ortant +articular!
o$ a contract. For the doctrine to appl), a b(ilder=s defa(lt sho(ld not be 9illf(l, nor the
defects so serio(s as to deprive the propert) of its val(e for the intended (se, nor so
pervade the 9hole 9orA that a ded(ction in dama"es 9ill not be fair compensationF
The doctrine of s(bstantial performance removes opport(nities to e1ploit inadvertent
breaches
4incen.i v. Cerro, CT, 57?2 3+17578
EThe contemporar) vie9 is that even a conscio(s and intentional depart(re from the
contract specifications 9ill not necessaril) defeat recover), b(t ma) be considered as one
of the several factors involved in decidin" 9hether there has been f(ll performance
ETh" +"rtin"nt in0uir. i! not !i+l. #h"th"r th" ,r"ach #a! #ill$ul ,ut #h"th"r th"
,"ha-ior o$ th" +art. in d"$ault co+ort! #ith !tandard o$ good $aith and $air
d"alingF
Kreyer v. Driscoll, WI SC, 57<? 3+17578
M contracted to b(ild ho(se for L, did not complete it, forcin" L to "o else9here. L
ref(sed to pa) 5 for his 9orA- 5 s(ed for s(bstantial performance
Holding> !eca(se 5 left m(ch of the ho(se incomplete, he did not s(bstantiall) perform
and therefore can=t recover the contract price :L not in breach bKc 5 didn=t s(bstantiall)
perform;. 2e ma), ho9ever, be reimb(rsed on theor) of quantum meruit :restit(tion; for
benefit he conferred on L, min(s dama"es L inc(rred in havin" to "o else9here to finish
the ho(se.
E0 dispensation in favor of a contractor on a theor) of s(bstantial performance sho(ld be
"ranted in cases of incompleteness onl) 9hen s(ch details are inconsiderable and not the
fa(lt of the contractorF
,8@TR0ST, Plante v. 5acobs> $ivin" room 1= short and other assorted "rievances.
!()er of home stopped pa)ment. 2eld s(bstantial performance, as ho(se met "!!"ntial
+ur+o!" :b(t ma)be not the intent; of contract. Th(s, b()ers 9ere in breach for stoppin"
pa)ments
&.(. Grun 1oofing v. Co0e, TD, 577B 3+17228
Roofer contracted 9ith L to install ne9 roof on L=s ho(se- the roof had )ello9 streaAs
Holding> Roofer didn=t s(bstantiall) perform, despite the fact that the roof 9as
str(ct(rall) so(nd, beca(se the iss(e of 5=s taste 9as important to the contract
o Roofer did not "et quantum meruit :restit(tion; dama"es, either, beca(se L 9ill
have to have a 9hole ne9 roof installed :i.e., "ot no benefit from the roof;
1*2
o L act(all) "ot J123 for price increase to install ne9 roof
EA contractor #ho t"nd"r! a +"r$oranc" !o d"$ici"nt that it can ," r""di"d onl.
,. co+l"t"l. r"doing th" #or) $or #hich th" contract call"d ha! not "!ta,li!h"d
!u,!tantial +"r$oranc"F
S@8TE> #n this case, s(bstantial performance :if it can be "otten; 9o(ld be almost
ever)thin", 9hile restit(tion dama"es 9o(ld be J* :beca(se no benefit conferred;T
2A12 Contract! $or th" Sal" o$ >ood!
Traditionall), sales of "oods did not follo9 the doctrine of s(bstantial performance.
#nstead, it follo9ed the perfect tender r(le> a b()er co(ld re7ect "oods if it did not
conform to the contract in an) 9a). The problem 9ith it is that a b()er co(ld "et o(t of
almost an) contract b) spottin" a minor defect and (sin" it as a prete1t for "ettin" o(t of
the contract :e."., /illey v. Pope :1'';> &S S, held same "oods shipped from $eith :not
D(blin; invalid.
o S@ote> /iley 9o(ld come o(t same 9a) toda) beca(se 9o(ld fall (nder UCC 426
<05;, tho("h ma)be shipper co(ld ar"(e breach of "ood faith on part of receiver
for not acceptin" deliver) of somethin" so close to that contracted for;
The &,, seems to "et a9a) from this idea b) limitin" perfect tender thro("h the
obli"ation to act in "ood faith- the fact that UCC 426<05 onl) applies 9here a b()er
re7ects "oods :limitations to revocation> UCC 426<0?8: the limitations on installment
contracts :UCC 426<52;- and the entire idea of the c(re provision :UCC 426B0?;
UCC 426<05 3'u."rK! right! on i+ro+"r d"li-"r.8
#f the "oods or the tender of deliver) fail in an) respect to conform to the contract, the
b()er ma) :1; re7ect the 9hole, :2; accept the 9hole, :2; or accept an) commercial
(nit:s; and re7ect the rest
o This is the onl) I of the &,, that seems to retain the perfect tender r(le
o This I applies onl) 9here a b()er re7ects "oods- it does not appl) 9here a b()er
accepts "oods and then discover a defects :that=s UCC 426<0?;
UCC 426B0? 3Int"ntion to cur"8>
#f b()er ri"htf(ll) re7ects seller=s "oods, seller can notif) b()er :m(st do so promptl); of
his intention to c(re and ma) then maAe a conformin" deliver), as lon" as it=s still made
9ithin the time for performance
#f seller had reasonable grounds to believe a non?conformin" tender 9o(ld be acceptable
to b()er 9ith a mone) allo9ance or other9ise, he ma), if he seasonabl) notifies b()er,
have a f(rther reasonable time to s(bstit(te a conformin" tender if the b()er re7ects the
non?conformin" tender
,omment> EReasonable "ro(ndsF as (sed here can lie in prior co(rse of
dealin" or performance or in (sa"e of trade or in the partic(lar
circ(mstances s(rro(ndin" the maAin" of the contract.
,omment> Replacement not allo9ed if the b()er "ives the seller implicit
or e1press notice of a Eno replacementF cla(se in the contract
S,(re seems to perform the same f(nction in sale of "oods that s(bstantial performance
pla)s in rest of contract la9, b(t the) are not same. ,(re itself m(st be a perfect tenderT
1*3
UCC 426<0? 3R"-ocation o$ acc"+tanc" in #hol" or in +art8
#f non?conformit) substantially impairs the goods0 value to b()er, he ma) revoAe
acceptance 9ithin a reasonable time after he Ediscovers or sho(ld have discovered the
"ro(nds for revocationD and before an) s(bstantial chan"e in condition of "oods 9hich
is not ca(sed b) their o9n defects,F if :1; his acceptance came on reasonable ass(mption
that the non?conformit) 9o(ld be c(red, or :2; he did not discover the non?conformit)
beca(se of the diffic(lt) in doin" so or beca(se of seller=s ass(rances
o This I sa)s that a ,u."r #ho ha! acc"+t"d good! #ithout )no#ing th". #"r"
noncon$oring a. r"-o)" acc"+tanc" only i$ hi! acc"+tanc" #a! r"a!ona,l.
induc"d "ith"r ,. th" di$$icult o$ di!co-"ring th" d"$"ct ,"$or" acc"+tanc" or
,. th" !"ll"rK! a!!uranc"!
o For seller=s ass(rances to "ive b()er "ro(nds for revocation, the ass(rances need
not have been made in bad faith
UCC 426<52 3'r"ach o$ Lin!tall"nt contract!M8
#nstallment contracts are contracts that re4(ire the deliver) of "oods in separate lots. The
b()er ma) re7ect an) nonconformin" installment 9hose val(e is s(bstantiall) impaired
and cannot be c(red. #f the nonconformit) impairs the val(e of the 9hole, b()er ma)
re7ect the 9hole as lon" as he has not accepted an) non?conformin" installment
S@8TE> The difference bet9een a b()er 9ho accepts non?conformin" "oods and then s(es for
breach of 9arrant) and a b()er 9ho o(tri"ht re7ects the non?conformin" "oods is that the b()er
9ho o(tri"ht re7ects escapes the bar"ain, th(s thro9in" an) loss res(ltin" from depreciation of
the "oods bacA (pon the seller.T
1aire. v. -utos0ort, N/, 57?2 3+172<8
To the e1tent that a b()er can re7ect "oods for an) nonconformit), the &,, retains the
perfect tender r(leD. The code, ho9ever, miti"ates the harshness of the perfect tender
r(le and balances the interest of the b()er and seller
%.(. &il v. Consolidated 7dison Co., N; Ct1 o$ A++"al!, 57?2 3+17278
5 contracted to s(ppl) L 9ith oil 9ith *.[ s(lf(r content- act(all) had *.6[ 9hen
arrived. L re7ected and ref(sed to allo9 5 to c(re, beca(se price of oil had fallen 2[
belo9 the contract price
Holding> L m(st "ive 5 chance to c(re (nder UCC 426B0?, especiall) since L had reason
to believe that 5 9o(ld accept the oil it sent :since L 9as a(thoriHed to b(rn (p to 1[;
5abriskie Chevrolet v. Sith, N/, 57<? 3+17A28
,ar had serio(s problems 9hen taAen off lot- dealer 9anted to c(re vehicle- b()er 9anted
o(t
Holding> !()er did not have to "ive seller a chance to c(re the defect, b(t co(ld rescind
(easoning> 8nce one=s belief in a car=s dependabilit) is shaAen, Eit loses not onl) its real
val(e in their e)es, b(t becomes an instr(ment 9hose inte"rit) is impaired and 9hose
operation is fra("ht 9ith apprehensionF
!idwest !obile Hoe v. Dynaics Cor0oration, (I, 5777 3+17A28
EUCC 426<52 is not desi"ned to allo9 a seller in an installment contract to have a never?
endin" series of chances to brin" the item into conformit) 9ith the contract. @or 9as it
1*4
enacted to force the b()er to accept a nonconformin" prod(ct as satisfaction of the
contractF
SRe7ectin" "oods on a prete1t is a violation of "ood faith. W" !"" !u,!tantial +"r$oranc" and
th" id"a o$ r"a!ona,l" ti" $or !u,!titution o$ con$oring good! a! good $aith d"aling.T
SSu,!tantial +"r$oranc" i! th" rul" "-"r.#h"r"R @o accepted concept of perfect tender
min(s "ood faithT
2@1 E*+r"!! Condition!
2@15 Introduction
0 condition has to be met before the obli"ation becomes bindin" on the other side
0n express condition is an e1plicit contract(al provision 9hich provides either>
o :1; 0 part) is not obli"ated (nless some stated event or state of affairs occ(rs or
does not occ(r :condition precedent;
o :2; #f an event occ(rs or does not occ(r, the part)=s obli"ation is s(spended or
terminated :condition subsequent;
&xpress vs. implied conditions> E1press conditions m(st be literall) performed, 9here
constr(ctive conditions, 9hich ordinaril) arise from the lan"(a"e of promise, can be
satisfied thro("h s(bstantial compliance
Th" 0u"!tion o$ #h"th"r !o"thing i! a condition or a +roi!" i! -"r. i+ortant,
,"cau!" although !u,!tantial +"r$oranc" a++li"! to a +roi!", it do"! not a++l. to
a condition
o Promise> !()er m(st pa) if deemed s(bstantial performance, b(t can also s(e for
dama"es
o "ondition> #f (nf(lfilled b()er doesn=t have to pa), b(t neither can he s(e for
dama"es
o Both> #f condition not met b()er doesn=t have to pa), and he can s(e for dama"es
since a promise
2@12 Th" &i!tinction '"t#""n th" O+"ration! o$ a Proi!" and th"
O+"ration! o$ a Condition
Proi!" -!1 Condition
Promise> 0 manifestation of intention to act or refrain from actin" in a specified 9a), so
made as to 7(stif) a promisee in (nderstandin" that a commitment has been made
"ondition> 0n event, not certain to occ(r, 9hich m(st occ(r, (nless its non?occ(rrence is
e1c(sed, before performance (nder a contract becomes d(e
&00enheier v. &00enhei+ -00el+ Di*on $ Co., N; Ct1 o$ A++"al!, 577B 3+17AB8
1*
0"reement provided no s(blease (nless 9ritten permission of landlord received b) 2K2.
5=s attorne) called on 2K2 to rela) landlord=s consent, b(t 9ritten form did not arrive
(ntil 3K2*
Holding> The 9ritten permission cla(se 9as a condition precedent, and neither forfeit(re
nor (nd(e hardship to 5 9as a concern, so nonperformance cannot be e1c(sed thro("h
s(bstantial performance, and L is free to e1it the contract
An "*+r"!! condition +r"c"d"nt cannot ," "t through !u,!tantial +"r$oranc"
E#n determinin" 9hether a partic(lar a"reement maAes an event a condition co(rts 9ill
interpret do(btf(l lan"(a"e as embod)in" a promise or constr(ctive condition rather than
an e1press condition. This interpretative preference is especiall) stron" 9hen a findin"
of e1press condition 9o(ld increase the risA of forfeit(re b) the obli"ee.F
!erritt Hill 4ineyards v. (indy Heights 4ineyard, N; Ct1 o$ A++"al!, 57?@ 3+17@08
5 placed deposit on stocA interest- several conditions precedent to Aeep deposit if no sale.
.hen conditions not satisfied, 5 s(ed for deposit and dama"es for L=s fail(re to perform
Holding> 5 "ets deposit bacA b(t not conse4(ential dama"es- E$ailur" to +"r$or a
condition i! not, #ithout an ind"+"nd"nt +roi!" to +"r$or th" condition, a ,r"ach
o$ contractM !uch that th" ,r"aching +art. i! !u,J"ct to lia,ilit. daag"!
2@1A Condition! Pr"c"d"nt and Condition! Su,!"0u"nt
&i!tinction '"t#""n Condition! Pr"c"d"nt and Condition! Su,!"0u"nt
Ei!"n,"rg> E.here some event or state of affairs m(st occ(r before the part) becomes liable, the
condition is precedent. .here, on the other hand, the part) has already become liable :has a d(t)
to perform; and 9ill be relieved from liabilit) b) the happenin" of some event, the condition is
subsequent. 0 d(t) arises 9hen a condition precedent is satisfied- a d(t) is discharged 9hen a
condition s(bse4(ent occ(rsF
2@1@ Pro,l"! o$ Int"r+r"tation in &i!tingui!hing '"t#""n
Condition! and Proi!"!
RS 4227 3Standard! o$ +r"$"r"nc" #ith r"gard! to condition!8= #n resolvin" do(bts as to
9hether an event is made a condition of an obli"or=s d(t)Dan int"r+r"tation i! +r"$"rr"d that
#ill r"duc" th" o,lig""K! ri!) o$ $or$"itur", (nless the event is 9ithin the obli"ee=s control or
the circ(mstances indicate that he has ass(med the risA
Promise preferred over condition since co(rts 9ant to red(ce risA of forfeit(re :polic);
The test is 9hether a partic(lar interpretation 9o(ld have avoided the risA of forfeit(re
vie9ed as of that time, not 9hether it 9ill avoid act(al forfeit(re in the resol(tion of a
disp(te that has arisen later
Howard v. Federal Cro0 ,nsurance Cor0., @
th
Cir1, 577< 3+17@B8
5 lost tobacco crop to heav) rains b(t plo9ed over it before re4(ired inspection b)
ins(rer
Holding> ,ontract cla(se 9here farmer a"reed not to destro) crop (ntil the ins(rance
compan) had made an inspection is a promise, not a condition
1*/
LWh"n it i! dou,t$ul #h"th"r #ord! cr"at" a +roi!" or a condition +r"c"d"nt, th".
#ill ," con!tru"d a! cr"ating a +roi!" :i.e., +r"!u+tion o$ +roi!";M
EThere is a "eneral +r"!u+tion again!t $or$"itur" 9hen a co(rt decides 9hether a
cla(se is a promise of a conditionF
SFr("> 0ppears a condition b(t co(rt 9as (n9illin" to impose s(ch harsh r(le on 2o9ardT
Haron Cable v. Sco0e Cable %4/s, NE, 5775 3+17@?8
Follo9in" a s(bscriber shortfall, 5 failed to compl) 9ith the contract(al notice provision,
so L ref(sed to indemnif)
Holding> 0"reement did not (se lan"(a"e of condition, so it=s a promise, meanin" that
L=s d(t) to pa) not dischar"ed, tho("h L no9 has a ca(se of action for dama"es for
breach of the promise
0"ain, co(rt emphasiHes d"!ir" to call +ro-i!ion a +roi!", not a condition, #h"n
+o!!i,l"
Terms s(ch as Eif,F Eprovided that,F E9hen,F Eafter,F Eas soon as,F Es(b7ect to,F Eon the
condition that,F or similar phrases are evidence is a condition, not merel) a promise
.onfulfillment of a condition> Either relieves liabilit) or prevents it from arisin".
.onfulfillment of a promise> Rather than creatin" or dischar"in" liabilit) constit(tes a
breach of contract and therefore creates in the other part) a ri"ht to dama"es
2@1B Condition! o$ Coo+"ration: Pr"-"ntion: Th" I+lication o$ a
Proi!" $ro an E*+r"!! Condition
4anadiu Cor0. v. Fidelity $ De0osit Co., 2
nd
Cir1, 57@7 3+17B08
+inin" lease 9ith s(ret) deposit 9as conditioned on approval b) Secretar) of the
#nterior. 5 s(ed for the ret(rn of his s(ret) deposit after approval not "ranted- he never
made an effort to 9in approval
Holding> There 9as an implied condition that 5 9o(ld seeA approval from Secretar) in
"ood faith. 5=s fail(re to seeA o(t and appl) for approval dischar"ed L=s contract(al d(t),
so L doesn=t have to ret(rn the deposit
LWh"r"-"r th" coo+"ration o$ th" +roi!"" i! n"c"!!ar. $or th" +"r$oranc" o$ th"
+roi!", th"r" i! a condition i+li"d in $act that th" coo+"ration #ill ," gi-"nM
,8@TR0ST 9ith Wood v. -ucy, 9here co(rt finds promise to sell :not condition;
"ach v. Cahill, CT, 57B5 3+17BA8
5 a"reed to b() home from L, conditional on his receivin" a mort"a"e- 5 p(t do9n
deposit. 5 (nable to sec(re a mort"a"e after tr)in" si1 banAs, then s(ed for ret(rn of
deposit
Holding> 5 satisfied his implied promise to seeA a mort"a"e in "ood faith, so deposit m(st
be ret(rned
S,o(rts (se several techni4(es to 7(stif) an o(tcome that the) deem correct
Term a contract provision a EconditionF or a EpromiseF
#mpl) somethin" into the a"reement :e."., promise to seeA condition in "ood faith;
#nterpret the condition apart from literal meanin" :e."., add a reasonable re4(irement;T
1*%
S$andlord?tenant C There is an implied condition of notice that the tenant tell the landlord if the
place is in need of repairs before the tenant stops pa)in" rentT
2@1? E*cu!" $ro a Condition
RS 4227 3E*cu!" o$ a condition to a-oid $or$"itur"8
To the e1tent that the non?occ(rrence of a condition 9o(ld ca(se disproportionate
forfeiture , a co(rt ma) e1c(se the non?occ(rrence of that condition (nless its occ(rrence
9as a material part of the a"reed e1chan"e
o EForfeit(reF here means the denial of compensation that res(lts 9hen the obli"ee
loses his ri"ht to the a"reed e1chan"e after he has relied s(bstantiall), as b)
preparation or performance, on the e1pectation of that e1chan"e
RS 42A0 3E-"nt that t"rinat"! a dut.8
I$ it i! a condition that a c"rtain "-"nt #ill di!charg" o,ligorK! dut., th" dut. i!
di!charg"d u+on th" occurr"nc" o$ th" "-"nt, unless>
o The occ(rrence of the event is the res(lt of a breach b) the obli"or of his d(t) of
"ood faith and fair dealin", or
o The event Eco(ld not have been prevented beca(se of impracticabilit) and
contin(ance of the d(t) does not s(b7ect the obli"or to a materiall) increased
b(rden
RS 4275 3I+ractica,ilit. a! "*cu!" $or non6occurr"nc" o$ a condition8
#mpracticabilit) e1c(ses the non?occ(rrence of a condition if :1; the occ(rrence of the
condition is not a material part of a"reed e1chan"e and :2; forfeit(re 9o(ld other9ise
res(lt
RS 4?@ 3Proi!" to +"r$or a dut. in !+it" o$ non6occurr"nc" o$ a condition8
0 promise to perform a conditional d(t) (nder an antecedent contract in spite of the non?
occ(rrence of the condition is bindin", (nless the condition 9as a material part of the
a"reed e1chan"e for the performance of the d(t) and the promisee 9as (nder no d(t) that
it occ(r. !(t the promise can be revoAed if done so in a reasonable time and not (n7(st
beca(se of reliance of the other part)
-etna Casualty and Surety Co. v. !ur0hy, CT SC, 57?? 3+17<B8
Dentist filed ins(rance claim for dama"ed office t9o )ears after event occ(rred, dela)
violated e1plicit contract provision conditionin" recover) on timel) claim filin"
,o(rt str(""led 9ith the tension bet9een the 9ritten 9ord of the contract and
Edisproportionate forfeit(reF that 9o(ld res(lt from follo9in" the 9ritten 9ords
Holding> Failur" to co+l. #ith condition o$ notic" in contract do"! not +r"-"nt
in!ur"d $ro r"co-"ring a! long a! d"la. #a! not +r"Judicial to in!uranc" co+an.
o Read s(bstantial performance into the condition- if not pre7(dicial then not
interpreted literall)
1*'
o !(t, still Aept b(rden of proof on dentist to sho9 no pre7(dice to ins(rance
compan)
E0 contractin" part), despite his o9n defa(lt, ma) be entitled to relief from the ri"oro(s
enforcement of contract provisions that 9o(ld other9ise amo(nt to a forfeit(re, if his
violations of those contract provisions did not materiall) pre7(dice the other part)
#urne v. Franklin "ife ,ns. Co., 57?A, PA 3+17758
$ife ins(rance provision conditions recover) on death 9ithin 6* da)s of an accident-
deceased str(cA b) car, b(t Aept alive in ve"etative state for 4 )ears
Holding> Provision (nenforceable on p(blic polic) "ro(nds
,o(rt deno(nces the parado1 of a r(le that E9o(ld den) s(ch recover) for the death of an
accident victim 9ho end(res the a"on) of prolon"ed illness, s(ffers lon"er, and
necessitates "reater e1pense b) his famil)DF and states that it Eoffends the basic
concepts and f(ndamental ob7ectives of life ins(rance and is contrar. to +u,lic +olic.F
Great -erican ,ns. Co. v. C.G. %ate Construction, 57?5, NC 3+17728
#ns(rance polic) said notice of an accident had to be "iven Eas soon as practicable.F L=s
personnel involved in accident, did not notif) ins(rance co. as soon as practicable
beca(se believed its personnel had not been involved in ca(sin" the accident
Holding> Provision constr(ed accordin" to the parties= reasonable e1pectations, so does
not e1c(se ins(rer from pa)ment. Pro-i!ion !hould ," guid"d or" ,. it! +ur+o!"
than ,. it! +r"ci!" t"r!
E#f the p(rpose behind a condition precedent has been met, the ins(rer 9ill not be
relieved of its obli"ations beca(se of the nonocc(rrence of that re4(irementF
1oyal)Globe ,ns. Co. v. Craven, (A, 5772 3+177@8
#ns(rance polic) conditioned recover) on motorist notif)in" 9ithin 24 ho(rs of accident.
L 9as in intensive care for first 24 ho(rs after accident, so (nable to notif)
Holding> L e1c(sed from notice re4(irement on p(blic polic) "ro(nds beca(se e1pectin"
,raven to "ive notice 9hile she 9as in intensive care 9o(ld be E(nreasonableF
2B1 'r"ach and R"!+on!"
(utual &"+"nd"nc. o$ P"r$oranc"! and Ord"r o$ P"r$oranc"
Promises (sed to be independent of each other. G(st beca(se the other side 9as not
performin" did not mean )o( co(ld stop. #n the 16/*=s there "ained moment(m for
maAin" promises dependent on each other :be"an 9ith landlord?tenant la9;. The la9
no9 vie9s promises as dependent on each other rather than independent.
&nder modern contract la9, the "overnin" principle is that if 0 and ! have a contract and
(nder the contract 0=s performance is to precede !=s performance, then ! is not obli"ated
to perform (ntil 0 has performed :mutual dependency of performances;
0 common 9a) to e1press this principle is to sa) that 0=s performance :or s(bstantial
performance; is an i0lied condition to !=s d(t) to perform
S$eased apartment that t(rns o(t to have a bit of a rat problem>
1*6
#f promises independent> Weep pa)in" rent 9hile s(e for breach :cleaner 9a) of maAin"
obli"ations;
#f promises dependent> Tenant s(spends rent pa)ment 9hile landlord in breach :"ives
tenant more po9er;T
2B15 Th" Ord"r o$ P"r$oranc"
S3eneral r(le is sim(ltaneit)> Enothin" happens (ntil ever)thin" happens.
&xception> #f one part)=s performance taAes time :e."., constr(ction contractor;, he has to
"o first
.hether or not )o(=re in breach depends on order of performance :i.e., if )o( don=t have to "o
)et )o(=re not in breach;T
RS 42AA 3P"r$oranc" at on" ti" or in in!tall"nt!8
.here performances are to be e1chan"ed and 9hole of one part)=s performance can be
rendered at one time, it is d(e at one time (nless lan"(a"e or circ(mstances indicate
contrar)
.here onl) one part)=s performance is d(e at one time, if the other part)=s performance
can be so apportioned that there is a comparable part that can also be rendered at that
time, it is d(e at that time (nless lan"(a"e or circ(mstances indicate the contrar)
RS 42A@ 3Ord"r o$ +"r$oranc"8
.here all or part of performances to be e1chan"ed can be rendered simultaneously , the)
are to that e1tent d(e sim(ltaneo(sl), (nless lan"(a"e or circ(mstances indicate contrar)
.here performance of onl) one part) re4(ires a period of time, his performance is d(e at
an earlier time than that of the other part) (nless lan"(a"e or circ(mstances indicate
contrar)
,omment> Reasons for this r(le> !oth sides "et sec(rit)- prevents the b(rden of one part)
financin" the entire contract before the other has performed
o This empo9ers the emplo)er> Pa)checA d(e onl) after the 9orA is done
UCC 426B07> Deliver) of "oods is a condition to b()er=s d(t) to accept and pa) for them. #f
pa)ment d(e (pon deliver), b()er=s ri"ht to retain "oods conditional (pon maAin" the pa)ment
UCC 426B55> &nless other9ise a"reed tender of pa)ment is a condition to the seller=s d(t) to
tender and complete an) deliver)
Putting 4426B07 and 26B55 tog"th"r> 8ne part) is not obli"ated (ntil the other has tendered its
o9n performance. #f time passes and neither part) tenders its performance, no one is in breach.
!(t if one part) tenders and other part) fails, then the other part) is in breach. Each m(st tender
performance for the other to be re4(ired to perform :and be p(t in breach if he does not perform;
"oncurrent condition> 0 condition for 9hich the conc(rrent performance b) each part) is
a condition to the other part)=s obli"ation to perform. #.e., )o( m(st p(t the other side in
breach in order to collect dama"es, b) demonstratin" that )o(=re read) and able to
perform
11*
2B12 A,ilit. to P"r$or
,lear Cor0. v. Krochal, N;, 577? 3+17778
EIn ord"r to +lac" th" -"ndor o$ r"alt. und"r a contract o$ !al" in d"$ault, th"
+urcha!"r norall. u!t $ir!t t"nd"r +"r$oranc" hi!"l$ and d"and good titl"F
ETender of performance b) the p(rchaser is e1c(sed onl) if the title defect is not c(rableF
Kanavos v. Hancock #ank $ %rust Co., (A Su+1 /ud1 Ct1, 57?B 3+17778
L "ave 5 ri"ht of first ref(sal to some stocA, then sold the stocA 9itho(t notif)in" 5. 0t
time L sold the stocA to the third?part), 5 (nable to pa) for it.
Holding> A +art. cannot r"co-"r daag"! $or ,r"ach o$ oth"r +art. unl"!! on" i!
a,l" 3$inanciall. or oth"r#i!"8 to +"r$or hi! o#n o,ligation 3in thi! ca!" +a. $or th"
!toc)8
o :#.e., )o(=re not in breach if the other part) cannot perform;
S#f the contractor doesn=t sho9 (p, he=s necessaril) in breach beca(se b()er=s performance :i.e.,
pa)ment; isn=t d(e (ntil after his performanceT
2B1A (at"rial 'r"ach= Failur" o$ P"r$oranc" ,. On" Part. a! an
E*cu!" $or Non+"r$oranc" ,. th" Oth"r
SFr("> 8(r s)stem creates a "reat deal of (ncertaint)> 9e don=t Ano9 9hat a material breach is,
and 9e don=t Ano9 9hat it means to c(re.T
(at"rial 'r"ach -!1 Su,!tantial P"r$oranc"
+ubstantial performance> ,oncerns the 4(estion, 9hen can a part) 9ho has breached a
contract nevertheless brin" s(it (nder the contract
*aterial breach> ,oncerns the different 4(estion, 9hen can a part) 9ho has not breached
a contract :i; invoAe the sanction of terminatin" the contract for the other part)=s breach,
and :ii; brin" s(it for dama"es for total breach
RS 42A7 3E$$"ct on oth"r +art.K! duti"! o$ a $ailur" to r"nd"r +"r$oranc"8 TFE LAW OF
'REACF
#t is a condition of each part)=s remainin" d(ties to render performances to be e1chan"ed
(nder an e1chan"e of promises that there be no uncur"d at"rial $ailur" b) the other
part) to render an) s(ch performance d(e at an earlier time
o #.e., performance is conditional :not a promise; (pon the other part) not bein" an
(nc(red state of material breach :material fail(re of performance;
o 0lso, this I sa)s that )o( have a chance to c(re if )o(=re in breach
,omments>
o So, this I sa)s that a breach b) one part) prevents the other part)=s performance
from becomin" d(e, at least temporaril), and dischar"es the other part)=s d(t) to
perform entirel) if the breach has not been c(red d(rin" the time in 9hich
performance can occ(r
111
This I b(ilds (pon implied conditions, "ood faith, and s(bstantial performance>
o Fail(re to perform b) other side
o That fail(re m(st be material
o The fail(re m(st be (nc(red
0bove I hi"hli"hts the dan"er of not performin" beca(se )o( thinA other side is in
material breach. #f )o(=re ri"ht, )o( are entitled to stop and can collect mone) for
dama"es. #f )o(=re 9ron", )o( 9ere not entitled to stop and )o( 9ill be in breach. #f
breach immaterial, )o( m(st contin(e 9ith )o(r obli"ation, b(t )o( can s(e for dama"es.
RS 42@5 3Circu!tanc"! !igni$icant in d"t"rining #h"th"r a $ailur" i! at"rial8
E1tent to 9hich in7(red part) 9ill be deprived of benefit that he reasonabl) e1pected
E1tent to 9hich in7(red part) can be compensated for the part of benefit he 9ill no9 be
deprived of
E1tent to 9hich the part) failin" to perform or to offer to perform 9ill s(ffer forfeit(re
$iAelihood that the part) failin" to perform 9ill c(re his fail(re
E1tent to 9hich behavior of part) failin" to perform in line 9ith "ood faith and fair
dealin"
SFr("> No(=re (nliAel) to have a sit(ation 9here all these factors favor onl) one side.T
RS 42@2 3Circu!tanc"! !igni$icant in d"t"rining #h"n r"aining duti"! ar" di!charg"d8
#n determinin" the time after 9hich a part)=s (nc(red material fail(re to render
performance dischar"es the other part)=s remainin" d(ties to render performance (nder
the r(les stated in RS 44 2A7 and 2A?, the follo9in" circ(mstances are si"nificant>
o Those in RS 42@5
o The e1tent to 9hich it appears to the in7(red part that dela) ma) hinder him in
maAin" reasonable s(bstit(te arran"ements
o The e1tent to 9hich the a"reement provides for performance 9itho(t dela) :not
dispositive;
,omment>
o Since an) breach "ives rise to a claim, a part) 9ho has c(red a material breach
has still committed a breach b) his dela), for 9hich he is liable in dama"es
o F(rther, in some instances timel) performance is so essential that an) dela)
immediatel) res(lts in dischar"e and there is no period of time d(rin" 9hich the
in7(red part)=s d(ties are merel) s(spended and the other part) can c(re his
fail(re
K$G Construction Co. v. Harris, (&, 57<0 3+17?A8
S(bcontractor materiall) breached contract 9hen AnocAed do9n ho(se 9all and didn=t fi1
it. ,ontractor ref(sed to maAe pro"ress pa)ment, so s(bcontractor ref(sed to contin(e
9orAin".
112
Holding> +aterial breach :AnocAin" do9n of 9all; "ave contractor ri"ht to stop pa)ment,
so contractor 9as not in defa(lt. Th(s, s(bcontractor=s s(bse4(ent fail(re to contin(e
9orA after contractor stopped pa)ment is a 9ron"f(l rep(diation that allo9s the
contractor to brin" action for breach
(alker $ Co. v. Harrison, (I, 57B7 3+17??8
5 improperl) maintained a si"n leased to L, so L ref(sed to pa) and 5 bro("ht s(it
Holding> 5=s dela) in fi1in" 9as not a material breach 7(stif)in" L=s rep(diation of d(t)
to pa). Therefore, L 9as the first to breach a"reement :b) rep(diatin" it;, entitlin" 5 to
dama"es
SFr(" s(""ests that based on the factors stated in RS 42@5, perhaps the above t9o cases :<6,
and Walker; 9ere decided incorrectl)- sho9s ho9 s(b7ective idea of EmaterialnessF isT
5ulla Steel v. -$! Gregos, N/, 57?0 3+17758
S(bcontractor ceased 9orAin" on contract beca(se contractor stopped maAin" installment
pa)ments
Holding> ,ontractor=s cessation of pa)ments to s(bcontractor constit(ted a material
breach, enablin" the s(bcontractor to rep(diate the contract 9itho(t liabilit)
E#t is impossible to believe that parties in a ma7or constr(ction 9o(ld e1pect that a
s(bcontractor 9o(ld be obli"ed to contin(e 9orAin" even tho("h there 9ere material
dela)s in pa)mentF
o ,o(rt reco"niHes that although sometimes failure of one side to pay one
installment does not %ustify stopping !ork, here 5 needed the mone) to satisf) its
o9n e1penses
Stanley Gudyka Sales v. "acy Forest Products, 7
th
Cir1, 5770 3+177B8
3 failed to remit $ a J3*** pa)ment it o9ed, so $ rep(diated contract, Aeepin" J4/,***
that (nder the contract it o9ed 3
Holding> $ co(ld not rep(diate beca(se $=s self?help remed) 9as disproportional to the
amo(nt o9ed b) 3. !efore terminatin", $ 9as obli"ated to "ive 3 notice and an
opport(nit) to c(re its breach
EThe termination remed) is onl) available 9here termination is in +ro+ortion to the
EneedF for acco(ntabilit) from the breachin" part), and 9here the breach is material
rather than Einsi"nificantFF
SI$ #" di-id" th" contract into +"riod! o$ ind"+"nd"nt +roi!"!, th"n #" can a-oid an. o$
th"!" di!tinction! and !"" +"r$oranc" and ,r"ach in tho!" +"riod!S
Farns9orth tells (s that a contract is divisible Eif the performances to be e1chan"ed can
be divided into correspondin" pairs of part performances in s(ch a 9a) that a co(rt 9ill
treat the parts of each pair as if the parties had a"reed that the) 9ere e4(ivalents.F
RS la)s do9n t9o re4(irements
Possible to apportion parties= performances into correspondin" pairs of part performances
Proper to re"ard the parts of each pair as a"reed e4(ivalents
2<1 Antici+ator. 'r"ach, Pro!+"cti-" Ina,ilit. to
P"r$or, and Ad"0uat" A!!uranc" o$ P"r$oranc"
113
2<15 Antici+ator. 'r"ach
RS 442@A328 and 2BA358> #f there is a rep(diation :9hether anticipator), accompanied b) non?
performance or follo9in" non?performance;, no need to c(re since no lon"er a d(t) beca(se
r"+udiation i! con!id"r"d a total at"rial ,r"ach
RS 42B0 3R"+udiation8> E0 rep(diation is a statement b) the obli"or to the obli"ee that the
obli"or 9ill commit a breach that 9o(ld be a material breach or a vol(ntar) affirmative act
renderin" the obli"or (nable to perform 9itho(t breachF
Demands for chan"es of terms constit(tes a rep(diation, b(t if it is 7(st talA abo(t
alterations, it is not a rep(diation :iss(e of interpretation;
0 part) ma) rep(diate b) 9ords or act :both of 9hich re4(ire interpretation;
A r"+udiation can ," r"tract"d i$ th" oth"r +art. ha! not ."t r"li"d on it :RS 42B<
and UCC 426<55;
8f co(rse, m(st be s(re it is a rep(diation- if a part) mistaAenl) treats somethin" as a
rep(diation and 9alAs a9a), then that part) is in breach
S,entral iss(e> .ith breach b) nonperformance 9e=re tr)in" to fi"(re o(t if it=s been a
material breach- 9ith rep(diation 9e=re tr)in" to fi"(re if there=s been a rep(diation.T
UCC 426<50 3Antici+ator. R"+udiation8>
.hen either part) rep(diates contract 9ith respect to a performance not )et d(e the loss
of 9hich 9ill s(bstantiall) impair the val(e of the contract to the other, the a""rieved
part) ma)>
o For a commerciall) reasonable time a9ait performance b) rep(diatin" part), or
o Resort to an) remed) for breach even tho("h he has notified the rep(diatin" part)
that he 9o(ld a9ait the latter=s performance and has (r"ed retraction- and
o #n either case s(spend his o9n performance or proceed in accordance 9ith the
provisions of this 0rticle on the seller=s ri"ht to identif) "oods to the contract
not9ithstandin" breach or to salva"e (nfinished "oods
Hochester v. De "a %our, England, 5?BA 3+17778
L 9rote to 5 to notif) that no lon"er needed 5=s co(rier services and ref(sed
compensation. 5 s(ed prior to the date 9hen performance on the contract 9as d(e
Holding> ,o(rt allo9ed !uit $or antici+ator. r"+udiation
(easoning> 0fter L rep(diated, 5 sho(ld be free to consider himself absolved and not
(selessl) preparin" :so he can maintain the s(it; b(t rather findin" other 9orA to miti"ate
dama"es
E.here parties contract to do an act on a f(t(re da), the) impliedl) promise that in the
meantime neither 9ill do an)thin" to the pre7(dice of the other inconsistent 9ith that
relationF
114
.illiston> This holdin" maAes no sense beca(se promised performance hasn=t come
aro(nd )et :ho9 can )o( s(e for breach of somethin" that 9as s(pposed to happen, 9hen
the time 9hen the thin" 9as s(pposed to happen hasn=t )et occ(rredB The other part)
didn=t maAe a promise not to rep(diate- he onl) promised to "o on the trip;
,orbin> The parties had created an i+li"d +roi!" not to cr"at" !ituation
und"rining or d"$"ating oth"r!K "*+"ctation! 3i1"1, i+li"d +roi!" not to +r"-"nt
co+l"tion o$ th" contract8
Daniels v. Newton, (A, 5?7@ 3+150058
,riticiHin" Hochester> =&ntil the time arrives 9hen, b) the terms of the a"reement, he is
or mi"ht be entitled to his performance, he can s(ffer no in7(r) or deprivation 9hich can
form a "ro(nd of dama"esF
72uitable %rust v. (estern Pacific 1y., S&N;, 5757 3+150028
EThe basis of the doctrine of anticipator) breach is that a promise to perform in the f(t(re
b) implication incl(des an a"reement not deliberatel) to compromise the probabilit) of
performanceF
S&aag"! $or R"+udiation= A Conc"+t!
Fi1ed to date )o( learned of rep(diation- or
o Problem> 8pposes ideas of re7ectin" or retractin" the rep(diation
Fi1ed to time of performance
o Problem> Too m(ch po9er to non?breachin" part) to 9ait to profit from chan"es
in marAet
Fi1ed at end of a commerciall) reasonable time
o &ltimatel) adopted b) latest version of the RS :see 1loffson;T
&loffson v. Cooer, IL, 577A 3+150078
Farmer told b()er he 9o(ldn=t plant crop, )et b()er 9aited months before coverin"
Holding> &nder UCC 426<50, b()er had Eco"rciall. r"a!ona,l" ti"F from 9hich
to calc(late dama"es. This time elapsed at end of da) farmer rep(diated since b()er
Ane9 farmer 9o(ldn=t perform
S'allantin"> T9o theories for 9h) anticipator) breach sho(ld "ive a ca(se of action>
Rep(diation is a present in7(r)
0 threatened in7(r) ma) f(rnish a "ro(nd of actionT
2<12 Pro!+"cti-" Ina,ilit. to P"r$or and Ad"0uat" A!!uranc" o$
P"r$oranc"
RS 42B5 3Wh"n a $ailur" to gi-" a!!uranc" a. ," tr"at"d a! a r"+udiation8>
.hen reasonable "ro(nds for insec(rit) e1ist that other part) 9ill commit a total breach
:(nder RS I243;, the obli"ee ma) demand ass(rance of d(e performance and reasonabl)
11
s(spend performance for 9hich he has not received s(ch ass(rance (ntil he has received
it
Failur" o$ o,ligor to +ro-id" a!!uranc" #ithin r"a!ona,l" ti" a. ," tr"at"d a!
r"+udiation
o 8bli"ations of "ood faith prevents seeAin" ass(rances in hopes it 9ill "et other to
breach
UCC 426<07 is analo"o(s to RS 42B5, and allo9s re4(est of 9ritten ass(rances
UCC 426<07 3Right to ad"0uat" a!!uranc" o$ +"r$oranc"8
Parties ma) not demand ade4(ate ass(rances 9itho(t reasonable grounds for insecurity-
and ma) not s(spend performance 9hile a9aitin" ass(rance (nless it is commerciall)
reasonable.
Failur" to +ro-id" ad"0uat" a!!uranc" #ithin A0 da.! in response to a 7(stified
demand is a rep(diation and Ju!ti$i"! th" r"l"a!"! th" r"0u"!ting +art. $ro th"ir
o,ligation!
,omment> Doctrine balances the dan"er of f(t(re breach 9ith the dan"er of fra(d(lent
claims re"ardin" a part)=s e1pectation of performance
.hat are Ereasonable "ro(nds for insec(rit),F Eade4(ate ass(rances,F Ecommerciall)
reasonable,F Ea reasonable timeFB
UCC 426702 3S"ll"rK! r""di"! on di!co-"r. o$ ,u."rK! in!ol-"nc.8> .here the seller
discovers b()er to be insolvent he ma) ref(se deliver) e1cept for cash incl(din" pa)ment for all
"oods theretofore delivered (nder contract, and stop deliver)
UCC 42670B 3S"ll"rK! !to++ag" o$ d"li-"r. in tran!it or oth"r#i!"8> 0 seller ma) stop deliver)
of "oods in possession of a carrier 9hen he discovers b()er to be insolvent and ma) stop lar"e
deliver) 9hen b()er rep(diates or fails to maAe pa)ment d(e before deliver) or if for other
reason seller has ri"ht to 9ithhold or reclaim "oods
Pittsburgh)Des !oines Steel Co. v. #rookhave !anor (ater Co., 7
th
Cir1, 577< 3+150578
L a"reed to b(ild 9ater tanA for 5- then learned 5 failed to "et loan for tanA. L demanded
ass(rances :escro9 financin", etc.; not in contract and s(spended performance. M s(ed.
Holding> 5 entitled to dama"es for s(spension beca(se L lacAed Ereasonable "ro(nds for
insec(rit)F to demand ass(rances from 5
(easoning> The fact that 5 had not completed its loan ne"otiations does not constit(te
reasonable "ro(nds for insec(rit) 9hen the mone) in 4(estion 9as not to be needed for
some months
EUCC 426<07 is a protective device 9hen reasonable "ro(nds for insec(rit) arise- it is
not a pen for re9ritin" a contract in the absence of those reasonable "ro(nds havin"
arisen, partic(larl) 9hen the proposed re9ritin" involves the ver) factors 9hich had been
9aived b) the one no9 attemptin" to 9ield the penF
Whit" and Su"r!> E0ll demands for ade4(ate sec(rit) call for more than 9as ori"inall)
promised (nder the contract, and that is precisel) 9hat UCC 426<07 a(thoriHes. Th(s it is the
ver) p(rpose of UCC 426<07 to a(thoriHe one part) to insist (pon more than the contract "ives.F
11/