CONTRACTS: A STORY.

Modes of analysis
-what theories are available to P or D?
-justice in this case vs. rules for everybody in the future (fairness vs. certainty)
-goals of contract enforcement (goods to highest value user; allows people to make high-quality promises in
situations when you dont know the other person [better off ex ante]; enforceable promises are worth something,
which makes you wealthier; lessen cost of contract breach; autonomy; fairness)
-ex ante (preserve autonomy to make and rely on promise, and have people rely on your promises) vs. ex post
(preserve autonomy to break promise) rules
-comparative advantage: courts seem to impose liability on the party with the comparative advantage in
reducing the likelihood of misunderstanding between the two parties.
-risk shifting / risk distribution; what did parties decide, who should in fact bear risk? Who is in best position to
avoid risk? Which is more likely to affect parties behavior?
-why are parties acting the way that they are? What do they want from contract, why have they done what they
did? [usually, answer is because its best economically]
-what could parties have done to solve this problem in advance?
-if, at beginning of contract, parties had thought of this situation, what rule would they come up with? (gapfilling framework: ask this question if something is not in the contract)
-on one hand, dont want parties to negotiate about everything where court could supply sensible gapfilling rule
-on the other hand, we dont want to impose terms that parties may actually have rejected
-which costs less?
-contract law about reducing the size of the loss, rather than deciding upon whom the lose should fall
-should courts be formulistic (i.e. look at words, not the intend behind them), when applying a rule? Or should
they try to determine parties intent, purposes behind the words? [In re Greene: looked at what was going on
underneath the contract instead of the form (objective words of contract).]
-the right remedy is one that maximizes the value of the contract to both the buyer and seller (because as long
as the rule is understood, prices will adjust in the future because parties negotiate with the rule in mind)
-tradeoff between type I (false positive) and type II (false negative) error. Parties should be allowed to dismiss
some complaints, or else too much type I; but, dont want to let guilty people get away, or else too much type II.
-objectivist vs. subjectivist:
-objectivist: like looking for parties objective intent; like statute of frauds and parole evidence rule;
want to give certainty to rules
-subjectivist: try to figure out what parties actually meant, not necessarily what they said; sometimes
statute of frauds and parole evidence rule allow sophisticated parties to take advantage of
unsophisticated parties
Categories: sorting (which contracts do we enforce?), gap-filling, meaning, mandatory rules

I.

Elements of a contract

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II.

III.

IV.

a. Definition: Any transaction in which one party or both parties make a legally enforceable
promise
b. There can be a sale of goods in which neither party makes a promisenot all sales are contracts.
PROMISE. Look at what parties (objectively) intendedwhat a reasonable person thinks you
intend depending on what you say and do (Bailey v. West; Lucy v. Zehmer)
a. Contract implied in factimplied by conduct (e.g. ordering food)
b. Contract implied in law (quasi-contract)doesnt depend on intent; instead, from concerns of
justice and equity without reference to original agreement / intent. They are not contracts, but
avoidance of unjust enrichment. D receives benefit that would be inequitable to retain.
i. Can recover when recipient of benefit was in the best position (and it didnt cost a lot,
etc.) to prevent the mistake / error that led to conferral of benefit (e.g. house painter).
ii. Quantum meruit: subclass of quasi-contract. Cannot recover if P is mere volunteer (i.e.
P must be reasonable in assuming there was a contract he was performing).
c. Objective intent determines whether there is a contract and what its terms are
d. Promise to make a gift is unenforceable, except in charity cases
e. Bailey v. West (D sent lame horse back to seller, who refused it. P boarded horse.)
i. No objective intent to contract, so no promise / contract. P knew of dispute about
ownership of horse.
ii. P acting as mere volunteer, so no quasi-contract because P cant reasonably expect to
get paid. Also, D sent bill back to P, so D didnt acquiesce to conferment of benefit.
f. Lucy v. Zehmer (drunk D says his written contract at a bar to sell his farm was a joke)
i. Objectively and reasonably, this appeared to be a real contract to P. Ds objective intent
was to enter into a deal, even if subjective intent was to not.
ii. P awarded specific performance.
INDEFINITE CONTRACTS. Dont need to specify everything in order to have a contract (Varney
v. Ditmars; DR Curtis v. Mathews). Court can fill gaps. But contract must contain all essential
terms.
a. Courts might be reluctant to step in if there were no external measure (like market price); if they
dont feel like they are competent to get this right
b. Might also be reluctant if the gap is just too big, if it calls into question whether the parties
actually intended to contract and actually reached an agreement (Varney?). Consider the way in
which the term was left opendoes it indicate that one or both parties dont actually intend a
legally binding promise? But if parties intended for contract, and there is reasonably certain
remedy, then courts tend to give it.
c. UCC 2-305: open price term. If parties intend to, they can leave out the price for a later date;
but price must be reasonable at the time of delivery (so it will most likely reference the market
price)
d. Varney v. Ditmars (D firm promises to pay P architect fair share of the profits)
i. Sometimes fair just means market price. But here, fair share of profits is too vague /
indefiniteamount cant be computed at trial.
ii. Dissent: we might be able to show by custom was the fair share of profits would be.
e. DR Curtis Co. v. Mathews (parties left open the factor in computing the price, but never agreed
upon the term)
i. Contract is still enforceable, because still mutual intent to make a contract. As long as
price is reasonable at time of delivery, parties still bound. Use market price.
PRELIMINARY NEGOTIATIONS. Parties never reach the magic moment of offer and
acceptancebut in some cases they cant walk away without any obligations.
a. Coley v. Lang (D is going to sell company; P wants to use Ds company, which is already
prequalified, to bid on govt contracts)
i. Court seems to think that letter of promise to purchase indicated that future efforts were
necessary to make agreement binding (this is just a promise to promise).
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V.

ii. But perhaps promissory estoppel: if (1) created foreseeable reliance; (2) actually relied;
(3) unfair to allow party to just walk away. [Rest. 90: (1) reliance must be foreseeable to
promisor, and (2) unjust not to enforce the promise.] Here, though, its not unfair.
1. Not enough if you act based on likelihood that negotiations would turn into a
contract, because then mere optimism would become a basis enforcement.
Optimistic noises do not make an agreement or justify a basis for reliance.
b. Hoffman v. Red Owl Stores (P contracts with D to run grocery store, does all this stuff, but then
D wants more money)
i. No final agreement because negotiations always said they needed to sign binding
franchise agreement
ii. Potential agreement to agree (aka promise to promise) problem: if it seems like signing
the document is just a formality, parties might be bound to an actual promise. Document
would just be a record, not itself the offer and acceptance.
iii. Putting all of Ds statements together, court says that P relied on Ds promises, that D
could have reasonably foreseen that P would rely, and that it would be unjust to not
enforce the promise (i.e. court applies promissory estoppel) [different from Coley
because this one is unjust].
iv. Maybe could have also recovered under quasi-contract (benefit conferred)? Negligent
misrepresentation? Duty to bargain in good faith?
c. The use of promissory estoppel in solving the preliminary negotiations problem is controversial.
If Hoffman were applied broadly, we might divide negotiations into 3 stages instead of 2 (no
liability, liability for reliance, liability for expectancy damages)
OFFER AND ACCEPTANCE. Used to pinpoint the point in time when we actually have a deal,
and helps determine which of the many things said in the course of negotiations will become a part
of the deal. Restatement 24-69.
a. Offers.
i. Rest. 24: Must be a manifestation of willingness to enter into a bargain. Used as tool to
get other person to do what you want. Other person reasonable in thinking that his assent
to it is invited and will conclude the offer.
ii. Use objective analysis: what would reasonable person have thought buyer and seller were
agreeing to?
iii. Price quotations are generally invitations to make an offer; price list not usually a
contract.
1. But price quotes can be an offer if it is sufficiently detailed and it seems like
assent to the quote is all thats needed to form the contract. (Dyno)
2. Absence of terms about quantity, time of delivery, payment, etc. hurts the case
iv. Ads are generally thought of as invitations to make an offer because store cant enter into
a contract with an indefinite number of people
1. But, in Lefkowitz v. Great Minneapolis Surplus Store, Inc. (ad for fur coat and
black lapin stole), ad seemed to indicate that there was nothing left to negotiate,
and limited the number of people who could actually enter into the deal. Court
found ad to be an offer.
v. Dyno Construction Co. v. McWane, Inc. (reverse of documents contained additional
terms, including one that limited Ds liability)
1. If contract formed when P sent price quotes and D said order, then the provision
wouldnt count. But, court says contract formed when D signed the fax, not when
D told P to order the materials.
2. The words estimate and please call were printed on the documents, indicating
invitation to enter into future negotiations.
b. Acceptance.
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i. Rest. 50: a manifestation of assent to the terms thereof made by the offeree in a manner
invited / required by the offer.
ii. Standard rule: any reasonable means of acceptance under the circumstances;
manifestation of assent to the terms of an offer in a manner required by the offer.
1. Must be unequivocal
a. Common law: different or additional terms count as rejection and
counteroffer
b. UCC: different or additional terms dont reject the offer as long as
acceptance isnt expressly conditional on assent to new terms
2. Must be by an authorized party
a. Unless irrevocable offer, cant transfer / assign power of acceptance to
another
3. Party must intend to accept and be bound
iii. Offeree has a reasonable time to expect acceptance or can assume offer no longer applies
(usually once the conversation is over). Offerees power of acceptance terminates when
the offeror revokes, when the offer is rejected, or after some passage of time (reasonable).
1. In Ever-Tite Roofing, they explicitly said acceptance is either by return promise
(by written signature) or performance. Performance counts as acceptance even if
offeror doesnt realize you have begun.
2. In that case, beginning the performance counts as a promise to perform, and you
are obligated to complete contract. If offer invites acceptance only by
performance, then beginning performance doesnt bind you to complete it, but
offeror cant revoke (and if you dont complete, likely to be sued in quantum
meruit)
3. Can always contract out of these rules
iv. After acceptance, cant revoke the offer, but you can before.
v. we have a deal doesnt always mean acceptance. Ciaramella v. Readers Digest (Ps
lawyer said we have a deal but P didnt sign settlement. Court didnt bind P because no
objective intent to be bound). If overall objective evidence indicates that parties didnt
want to be bound unless they signed the documents, then oral agreement isnt enough.
1. Ciaramellas 4-factor test for intent to be bound:
a. Express reservation on right not to be bound unless signed writing?
b. Partial performance of the contract?
c. All terms of contract agreed upon?
d. Agreement at issue usually the type committed to writing?
2. Should create a trail of communications that makes it clear that you are still
negotiating, that youre not done and dont intend to be bound
3. Cant always say we intend to be bound only in writing and be ok; some
preliminary agreements are binding (see Leval Test, p. 227unicorns. Happens
when parties agree on all points that require negotiation but agree to memorialize
their agreement in a more formal document.)
vi. Usually, silence is not acceptance. Exceptions are 1) where the offeror has given the
offeree reason to believe that silence will suffice, 2) where the parties have mutually
agreed that silence will suffice, 3) where there is a course of dealing so that silence has
come to mean assent, and 4) where the offeree accepts services with reasonable
opportunity to reject them, and should reasonably understand that they're offered with
expectation of payment.
c. Bilateral vs. Unilateral Contracts.
i. Bilateral: a promise exchanged for a promise. Must have mutuality of obligation /
consideration. Either both parties are bound or neither is bound.
ii. Unilateral: a promise exchanged for performance.
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iii. Rest. 54: acceptance of an offer to create a unilateral contract generally does not have to
be communicated to the offeror. Instead, acceptance indicated when offeree begins
performance. In bilateral contract, acceptance must be communicated to offeror.
iv. In Ever Tite, beginning the performance counts as a promise to perform, so they were
obligated to complete contract (which allowed acceptance by promise or performance). If
offer invites acceptance only by performance, then beginning performance doesnt bind
you to complete it, but offeror cant revoke (and if you dont complete, likely to be sued
in quantum meruit)
d. Irrevocable offers.
i. Pavel Enterprises, Inc. v. A.S. Johnson Co. (D subs bid contained error that makes price
too low, wants to withdraw).
1. D revoked offer prior to Ps final acceptance. Also, time lapse made it
unreasonable for D to expect that P could rely on the offer.
ii. In order to make offer irrevocable, there must be considerationpay for an options
contract.
iii. General contractor could also say if you wont revoke, well use you as the subthis is
appropriate consideration.
iv. In sale of goods, a merchants firm offer is treated like an options contract.
v. UCC allows some sales to be irrevocable offers without consideration, as long as there is
a signed writing, language assuring that the offer will be held open, the offeror must be a
merchant, the period of irrevocability may not exceed three months, and if the language
of irrevocability appears on the offerees form it must be separately signed by the offeror.
e. Termination of Offers.
i. Lapse of time, death / incapacity of offeror / offeree, direct revocation, death / destruction
of essential element, supervening illegality, rejection / counter-offer.
f. Counteroffer.
i. A counteroffer necessarily rejects the original offer and creates a new offer (and you cant
accept an offer youve already rejected). Dataserv v. Technology Finance Leasing (P said
no if contract contained a clause, D refused to remove clause, but then P tried to perform
and collect. Court said no).
1. Sometimes can invite another offer without rejecting (are you sure you cant go
lower?)
ii. Common law: in general, there is only one live offer at a time; thus, to determine terms
you would look to the last offer made (last shot doctrine). No contract is made unless
terms exactly match each other (mirror image rule).
iii. UCC 2-207(1): A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an acceptance even
though it states terms additional to or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different terms.
1. Ionics v. Elmwood (battle of the forms): letter would have been acceptance, even
though it had different terms. The additional terms would have become part of the
contract, but not if materially conflicting terms
a. But, the letter said that Elmwoods acceptance was conditioned on Ionics
acceptance of their terms, so that takes us out of 2-207(1).
2. Step-Saver Data (box-top license): court treats questions of conditional
acceptance not just a matter of language, but of sellers intent. Looks at whether
seller would have walked away if buyer hadnt agreed to those terms.
3. all about interpreting language of the acceptanceis it conditional or just
additional terms? If its an I agree, but I would prefer this then we go to 2207(2) because theyre proposal for additional terms. But if its I agree, but only
if you agree to this then 2-207(1) doesnt apply.
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VI.

iv. UCC 2-207(2): The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless: (a) the offer
expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c)
notification of objection to them has already been given or is given within a reasonable
time after notice of them is received.
1. Materially alter is a factual issue that you have to make a judgment call on.
2. If proposal for additional terms materially alters contract, then dont include either
sides termsgo to UCC default rules.
3. Under (c), if party sends back something that says no, it must be this then we
revert back to the original offers terms [because the only reason youre in 2207(2) is because the new terms are proposals, not a counter-offer]
4. In many cases, parties will end up with UCC default rules as to non-essential
terms (the ones they dont negotiate over)
v. UCC 2-207(3): Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such case the terms of the particular contract consist of
those terms on which the writings of the parties agree, together with any supplementary
terms incorporated under any other provisions of this Act.
1. even though writings dont establish a contract, there can be acknowledgment of a
contract when both parties perform; conduct can recognize existence of contract
2. once contract is recognized, some courts say contract is for everything theyve
agreed
3. 2-207(3) often comes in when theres a battle of the forms [buyers form says
only on our terms, otherwise send them back; sellers say the same thing; and
then they both perform]. Clear that the writings dont establish a contract, because
both communications dont count as a definite and seasonable acceptance
because they both say only on my terms. Nothing can be read as including the
additional terms either because they constitute an objection under 2-207(2)(c).
Thus, the only way to get a contract is if we use 2-207(3).
vi. hypo: buyer sends order with his terms, seller sends order with different terms, and both
perform. If both insist on their own terms, then contract is not under 2-207(1), but it does
fall under 2-207(3). If seller was just proposing additional terms, than could fall under 2207(1), and we would analyze whether additional terms are incorporated under 2-207(2).
g. Integration agreement: this document contains our entire contract; nothing we said in
negotiations becomes part of the deal.
h. Mass consumerism. Hill v. Gateway 2000; ProCD. We often dont actually bargain.
i. Contract formation does not end when consumer goes to the internet to purchase
something. Seller will send additional termsthats the offer.
ii. Acceptance is when buyer gets product, looks at the terms and uses it without returning it
(fails to object to the terms), not by ordering and paying for it.
iii. Different from usual case where buyer makes offer, and acceptance is when the seller
actually gives the product. Sometimes its better to ship the terms with the product and
use an approve-or-return situation.
CONSIDERATION. Primary device used to draw line of enforceability. Must either benefit the
promisee or be a detriment to the promisor. If no consideration, then its simply a promise for a gift.
a. Rest. 71: bargained for promises are supported by consideration, but gift promises are not.
Performance can consist of an act other than promise, a forbearance, or change in legal rights.
(seems like more courts use bargain for concept than benefit / detriment).
b. why have consideration? If purpose of contracts is to support value of promise, then the only
time it matters that your promise is made credible is when you want stuff.
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VII.

c. Detriment can be doing something you dont have to do, or refraining from something you could
have done. In addition to detriment, you must have inducementthe promise is the thing that
caused him to do or not do stuff. [did something or refrained from doing something because of
promiseeven if its beneficial to the promisee] (Hamer v. Sidway).
d. Some notion of reciprocity. Even in unilateral contract (promise in return for an action), Ps
actions, done because of the promise, can be enough for consideration. (St. Peter v. Pioneer
Theatre Corp.) Not so much about what promisee does for promisor, but why.
e. Promisor uses promise as a tool to extract something it wants from the promisee, or to get the
promisee to behave in some way. All about the bargain. Did promisor induce behavior he
wanted?
i. Im only going to do this as the price for you doing something that I want you to do.
ii. Ifthen statement might be used for bargaining, but might be used just to convey
information (if you come by at 5, Ill drive you home) (Kirksey v. Kirksey)
iii. Restatement 77: promise used as a tool to get behavior, behavior used as a tool to get
promise. (bargain concept)
iv. In Re Greene: (promise to mistress) They tried everything, but court said it was a promise
to make a gift, that it wasnt a real bargain.
f. Examples of consideration:
i. Hamer v. Sidway: D said he would pay P $5000 to refrain from drinking / smoking / etc.
until 21 years old. Still counts as consideration, even though a benefit to P, because limits
his legal freedom and used as inducement to get the money.
ii. St. Peter v. Pioneer Theatre Corp.: bank night. An act can be consideration if done for the
promise, and promise made to get the act.
iii. Kirksey v. Kirksey: D brother-in-law says P can live with him if she moves family out
there, but then kicks her out. Court said the moving counted as consideration.
iv. Batsakis v. Demotsis: mere inadequacy of consideration will not void a contract. ($25
is enough consideration for $2000)
v. Wolford v. Powers: as long thing is genuinely desired as the price of the promise, then it
doesnt matter if objectively it seems like a bad deal. As long as you get what you want
from the contract, courts more likely to rely on form and not dig. Let parties judge value
for themselves. ($10,000 to name child after him)
g. Disparity in value: in general, we let parties judge value for themselves. But, sometimes disparity
in value indicates that the consideration was not bargained for but was a pretense.
h. Past consideration is usually not considered consideration. But, see Cotnam v. Wisdom.
ESTOPPEL. All about reliance. Used to prevent harms to others relying on unkept promises.
Promises may be enforced if the promisee has incurred costs, or conferred benefits, on the
reasonable expectation that the promise would be fulfilled.
a. Must have (1) clear and unambiguous promise, (2) reasonably foreseeable reliance, (3) actual
reliance, (4) unjust not to enforce promise.
b. Usually can recover only reliance damages (put back into position before contract was made). In
rare circumstances, might get expectation or specific performance.
c. Dont need consideration. Ricketts v. Scothorn; East Providence Credit Union v. Geremia (but
see Haase v. Cardozano estoppel if P didnt rely to her detriment, promise alone is not
consideration).
i. Often used when: (a) one who promises to make a gift to a relative dies before she can
make the gift; (b) business who promises a long-term employee some benefit but doesnt
follow through
ii. Reliance must be foreseeable and put promisee in a worse position as a consequence of
her reliance. justifiably relied = reasonable and foreseeable reliance.
1. Rest. 90: (1) reliance must be foreseeable to promisor, and (2) unjust not to
enforce the promise.
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iii. might not enforce full promise; might only get reliance damages (2d Restatement 90).
iv. Restatement 2d 86: benefits previously received can sometimes count; past benefit is a
substitute for consideration. (e.g. sales of creative ideas, informational services, carpenter
who performs surgery on unconscious guy) ??
v. Ricketts v. Scothorn (D told P granddaughter she didnt need to work)
1. Court wanted to enforce this intrafamilial promise, although it was just a promise
to make a gift.
2. D intentionally influenced P to alter her position for the worse, and it would be
grossly inequitable to not enforce promise because no consideration.
vi. East Providence Credit Union v. Geremia (P promised to insure Ds car)
1. D would probably win under promissory estoppel, even though here court
believes there was consideration.
d. Material Benefit rule.
i. Cotnam v. Wisdom (P doctor operated on unconscious P patient during emergency)
ii. Inability to bargain is necessary condition to recover under quasi-contract. If it is possible
for you to ask to get paid and you do not ask, you are a mere volunteer.
iii. In Cotnam, easy to know what the right amount of compensation is.
iv. Court is only creating a contract that they are really sure the parties would have agreed to
had they been able to bargain.
v. Also known as material benefit rule: although parties not in position to bargain, probably
would have made this promise if they had the chance; material benefit then conferred.
e. Court will not allow a party to raise claim or defense because another party relied on its past
behavior.
VIII. UNCONSCIONABILITY. Even with consideration, offer and acceptance, parties manifesting
objective intent, etc., court finds something bad about either the substance or the process.
a. Information (parties informed, no misrepresentation / fraud / etc.), voluntariness, capacity
(mental and legal), equal bargaining power.
b. Procedural unconscionability: has to do with how terms become part of the contract. Examples:
one party cant comprehend the language, or an unexpectedly (reasonable person doesnt expect
it) burdensome term is buried in small print.
c. Substantive unconscionability: portions of contracts are, in content, oppressive or overly harsh.
Provisions of a contract that are grossly one-sided may be invalidated by a court.
d. Williams v. Walker-Thomas Furniture Co. (I and II) (P mother entered into cross-collateral
contracts with D storesee p. 57 for cross-collateral clauses)
i. Unconscionability: absence of meaningful choice and unreasonably favorable terms.
Court looked at bargaining power and context of parties (e.g. education).
1. Extreme terms (unfair); substantive element. Considered business custom to see if
terms were extreme.
2. No meaningful choice; procedural element. (did she understand terms? If bait and
switch, is this something that is such a big deal that you need to bring it to the
attention of the consumer? Is this something that the consumer wouldnt have
expected in the contract?) Tougher now because of mass consumerismwe often
have take-it-or-leave-it contracts.
ii. Often leads beyond legal questions and towards deep considerations of autonomy,
paternalism, justice, etc.
iii. Underlying theme: seller did something we suspect may have been fraudulent (e.g. took
advantage of buyer), but we dont have enough evidence to conclude fraud, so we call it
unconscionability
IX.
PERFORMANCE. Default rule is to require substantial performance, but parties can customize to
require perfect performance.
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X.

a. Substantial performance (obligation to pay is triggered by performance substantially as

promised) vs. perfect performance. Look at ability to replace the defective thingwhat costs
less?
i. Can also look at ex ante approach: would party pay lots of money to retain option of
perfect performance?
ii. Still allowed to recover difference between perfect and substantial, and you might be able
to demonstrate your subjective value for higher damages
iii. In construction contract, any defect doesnt give the other party a right to not perform.
Instead, the first party must perform substantially, but they must also set off damages
from not performing perfectly (Jacob & Youngs v. Kent (Reading pipe instead of pipe
specified in contract)). Also, deviations must be unintentional (cant purposely skimp out
just to get to substantial performance level)
iv. Jacob key facts: performance was substantial but not perfect; the fact that it was
substantial was inadvertent; difference in value between substantial and perfect
performance was trivial
v. Perfect performance for goods; substantial performance for services; spectrum in the
middle
vi. UCC 2-601: for sales of goods, the perfect tender rule applies. Buyers can reject the
goods for any defect, however minor.
b. Idiosyncratic buyers must show they have idiosyncratic interest; otherwise, we assume they
dont.
c. Allocating Risk: (Stees v. Leonard (D tries to build house on Ps lot, but it keeps falling down
because of quicksand, so D stops. Court found for P)) modern court analysis: (1) any evidence
that the parties considered the risk and allocate it in the contract (allocate risk in an explicit or
implicit conscious way)? Did parties discuss, industry custom, purchase insurance for the risk,
paid higher price because of risk? If they didnt consider the risk, then we have a gap to fill. (2)
had the parties actually thought about it, what would they have agreed on? What rule would they
choose?
i. Is there a gap?
ii. Is this gap so large that it really calls into question whether the party wanted to contract at
all? (incompleteness issue)
iii. What rule would parties have selected if they had bargained about this up front? (who is
in the best position to avoid this risk (least cost avoider)? Best to identify / appreciate it?
Best to insure against it? Go through arguments for each party. Which is more likely to
affect parties behavior?)
d. Coase Theorem: if parties perfectly informed, rational parties, and no transaction costs, then rule
doesnt matter to get the final outcome.
e. Excuses for nonperformance (no need to perform or pay expectation damages, but must pay back
restitution): some act of government makes performance illegal or close to impossible; if
contract is for particular persons services and that person dies or becomes incapacitated; if
contract is for particular building / object / etc. and that object is destroyed.
i. Impossibilitysome object or person essential to performance is no longer there.
REMEDIES / DAMAGES. Consequences of non-performance. In a world with expectation
damages, contracts can be thought of as agreeing either to perform or to pay the value of the
contract. Rest. 344.
a. Expectancy: put non-breaching party in as good as position as the party would have been if the
other party hadnt breached. (In one case, it was out of pocket loss + lost profits)
i. Sometimes can achieve this by asking what it would cost to get a substitute performance.
ii. Cost of completion or difference in value?
1. American Standard v. Schectman: D fails to complete grading contract. Court
awards cost of completion.
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a. Consider if youre tearing anything down, and if breach is with respect to

the central purpose of the contract. Must be unreasonable economic waste.
2. Peevyhouse v. Garland Coal & Mining Co.: D didnt restore land after stripmining. Court awards diminution of value.
a. Waste is waste, whether or not youre tearing anything down.
3. Cost of completion is pretty much like specific performance. We only want to
grant that when subject value > market valuenot when P is simply angry or
wants to be in a better bargaining position
4. To demonstrate that they are motivated by subjective value, Peevyhouses could
have written in liquidated damages provision, other options
5. WHY THE DIFFERENCE? Both decisions could be wrong.
a. Doesnt it seem the opposite? Peevyhouse seems like they have subjective
valuethey would have negotiated differently if they had known that this
would be the situationso they should have been granted specific
performance
iii. Freund v. Washington Square Press, Inc. (D didnt publish Ps book, P wants damages for
delay in promotion, loss of royalties, cost of publication)
1. no cost of publication because that puts P in better position than if contract had
been performed. Theoretically could get lost royalties, but P didnt prove them.
b. Reliance: put non-breaching party in as good as position as the party was in before the contract
was made.
i. Not as good as expectation because this makes promise like an options contract until
reliance begins to occur.
ii. Sometimes use reliance damages when expectation is too hard to calculate, or when
expectation damages are grossly disproportional.
iii. Kizas: you cant recover reliance damages in excess of expectation damages
iv. Sullivan v. OConnor (D plastic surgeon messed up Ps nose)
1. Allowed to recover reliance damages for change in appearance, out of pocket
expenses, emotional harm of worse appearance.
v. Kizas v. Webster (D canceled clerical training program for FBI agents)
1. if this program hadnt existed, how would the behavior of the parties have been
different?
2. Gave Ps cost of expenses for moving / traveling, but not for some other things.
c. Restitution: get back whatever you conferred on the other party; compensation for benefit
conferred in a situation where its unfair to allow the other party to not pay (avoid unjust
enrichment). Might try to assert restitution when P made a losing bargain.
i. United States v. Zara Contracting Co. (D breached, Ps want value of work performed and
cost of renting equipment): because it was a losing contract, restitution damages were
higher than expectation damages. Allowed to recover not because of the existing contract,
but because of quantum meruit. When D breached, P says its unfair unless I get
compensated for the benefit conferred. [if contract had been fully performed, P might not
have been able to recover for its extra work]
1. A non-breaching party can recover restitution in excess of expectation damages.
ii. Britton v. Turner (P works for 9 months of 1 year contract, but D wont pay anything): P
in breach can recover in restitution [(benefit conferred to seller)(damages incurred by
seller as a consequence of the breach)]. Allow P to recover because we dont want to
create incentives for employers to make it really hard to finish the work and then they
dont have to pay.
1. A breaching party cannot recover restitution in excess of expectation damages.
2. Restitution based on benefit conferred, not on the cost of conferring the benefit.
d. Specific Performance.
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i. UCC 2-716(1): You can get specific performance if goods sought are (1) unique, or (2)
in other proper circumstances. Usually must also prove that money damages are
inadequate to put P in as good a position had contract been performed.
1. What are other proper circumstances? Can happen when market is thin.
2. Are substitutes available on the market? If yes, specific performance unlikely
because market value more closely approximates the Ps subjective value.
3. High subjective value? (is market value not a great approximation to the buyer?)
If yes, specific performance more likely.
4. If markets are well developed (if everyone values at market value and many
substitute goods), then specific performance is inefficient because of transaction
costs. Also, routine specific performance might put Ps better off than if D had
actually performed (because P can negotiate for high price at which D will not
performand ex ante, P may not have been willing to pay for this option to
negotiate)
ii. Liquidated damages provision does not preclude award of specific performance.
iii. Courts generally reluctant to enforce specific performance for services, but sometimes if
services are non-personal (e.g. maintenance on an airplace).
iv. Klein v. Pepsico, Inc. (P buys jet from D, who backs out)
1. Court found a contract was formed, but specific performance not an appropriate
remedy because P was just going to resell the plane anyway.
v. Sedmark v. Charlies Chevrolet, Inc. (D gets specific limited-edition car made for P, but
then market price goes up and D wants to charge more)
1. Court found contract formed before price increase, awards specific performance
because car couldnt be obtained elsewhere except at consideration expense,
trouble or loss, which cannot be estimated in advance. No other adequate remedy
at law.
e. Consequential damages: not recoverable unless contemplated by the parties. D only liable for Ps
loses if they are generally foreseeable or P tells D about special circumstances in advance.
i. Idiosyncrasies can be identified during bargain; this rule gives incentive to reveal you are
a high-value shipper (so youll get higher damages, although youll have to pay more).
ii. contemplated by means knowledge of the circumstances, not necessarily an explicit
agreement.
iii. can contract around consequential damages.
iv. everyone always gets typical damagesthose arising naturally from the breach, in the
usual course of things.
v. Hadley v. Baxendale (P needs new shaft for mill, D negligently delays shipment of shaft,
P wants lost profits)
1. D didnt know the importance of this particular shaft, and P didnt tell him, so D
cant be responsible for damages from this idiosyncrasy.
2. D does owe damages that would have happened in a normal breach.
f. Punitive Damages. Normally not awarded for contracts.
i. For a particularly nasty breach of contract; D is morally reprehensible (Hibschman
Pontiac (D service shop keeps saying Ps car defects are fixed)).
ii. None for breach of contract; only for independent tort
iii. Middle road: you must prove independent tort, but you dont have to plead a separate
claim of tort (Miller Brewing Co.)
g. Lost Volume Sellers. Davis Chemical Corp v. Diasonics (D contracted to sell medical equipment
to P, P breaches but D counterclaims); Rodriguez v. Learjet (P contracts to buy jet from D, P
breaches, D wants to keep deposit per liquidated damages clause)
i. Must show:
1. Seller had capacity to sell 2
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2. Both sales would have been profitable [this is required because in a perfect
market there would be no lost volume sellers]
3. Seller likely would have made the 2nd sale
ii. Most lost volume sellers dont face perfect competition because they need to show they
can make another profitable sale
iii. Diasonics: typically look to UCC 2-708 for damages. 2-708(1) says typically
damages = contract price market price. But here, that is $0. 2-708(2) says if section
(1) is inadequate, the measure of damages is lost profit.
1. If they didnt want it, buyer could have bought it and resold it instead of
breaching; thus seller would have no lost sale. Problem is that buyer doesnt
usually sell MRI machines.
h. Liquidated Damages. Specify damages in event of breach; used to reduce likelihood of litigation.
i. Courts sometimes have problems knowing sellers actual costs, or may calculate costs
incorrectly, so seller wants liquidated damages.
ii. UCC 2-718. Parties can only contract around reasonable damagesthey cannot
contract for a penalty. (Also, doesnt preclude specific performance award.) Reasonable
damages must be:
1. Related to the harm
2. Difficult to prove the loss
3. Difficult to get adequate remedy
iii. If no actual damages have been sustained, clause may not be enforceable. Also, may not
get damages if willful breach?
iv. Posner thinks penalty clauses are ok as a matter of policyif parties agree on a penalty
clause, courts should enforce it. Price of contract will go up for companies that want
penalty clause, parties likely to know if they might be in efficient breach situation and
will contract accordingly, statements backed by penalty clauses are more credible
v. Lake River Corp. v. Carborundum Co. (P inserted minimum quantity provision as
consideration, but demand falls and D doesnt ship min amount)
1. Illinois rule: provision must be what parties reasonably assume damages would be
from time of contract (i.e. dont have to worry about actual harm; only look at
expected harm).
2. Here, provision not reasonable because P trying to get lost revenue, not just lost
profit.
3. Also, seller was holding onto goods as leverage to try to get paid for services they
had not yet performed; cant do this.
vi. California and Hawaiian Sugar v. Sun Ship (P commissioned ship, but D is late in
completing it)
1. Illinois: does liquidated damages clause represent reasonable amount of damages
anticipated at time of contract?
2. Penn: also looks at actual harm, in addition to anticipated harm. But with
sophisticated commercial parties, more emphasis on anticipated harms. Thus,
even though actual damages were low, clause is still valid.
i. Duty to Mitigate Damages. Damages limited to the amount that P couldnt have avoided with
reasonable effort. Trying to minimize the harm (not necessarily immediately stop once D says
stop). Usually imposed on non-breaching party, not breaching party.
i. Rockingham County v. Luten Bridge (before P builds bridge, D says nevermind, but P
builds anyway)
1. Once contract is repudiated and breached, P should have stopped performing. It
then would have gotten damages for the expenses incurred up to that point, plus
lost profits.
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XI.

2. There might be a few situations in which itd be ok to complete the contractbut

only if socially desirable (e.g. building something that could be sold to another
buyer).
3. P does not have to incur substantial expense / inconvenience to mitigate.
ii. Example: if D breached on $100 contract, but P can buy same thing for $105 from a
different seller, P is limited to damages of $5.
1. Whos in the best position to find the alternate seller
2. Cant let the same seller just increase the contract price. No duty to deal with the
breacher.
3. Depending on situation, buyer might be required to solicit bids once D says he
cant perform
iii. Parker v. 20th Century Fox (D contracts with P actress, but offers her different movie)
1. Damage reduced by any employment P voluntarily accepts, as long as
employment is similar enough, or by any employment that was similar and
available to her but that she turned down.
2. If other offer is inferior, can still collect full expectation damages
3. Court here being sensitive to the subjective value of the contract; says second
movie is sufficiently different [dissent says this is a jury question]
RELATIONAL CONTRACTS (output, requirements, exclusive dealings). Long-term contracts,
usually drafted in deliberately flexible (perhaps vague?) way. Tough to anticipate future events.
a. Output (seller determines quantity) / Requirements (buyer determines quantity)
i. Why enter into an agreement like this? Relationship-specific investmentbefore a
contract, party is indifferent to customers, but once it is in a relationship with one
customer it becomes costly to switch to another. Making high-cost decisions that are
costly to undue. If no contract, party who didnt make the expensive choice could exploit
the one who did.
ii. UCC 2-306(1)
1. a requirements contract is not too vague or indefinite to be unenforceable and
does not lack consideration.
2. (a) The amount a buyer can request cannot be unreasonably disproportionate to
any stated estimate or normal prior quantity, and (b) the buyer must be acting in
good faith
a. But if buyer asks for more than reasonable amount, seller cant just
completely back outthey still have to deliver the reasonable amount
b. Also, this doesnt apply to cases where demand is lower, as long as buyer
still acting in good faith (Empire Gas)
iii. Eastern Air Lines v. Gulf Oil (D seller supplies jet fuel to P buyer)
1. Entered long-term contract trying to approximate market price of oil, but the
reference price / indicator turned out not to be a good proxy for the market price.
(it ends up being significantly lower)
2. D says P acting in bad faith by fuel freighting; but D knew about this before, so
court disagrees. Maybe D should have been explicit about saying we dont care
about fuel freighting now, but were not waiving any claim.
3. Court says P didnt breach contract.
iv. Empire Gas v. American Bakeries (D buyer agrees to buy 300 converters from P, but then
doesnt by any)
1. 2-306(1)s reasonableness requirement doesnt apply to cases where the demand
is lower than the estimate; its to prevent the buyer from asking for too much.
2. But the acting in good faith requirement does apply when demand is lower than
the estimate; buyer must present some good faith reason they want zero (such as
commercially unfeasible).
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3. Since D gave no reason for purchasing 0, court found bad faith.

b. Exclusive Dealings Contracts. whatever you do, you are going to use me for this specific
operation. Sellers more vulnerable under exclusive dealings contracts than under output /
requirement contracts.
i. UCC 2-306(2): obligations of best efforts in exclusive dealings contract
1. The clause says best efforts to promote sales, not profitsthis may not align
with economic incentives
2. Phrased like this because sales and revenues are easier to monitor than profits;
still, might be better to interpret clause as requiring best efforts to profit maximize
ii. Wood v. Lucy, Lady Duff-Gordon (P has exclusive rights to use Ds endorsement, but D
endorsed other products)
1. Simply by entering into an exclusive dealings contract, P undertook a promise to
use reasonable efforts to market and sell Ds goods. Thus, there was
consideration.
2. Parties clearly intended for there to be a deal here, even if they didnt explicitly
say everything. Both P and D have duties.
iii. Bloor v. Falstaff Brewing Corp. (D bought company from P, agreed to sell its beer)
1. Put the royalty into the deal in order to spread some of the risk back to the seller
if it turns out the company sucks, then both buyer and seller will feel the pain
2. One problem: the buyer wants to sell more of the other beer because he doesnt
have to pay the royalty. Also, business is not about maximizing revenue or sales,
but about maximizing profit across whole business.
a. But the best efforts clause says seller has to go beyond point of profitmaximizing because its phrased in terms of max sales. D must treat Ps
beer like its own, and maybe even do more.
b. D could have gotten out of it if they could show they would go bankrupt.
3. D didnt act in good faith.
XII. REGULATING BARGAINING PROCESS
a. Usually, we presuppose parties act voluntarily and with full info and ability to process the info
b. Certain types of people dont have sufficient ability to process info, so cant agree to deals that
make them better off
i. Infants: enter into bargains that are voidable but not void; can perform and require the
other party to perform as well, or can rescind. Other party has to ask if infant.
ii. Typically doesnt apply to necessities (e.g. buying airport food because of flight delay)
iii. Minors: parties can get restitution from minor, but cant hold minor to contract
iv. Mental infirmities: same as infant, except that infirmity has to be sufficiently clear to the
other party for the contract to be voidable
v. Drunkenness (incapacity): see Lucy v. Zehmer
c. Consider duress, fraud, nondisclosure / misrepresentation, public policy limitations (e.g.
illegality).
XIII. DURESS
a. Need: threat, wrongful, for the purpose of influencing other party / keeping them from asserting
their rights, induces other party (i.e. overcomes their will)
i. Threat must be wrongful, not just a hard bargain
1. Threat doesnt have to be illegal; it can be morally / equitably wrong
2. This can depend on the circumstanceslook for obviously malicious and morally
wrongful conduct
ii. Threat must be done for the purpose of influencing the other partys behavior AND must
overcome their will
iii. Threat must cause other party to do something it otherwise would not have done (e.g.
enter contract, breach contract) to its detriment. P can be buyer or seller.
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b. Rest. 175: contract voidable if (a) improper threat (b) with no reasonable alternative. [i.e. an
improper threat that reasonable induces assent]
c. Wolf v. Marlton Corp. (P contracts with D to build home, but P doesnt want to close, D closes
house and P threatens to sell to undesirable purchaser)
i. Threat doesnt have to be a legal wrong to constitute duress. Just must be wrongful
pressure. Nature of threat doesnt matter; its about state of mind induced in victim.
ii. Ps threat was legal, but wrongful because it was done for malicious and unconscionable
motives.
iii. Duress can be used as on excuse for breach, or as excuse for entering into the contract.
d. Austin Instrument v. Loral Corp. (P threatens to stop delivering on existing contract unless D
pays more and awards P a second contract)
i. Navy contracts with D, who subcontracts with P. P has performed, but D refuses to pay
because of economic duress.
ii. Economic duressthreats that are wrongful, but not criminal or tortious, and designed to
interfere with profitability of business. Immediate possession of needful goods is
threatened. Cant obtain goods from any source.
1. Here, expectation damages wouldnt be enough to make D whole (because they
might lose future govt contracts, and threat of govts liquidated damages clause),
so D didnt breach.
2. P knew this and exploited itthats what makes this a threat
iii. Have to find line between a hard bargain (e.g. if 3rd party had charged a high price to bail
out D) and economic duress (like here, because P created the problem they are trying to
exploit)
XIV. FRAUD
a. 5 elements
i. untrue [statement] [omission]
ii. [material] fact
1. for a rescission claim, statement doesnt have to be material
iii. intentionally misleading
1. as compared to misrepresentation, where material fact doesnt have to be
intentionally misleading
iv. reliance
1. must be aware of the untrue statement, must believe the statement, and statement
must be a factor in willingness to make a deal
v. caused loss (this deal is less good than it should have been)
1. for misrepresentation (asking for rescission), dont have to specify an amount
b. deals with things said during negotiations
c. Spiess v. Brandt (Ps buy resort, D tells them they can make good money out of it)
i. Buyer claiming misrepresentation (or fraud), saying they relied on untrue material fact
that caused them to enter into contract (make good money, pay future payments on
contract with it).
ii. Seeking to rescind the contract. If they were seeking expectation remedy, theyd be
limited to rescission unless it was an intentional statement.
iii. Court finds in favor of P based on elements above. Also because Ps were young,
inexperienced.
iv. First dissent: buyers didnt rely; they bought almost at the price they proposedit didnt
affect their willingness to enter into the deal.
v. Second dissent: agrees with first dissent. Furthermore, not sure statement was untrue, and
doesnt think there was a loss
d. Danann Realty Corp. v. Harris (D sells a lease to P, who says he relied on mispresentation)
i. Buyer says seller misrepresented operating expenses, but there is a merger clause.
15 of 24

XV.

1. If fraudulent representation induced party to agree to merger clause, then its no

good.
2. D agrees that general merger clause would be subject to rescission, but here we
specifically said parties were only relying on representations about the operating
expenses made in this document.
3. Purpose of merger clause is to pre-empt someone who is trying to get out of the
contract.
ii. Difference between this document contains all of the promises we have made and
these are the only representations on which we are relying.
iii. Majority rules for P; dissent worried that there might not be any language strong enough
to allow dismissal of a complaint for fraud.
e. Merit Music Service v. Sonneborn (P sells pinball machine, includes minimum guarantee)
i. Duty to readnot a big fraud shield that allows people to sneak in all sorts of things. But,
because P has burden of proof, he has no evidence for fraud claim because he admitted he
didnt read the contract.
ii. P says D mislead P into thinking terms of deal were X, whereas the document said the
terms were Y
1. The disputed terms were in a handwritten clause. Trial court thinks they were
inserted after the fact, but appeals court rules in favor of D because P didnt even
flip through the document
2. P has no evidence at all that clause wasnt written before they signed it because
they admitted they didnt read it
DISCLOSURE AND CONCEALMENT
a. When silence is equivalent to misrepresentation or fraud
b. Things to consider:
i. One party has private information?
ii. Nondisclosure of something that goes to safety of a good?
iii. Concealment (actions to make it harder for person to discover bad news)?
iv. Pre-existing relationship of trust and confidence between the parties?
c. Look for specific areas where courts have said there is a duty to disclose
i. Obde v. Schlemeyer (concealment of termite infestation): when nondisclosure could
result in significant damage to life, property, etc. If thing sold is unsafe, but not obviously
unsafe, then duty to disclose.
ii. Reed v. King (D bought house in which someone had been murdered): any material fact
that buyer cant easily discover that affects the value of the real estate must be disclosed
[this is relatively broad]
iii. Restatement: where non-disclosure is equivalent to bad faith
iv. Sometimes legislatures step in and make duties (e.g. real estate, cars, securities)
d. Sellers normally have incentives to find out the value of the things they own (e.g. homeowner
would want to know and find out about termites)
e. If seller didnt know the info, then it would just be misrepresentation, and there might not be a
duty to disclose. Still, buyer could protect himself by getting a warranty.
i. Warranty makes a promise that some fact is true / will remain true for some period of
time, and you have a cause of action for both rescission and damages, even if seller didnt
act intentionally.
f. Duty for buyer to disclose positive information? Courts dont usually require it.
i. Want to protect investments in obtaining information. If buyers have to disclose, there is
no incentive for buyers to collect favorable info, to unlock the hidden value.
ii. When buyer has positive information, he should either buy the good or convince the
seller to buy the info.
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iii. Perhaps seller could always say do you know anything that makes this worth more than
I know? Unclear if lying to protect ones investment in info counts as fraud (e.g. Walt
Disney in NOVA)
g. If a statement of fact is true when made, but becomes false at the time of contracting, then courts
impose a duty to disclose
XVI. PUBLIC POLICY LIMITATIONS
a. Illegalitycourts wont enforce contracts that some other body of law made an offence
b. Watts v. Malatesta (P gambler wants to recover from D bookie under NY Penal Law)
i. Purpose of law:
1. Majority: law wont step in to help the bookie, but maybe to help the gambler.
2. Dissent: court shouldnt intervene; let the status quo stand.
ii. Common-law background as applied to statute
1. Majority: common law wont engage to help person engaged in an illegal
business.
2. Dissent: common law wont let anyone recover in an illegal action. Most courts
should do is restore parties to pre-contractual position.
iii. Policy
1. Majority: best way to discourage gambling is to discourage the business (i.e.
supply-side)
2. Dissent: we should deter everyone who is gambling (i.e. include demand-side)
c. In re Baby M
i. Court gives two reasons not to enforce the contract: illegality and public policy.
ii. Illegality: performing the contract would violate some specific statute
1. Contract was carefully structured to avoid the statute that makes baby-selling /
money for adoption illegal
2. But court ignores form terms of agreement; in substance, this is the same as
paying someone to adopt
iii. Public policy: performing the contract would lead to harms that would be inconsistent
with the public policy of the state, as expressed by statute and case law
1. In the case of a dispute between biological parents, must look at best interests of
child, which are determined by family court
2. Worry that introducing a profit motive (found in surrogacy but not adoption) gives
us worse results (morally inferior outcomes)
XVII. STATUTE OF FRAUDS
a. Background rule: existence of contract is usually established the way any other factual dispute is
decided in litigation.
b. Statute of frauds is an exception: for some types of contracts, P is not permitted to put the
question of its existence to the jury unless there is some evidence of writing from the D that
indicates the existence of the contract. [statute of frauds is usually asserted as a defense]
i. Purpose is to avoid putting Ds to risk of suit over certain types of contracts (usually for
relatively high stakes, and not unreasonable to assume people will normally write about
it) by not allowing P to just come in and claim it. Idea is to eliminate important contract
claims that have weak evidence.
ii. Can vary by jurisdiction, but usually include real estate, long-term (1+ years) contracts,
sale of goods over a particular amount of value [UCC]
iii. Doesnt have to be a written contract, just some written evidence of the existence of a
contract [and NOT written evidence of just an offer]
c. But there are exceptions to the exception (and other ways to work around the statute)
i. Partial performance: by P if contract has been partially performed, the sense that P is just
making something up is reduced. Also, dont want D to trick P into performing and then
not pay
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1. Actions taken to get into a position to perform or to decide whether to be in a

contract arent considered partial performance
2. Only look at Ps partial performance; Ds partial performance doesnt matter, just
look to see if D accepted it (because then we assume D believes theres a deal too)
3. Still questions as to what counts as partial performance, and how much of it we
need
ii. Decide statute of frauds doesnt apply at all because contract doesnt fit within the statute
(e.g. trial court in McIntosh)
iii. Be generous in what constitutes a writing, signed by party to be charged to satisfy the
statute
iv. Promissory estoppel / reliance. For reliance, the action taken need not be the thing
bargained for (e.g. moving to Hawaii in McIntosh is not partial performance, but it is
reliance)
d. McIntosh v. Murphy (D owner interviews prospective managers for a dealership, P flies to
Hawaii, fired after 2 months)
i. P agrees that he was supposed to be employed for a year. Trial court tries to say its just
under a year, but appellate court says no contract under statute of frauds
ii. Instead, court relies on estoppel to dispose of the argument that there was never a
contract. Leaves question of whether contract was at-will or for a year up to the jury
iii. If P had letter from D saying Ill employ you for $X, then P would be able to introduce
oral testimony about length of contract term (because letter counts as writing and its not
completely integrated)
e. Schwedes v. Romain (Ds offer to sell Montana land to Ps, who accept but dont sign anything,
then D sells to someone else)
i. P says they relied on promise; but court says no writing, no promise
ii. Statute of frauds would be meaningless if all actions taken in anticipation that there will
be a contract constituted reliance (see Coley v. Lang)
1. Actions taken to get into a position to perform or to decide whether to be in a
contract arent considered partial performance
iii. Court also doesnt think estoppel should be used to get around statute of frauds
iv. Statute of frauds is not satisfied if written document is only evidence of an offer.
v. Shady lawyer: lawyer knew that if buyer had sent a check, that would count as partial
performance
f. Monetti v. Anchor Hocking Corp. (P says they have contract for D to be distributor of its food for
10 years, P turns over some assets to D but not goods)
i. Difference between general and UCC 2-201 statutes of fraud
1. General statute applies to real estate, contracts > 1 year, etc. UCC 2-201 statute
of frauds applies to goods over a certain amount
2. Writing
a. UCC 2-201: writing must indicate evidence of contract
b. General: writing must indicate evidence of contract, AND include terms of
the contract
3. If Partial Performance
a. UCC 2-201: the contract is good only up to the amount of part
performance
b. General: statute of frauds doesnt apply at all [doesnt mean P wins, just
that he can present evidence to the jury]
ii. Writing: 2 memos, one written before alleged contract, one after
1. One before doesnt satisfy any statute because its like a written offer / prep /
negotiation (see Schwedes)
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2. One after doesnt satisfy general statute because it doesnt talk about the terms,
but it would satisfy UCCs requirement.
iii. Partial Performance: P transferred assets, but not goods
1. Under general statute, part performance is ok to evidence contract
2. Under UCC, part performance isnt enough because P hasnt shipped any goods
yet
iv. So under either general or UCC, there is something sufficient either to satisfy statute or
get to jury. Which to use? Predominant purpose test: what is contract mostly for
(conveyance of assets, sale of goods, services of distributor)?
XVIII. PAROL EVIDENCE RULE IDENTIFYING TERMS OF AGREEMENT
a. Helps determine the boundary between statements made that become part of the deal, and those
that do not [see casebook overview pp. 542-543]
b. Parol evidence rule is one of law, not evidence: court will still hear that evidence and decide if
its in the contractcourt as a matter of law says these terms are part of contract, these are not
jury doesnt get to decide whats a part of the contract as a matter of fact
c. Parol evidence rule: if there is a writing that is integrated (heres what weve agreed to),
court must determine if the integration is partial or complete.
i. Integration? (a document that purports to be the agreement of the partieseither the
actual agreement or a memorial of the agreement) [if no, then anything goes]
ii. Partial or complete integration?
1. If partial, can use extrinsic evidence to interpret or supplement, but cant
contradict terms
2. If complete, can only use evidence to interpret; no supplementing or contradicting
iii. What forms of proof can we look at to answer partial / complete question? What if
document has a merger clause?
1. 4-corner test is strict
2. Common law: most use natural omission testwould parties normally have
agreed on it and put it in writing. Evidence of additional terms only admissible if
parties naturally would have omitted those terms in the final writing.
3. UCC 2-202: even more liberal; raises bar for proving an agreement is
integrated. For sales of goods, we only exclude extrinsic evidence if parties
certainly would have included it but did not.
4. Merger clause is an attempt to tell trier of fact that there are no side deals
(although it says nothing about future deals entered into after contract is signed)
5. Could get out of merger clause if you could show duress, drafting mistake,
misrepresentation, or fraud caused you to agree to merger clause.
d. Not much debate over parol evidence rules expression, but many differences in its application,
usually depending on whether court looks to objective or subjective intent
e. Sometimes, court might allow extrinsic evidence if they see something as two separate deals
(e.g. contract about sale of farm wouldnt be expected to include deal about sale of horse)
f. Allegation of fraud and parol evidence rule: mere allegation of fraud doesnt always allow in
extrinsic evidence
i. However, there are some issues that parol evidence doesnt deal with because you cant
contract around them (e.g. duress, illegality)
g. Mitchell v. Lath (P bought farm, says D orally agreed to remove icehouse on land across the
street)
i. Evidence about removal of icehouse is intended to supplement the contract; will only be
allowed if agreement is partially integrated
ii. No merger clause, so ask if reasonable person conveying real estate would have included
the icehouse in this written deal; is it naturally a part of the same deal.
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1. If, on its face, it seems like the writing contains everything that is relevant (i.e. is
a complete integration), then anything that was not contained but would naturally
have been is not a part of the deal.
2. If parties normally wouldnt expect it to be in writing, then we can let in the
evidence about it.
iii. Court finds in favor of D. Decides the writing is a complete integrationdocument has
everything you need to convey real estateso no extrinsic evidence that contradicts or
supplements is allowed. Also, parties would have naturally included something about the
icehouse in this document if they had a deal about it.
h. Masterson v. Sine (D wants to bring in evidence that option to purchase farm was to be kept in
the family, and thus couldnt be transferred)
i. P brings in evidence to interpret how to calculate price of the option; D wants to bring in
evidence that says parties intended the option to be personal to the seller, so it cannot be
transferred to the P.
ii. Appeals court allows both. Ps evidence is interpretation, and Ds evidence is
supplementing, and this contract is partially integrated.
1. Not determined by 4-corner test, but by naturally testwould parties normally
have agreed on it and put it in writing
2. UCC would be even more liberal; it says we only exclude extrinsic evidence if
parties certainly would have included it but did not
iii. Nothing to indicate that D certainly would have included it, and might naturally be in a
separate document, so court allows evidence.
iv. Dissent: allowing this evidence contradicts the contract, because options contracts
contain no ambiguous terms (default is that options are assignable).
i. UAW-GM Human Resource Center v. KSL Recreation Corp. (P contracts told hold convention in
hotel)
i. P wants union employees at hotel, but D new owner fired them. There was nothing in the
document that allows P to not pay just because no union employees. P wants to bring in
extrinsic evidence to say there was an additional agreement about union employees
ii. Should parol evidence rule take out this side deal?
1. D: document says it is a complete integration.
2. P: merger clause was just a boilerplate clause, we both didnt actually agree to it;
we cared a lot about unions, the hotel knew we did, so they could not have
possibly thought we wouldnt include this as part of the dealmerger clause isnt
accurate
a. But new owner can only look at document, and he is completely
reasonable in his view that there is no side deal
3. P: it was fraud for D not to tell us that they were negotiating to sell the hotel and
that if they did it might not be unionized.
a. But no duty to disclose: didnt make it unsafe, no fiduciary relationship of
trust beforehand, D seems to be acting in good faith. Also these are
sophisticated parties represented by counsel.
b. Furthermore, since merger clause says parties only relying on info in this
document, cant bring a fraud claim that relates to an issue not within the
document itself
iii. If you accept Ps arguments, you dont care about objective intentconcerned more with
what the parties actually thought they were agreeing to
iv. One worry: if you allow any of Ps arguments, then is there ever a time when a merger
clause could work?
1. Majority: here, fraud claim can only relate to the operation of the merger clause
itself (i.e. D snuck in the merger clause).
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2. Dissent: fraud defeats all claims. Shouldnt allow the writing to prove its own
completeness and accuracy.
v. Possible solutions:
1. maybe P could have asked D if there was anything in the document that negates
the side deal? (but this is kind of like asking for legal advice from D; but could
also be simply a factual question with unambiguous answer)
2. if they had discussed the union deal after the first contract, P could say that the
first contract has a merger clause, but then a week later we had an oral agreement
to amend the deal
XIX. INTERPRETATION OF TERMS
a. Technically different from parol evidence rule because its not supplementing or contradicting,
but this can get loose.
b. Remember policy notions underlying parol evidence rule: prevent people who had a contract and
are disappointed from later claiming that they had a different agreement that they can get out of
c. Can always use extrinsic evidence to interpret an ambiguous term. Question is, how to determine
if the term is ambiguous?
i. Hyperformal view: 4-corners rule. Ambiguity of term should be apparent from the
document itself.
ii. Common law: plain meaning rule. Interpret terms according to their plain meaning, even
if it can be proved parties intended the terms to have a different meaning.
iii. But, if terms have no plain meaning, most courts allow ambiguity in application, in
context, to count for allowing extrinsic evidence.
iv. Restatement 212 endorses subjective, context-sensitive interpretive standard instead of
plain meaning rule.
v. UCC 2-202 also rejects plain meaning rule, says all interpretation must be taken into
context.
d. Process
i. See if contract term is ambiguous [might draw lines differently here]
ii. If ambiguous, then trying to interpret the term. Can use objective (dictionary, contract,
etc.) along scale to subjective (negotiations, prior dealingsand these can be objective
[reasonable party] or subjective [what they actually meant])
iii. There is hierarchy in determining what the parties meantevidence closer to the actual
contract is more persuasive
e. In re Sopers Estate (Soper has 2 wives who dont know about each other, and life insurance
policy says wife)
i. Subjective vs. objective: Soper intended Gertrude, but contract says wife and Adeline is
his only legal wife
ii. D: P is trying to contradict the word wife, not interpret it. Shouldnt permit testimony on
it because the term has a clear meaning
iii. P: you can always bring in extrinsic evidence to interpret an ambiguous term.
iv. Court says ambiguity is found in application of the term to this context / situation, so we
should permit evidence to interpret it. (Dissent says wife means legal wife, the end.)
f. Pacific Gas & Electric Co. v. GW Thomas Drayage
i. California, says that language is always ambiguous, must look to context to determine
parties intent. This basically does away with the parol evidence rule; most courts dont
agree.
g. Peerless Ship case
i. court said there was no contract because the parties meant two different thingsthere
was no meeting of the minds, so no contract
h. Frigaliment Importing Co. v. BNS International Sales Corp. (dispute over whether chicken
means broilers or others)
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XX.

i. Like in Peerless, the parties meant different things. But instead of no contract, court just
says theres not a contract on Ps terms. Could be because:
1. There is an objective view of what chicken means, and thats the Ds view
2. There really is no contract because no meeting of the minds
ii. Either way, P buyer didnt meet burden of persuasion that chicken in contract meant the
narrow sensei.e., that there was a contract on the buyers termsso he cant recover
iii. Process / hierarchy court goes through to determine what the parties meant:
1. The term chicken is ambiguous in context
2. Look at negotiations of parties
3. Trade usage (what people in this industry mean by this word)
4. Department of Agriculture regs
5. Economics of the transaction
iv. Closer the evidence gets to contract, the more weight it is given (i.e. glossary in the
contract, negotiations for this contract, prior dealings if not this contract, and so on).
1. Things that passed between the parties as to the meaning of the term
2. Other parties in similar situations
3. Economics (but comes in last because sometimes sellers give buyers good deals to
get / keep customers)
MISTAKE AND EXCUSE
a. All have to do with a change in circumstances that makes enforcing the contract a really terrible
deal for one of the parties. Mistake is when an endogenous risk materializes; excuse is when an
exogenous risk materializes.
b. With either, still enforce express terms, but have to determine how to allocate risks not expressly
mentioned (in a sense, they are interpretive rules).
c. Mistake
i. Can try to get out of contract altogether, or revise and reform contract.
ii. Damages: usually rescission of contract or reliance damages.
iii. Unilateral vs. mutual mistake. When mistake is mutual, there is better chance that courts
will say no contract at all.
1. Incentive to acquire information: if we rescind a contract where one party has
superior info (i.e. unilateral mistake), might not have as much incentive to get that
info in the future
2. Different appetite for risk: if there is a difference in risk preferences (e.g. both are
risk adverse, but in different amounts), there could be room for bargaining, even
with the same info. We want parties more willing to take risk to take it on;
rescission might undercut that initial allocation of risk
iv. Restatement 152: mutual mistake
1. Contract is voidable if, at time of contract, mutual mistake as to a basic
assumption has a material effect
2. Unless party bears the risk of the mistake under Restatement 154, which is
when:
a. Risk is allocated to that party by (implicit or explicit) agreement;
b. Party is aware of his limited knowledge but treats knowledge as sufficient;
or
c. Risk is allocated by court because it is reasonable to do so (e.g. because
of superior info, insure against the consequences, etc.)
v. Restatement 153: unilateral mistake
1. Same thing as 152, plus additional requirements:
a. Effect of mistake is such that enforcement is unconscionable;
b. Other party knew about the mistake; or
c. Other partys fault caused the mistake
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2. This rule for unilateral mistakes is more restrictive than for mutual mistakes
because of info incentives
vi. Sherwood v. Walker (contract about cow that turned out not to be barren)
1. Majority thinks this is a mutual mistake about whether or not cow could breed.
Dissent thinks this is a unilateral mistake on behalf of the seller (i.e. buyer thought
there was some chance cow might not be barren).
2. If both the buyer and seller thought there was some chance the cow might breed,
then it seems like they allocated risk to the buyer, and dissent is right: we
shouldnt allow rescission.
3. Majority: a mutual mistake must change the substance (essence) of the thing; if
the only difference is in quality, then the contract is still ok. [cant just affect the
price; must be something important]
4. Court finds in favor of P seller, allows rescission of contract.
5. How would parties have allocated the risk? Price might give a clue, might look to
see who can more easily insure against risk, if one is in better position to identify
risk, etc.
vii. Anderson Bros. Corp. v. OMeara (D sold P a dredge)
1. Unilateral mistake. D made mistake about what P would use it for, but P made
mistake about what it could be used for.
2. No damages awarded because mistaken party didnt exercise due diligence in
ascertaining readily accessible facts before he entered into the contract.
viii. Policy: allocate risk to party in best position to identify the mistake and correct it.
ix. A professional seller who knowingly assumes the risk of mistake is not permitted to
rescind the contract when the known mistake adversely affects him.
d. Commercial Impracticability
i. Some party made dramatically worse off (objectively) because some intervening event
causes a huge increase in cost (a mere increase in price is not enough). Are they
allowed to get out of the contract?
ii. Must show: (1) occurrence of unexpected event that makes performance impossible /
impracticable, (2) even occurred without fault of party seeking relief, (3) nonoccurrence
of event was a basic assumption of the contract, (4) risks not allocated the party seeking
relief
iii. Transatlantic Financing Corp. v. United States (P wants money because it had to reroute
when Suez Canal closed)
1. Court uses three-part test to determine if shipper is excused from contract:
a. Unexpected outcome [here, yes]
b. Risk not allocated by agreement or custom
i. if Stees approach (highly formalistic), might say shipper took on
absolute obligation. But here court only treats it as piece of
evidence. Also, shipping rates had risen, so maybe price reflected
allocation
ii. if one party could more easily insure / foresee risk, then maybe
they should bear it
c. Commercial impracticability (performance is impracticable)
i. Not just whether its physically impossible, but still must be
dramatic increase [here, 30% is not enough]
2. If it had been impracticable, court thinks quantum meruit should be the
appropriate remedy
a. But what would damages be? Perhaps the value to the buyer didnt
increase even though it cost much more than expected to perform; parties
would fight over value to buyer or cost of shipping.
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3. Perhaps they could have turned around and said its too hard to perform, and be
excused from the contract
iv. Eastern Air Lines v. Gulf Oil Corp.
1. Mere price increase is not enough; it must be dramatic, and perhaps crippling. Not
clear what Gulfs out of pocket expenses actually are
e. Frustration of Purpose
i. Benefits of performance have gone down a lot because of some unanticipated intervening
event. Example: buyer of electronics parts when tech advancement makes the finished
product obsolete.
ii. Still consider: unanticipated event, unallocated risk, unfair to enforce the contract
1. anticipate more closely means should the court provide a gap-filling rule that
mimics what the parties would have agreed to or is the chance that parties
thought about this high enough that courts shouldnt step in
iii. Must have: (1) both parties understand purpose of contract, and that failure of the purpose
makes it almost totally valueless to party seeking relief; (2) unexpected event
substantially frustrated partys purpose; (3) non-occurrence of event was basic
assumption of contract for both parties; (4) party not at fault; (5) party didnt assume the
risk.
iv. Damages: can be excused from contract, but must pay for any benefit you received
already.
v. Taylor v. Caldwell (Ds wooden music hall burned down)
1. if contracts performance depends on the existence of something no longer in
existence, then both parties are excused from performing.
2. Things continued existence is implied condition in the contract.
vi. Krell v. Henry (D wanted to rent apartment to watch Kings coronation, but King got sick
and it was canceled)
1. Court discussed Taylor v. Caldwell, uses idea of implied condition in the contract
(which maps onto the idea that risk was allocated).
2. Parties didnt explicitly allocate the risks, but court believes that implicitly the
parties understood that the obligation to pay was conditioned on coronation
occurring.
3. and even if not an implicit allocation, court thinks the parties would have
bargained for it this way had the parties actually thought about it.

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