ContractsOutline

Professor Pike

I.

Introduction to Contract Law

A. The Three Dimensions of Law
i. Doctrine: rules and principles of law by which judges justify their
decisions
ii. Facts: the actual application of doctrine by courts and its effects on
contracting parties and the public at large
iii. Theory: the rationales or reasons for legal doctrine
1. Principal source of theory is the common sense of lawyers
and judges, but these intuitions are implicitly or explicitly
informed by other disciplines such as history, economics, or
philosophy
2. Tells us what a new rule should be when none exists or tells us
which rule should prevail in case of conflict
B. The Restatement Code
i. A product of the American Law Institute (ALI), a private nonprofit
select group of practicing lawyers, judges, and law professors
1. Stated purpose is to address uncertainty in the law through a
restatement of basic legal subjects that would tell judges and
lawyers what the law is.
ii. Although supposed to be a summary of law, the Restatement
inevitably helps to reshape law being summarized
iii. Sometimes the Restatement intentionally tries to reform the law in
response to complaints by legal scholars or practitioners
iv. something less than a code and something more than a treatise.
It will be invested with unique authority, not to command, but to
persuade ~ S.C.J. Benjamin Cardozo
C. Uniform Commercial Code
i. Only deals with the sale of goods
1. Lease of goods, sale of property and an employment services
contract are still regulated by the common law of the state
2. In cases where there is a mixed transaction of goods and
services, courts generally apply whatever is the dominant
service (J.O. Hooker, 1996 (cabinets))
ii. A joint product of the ALI and the National Conference of
Commissioners on Uniform State Laws (NCCUSL) and a product of
the 19th century effort to make uniform the laws of the 50 states
1. NCCUSL describes itself as providing states with non-partisan,
well-conceived and well-drafted legislation that brings clarity
and stability to critical areas of law. NCCUSLs work supports
the federal system and facilitates the movement of individuals
and the business of organizations with rules that are
consistent from state to state
iii. The conference has drafted more than 200 uniform laws
iv. Not adopted by Louisiana, which still uses a form of the Napoleonic
Code
D.
Authoritative Weight of the Restatement and UCC

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i. UCC is a statute adopted by the legislatures of 49 states and is

binding on courts., it supersedes any common law rules that are
inconsistent with its provisions
ii. The Restatement is not binding, but it is good authority and is
widely respected because of those who drafted it. Courts often
adopt its provisions as law or use it when deciding what doctrine to
adopt.
1. Sometimes courts adopted provisions of the first Restatement
and have not revisited the issue since the second was
published
E. Contract Defined
i. Restate. 2d 1: A contract is a promise or a set of promises for the
breach of which the law gives a remedy, pr the performance of
which the law in some way recognizes as a duty
F. Promise; Promisor; Promisee; Beneficiary
i. R.2s 2: (1) a promise is a manifestation of intention to act or refrain
from acting in a specific was, so made as to justify a promisee in
understanding that a commitment has been made (2) The person
manifesting the intention is the promisor (3) The person to whom
the manifestation is addressed is the promisee (4) Where
performance will benefit a person other than the promisee, that
person is a beneficiary
G. Agreement defined; Bargain defined
i. R.2s 3: An agreement is a manifestation of mutual assent on the
part of two or more persons. A bargain is an agreement to exchange
promises or to exchange a promise for a performance or to
exchange performances.
H. How a promise may be made
i. R.2s 4: A promise may be stated in words either oral or written, or
may be inferred wholly or partly from conduct.
I. Elements of an action in contract
i. Mutual assent
ii. Enforceability
iii. Breach
J. Elements of a contract
i. Parties with capacity
ii. Manifested assent
iii. Consideratio
K. INTRODUCTION TO DAMAGE INTERESTS
1. Occasionally a court grants a promisee specific relief by ordering the
promisor to perform the promise, but this is the exception
2. Usually a court grants the promisee substitutional relief by awarding a
sum of money intended to compensate for the harm to the promisees
interests caused by the promisors failure to perform the contract
i. The Three Damage Interests

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1. Expectation Interests: court attempts to put the promisee

in the position in which they would have been in if the
contract had been fulfilled
a. This is the most common damage award
b. Hawkins v. McGee, 1929 (hairy hand): difference
between perfect hand promised and hand actually
received
c. R.2d 347: Subject to limitations stated in 350-353,
the injured party has a right to damages based on his
expectation interest as measured by (a) loss in the
value to him of the other partys performance caused by
its failure or deficiency, plus (b) any other loss, including
incidental or consequential loss, caused by the breach,
less (c) any cost or other loss that he has avoided by
not having to perform
d. (J.O. Hooker, 1996 (cabinets))
2. Reliance: When the promisee acts, to their detriment, on the
reliance that the promisor will fulfill their promise, the court
attempts to put the promisee back in the position they would
have been in had the promise not been made (Sullivan v.
OConnor, 1973 (botched nose job))
3. Restitution: Court awards the promisee a sum of money
from the promisor in an attempt to put the promisor back in
the position they would have been in had the promise not
been made. Usually used when a promisee has already
conferred a benefit to the promisor.
ii. Statutory Rules of Construction: When there is a conflict between a
statute dealing generally with a subject and another statute dealing
specifically with a certain phase of it, the specific statute controls
unless it appears that the legislature intended to make the act
controlling (Tongish v. Thomas, 1992 (seeds))
1. UCC 2-712: Cover; Buyers procurement of Substitute
Goods (1) After a breach within the preceding section the
buyer may cover by making in good faith and without
unreasonable delay any reasonable purchase of or contract to
purchase goods in substitution for those due from the seller
(2) The buyer may recover from the seller as damages the
difference between the cost of cover and the contract price
together with any incidental or consequential damages as
hereinafter defined, but less expenses saved in consequence
of the sellers breach (3) failure of the buyer to effect cover
within the Section does not bar him from any other remed
2. UCC 2-713: Buyers Damages for Non-Delivery or Repudiation
- (1) Subject to the provisions of this Article (2-723) with
respect to proof of market price, the measure of damages for
non-delivery or repudiation by the seller is the difference
between the market price at the time when the buyer learned

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II.

of the breach and the contract price together with any

incidental and consequential damages provided in this Article
(2-715), but less expenses saved in consequence of the
sellers breach. (2) Market price is to be determined as of the
place for the tender or, in cases of rejection after arrival or
revocation of acceptance, as of the place of arrival.
a. Despite this being a bit of a windfall for the , it
encourages people/farmers not to breach contracts
Reaching an Agreement
A.
THE OBJECTIVE THEORY OF ASSENT
i. Formation of a contract requires two basic elements:
1. the mutual assent of the parties
2. and some showing that this assent is the kind of assent that
the law will enforce
ii. Assent cannot be judged by what the unmanifested intentions of the
contracting parties was at the time of formation, but rather what an
objective reasonable third party would understand by listening or
seeing the agreement take place (Embry v. Hargadine, 1907
(renewal of employment contract))
iii. The mental assent of the parties is not requisite for the formation of
a contract. If the words or other acts of one of the parties have but
one reasonable meaning, his undisclosed intention is immaterial
except when an unreasonable meaning, which he attaches to his
manifestations, is known to the other party. (Lucy v. Zehmer, 1954
(joke selling of farm))
1. R.2d 17 Requirement of a Bargain: Except as stated in
Subsection (2), the formation of a contract requires a
bargain in which there is manifestation of mutual assent to
the exchange and a consideration. (2) Whether or not there
is a bargain a contract may be formed under special rules
applicable to formal contracts or under the rules stated in
82-94.
2. 18 Manifestation of Mutual Assent: Manifestation of mutual
assent to an exchange requires that each party either make
a promise or begin or render a performance.
3. 19 Conduct as Manifestation of Assent: (1) The
manifestation of assent may be made wholly or partly by
written or spoken words or by other acts or by failure to act
(2) The conduct of a party is not effective as a manifestation
of his assent unless he intends to engage in the conduct and
knows or has reason to know that the other party may infer
from his conduct that he assents. (3) The conduct of a party
may manifest assent even though he does not in fact assent.
In such cases a resulting contract may be voidable because
of fraud, duress, mistake or other invalidating cause.
B.
WHAT IS AN OFFER?

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i. R.2d 24: And offer is the manifestation of willingness to enter into a

bargain, so made as to justify another person in understanding that
his assent to that bargain is invited and will conclude it.
ii. Preliminary Negotiations
1. If a proposal is nothing more than an invitation to the person
to whom it is made to make an offer to the proposer, it is not
such an offer as can be turned into an agreement by
acceptance. (Nebraska Seed Co., 1915 (offer to sell seed))
1. Must be determined by the detail of the language, time,
where, when, limitations, etc.
2. Advertisements as Offers
1. The general rule is that an advertisement does not
constitute and offer, it may be an offer if there is some
language of commitment or some invitation to take
action without further communication (PepsiCo, 1999)
2. Advertisement is nothing but an invitation to enter into
negotiations, to accept an offer
3. The court must not consider advertisers subjective
intent in making the commercial, nor the buyers
subjective intent view of what the commercial offered,
but what an objective, reasonable person would have
understood the advertisement to mean
3. R.2d 22. Mode of Assent: Offer and Acceptance: (1) The
manifestation of mutual assent to an exchange ordinarily
takes the form of an offer or proposal by one party followed
by an acceptance by the other party or parties. (2) A
manifestation of mutual assent may be made even though
neither offer nor acceptance can be identified and even
though the moment of formation cannot be determined.
4. R.2d 24. Offer Defined: An offer is a manifestation of
willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that
bargain is invited and will conclude it.
5. R.2d 26: Preliminary Negotiations: A manifestation of
willingness to enter into a bargain is not an offer if the
person to whom it is addressed knows or has reason to know
that the person making it does not intend to conclude a
bargain until he has made a further manifestation of assent.
6. R.2d 29. To Whom an Offer is Addressed: (1) The
manifested intention of the offeror determines the person or
the persons in whom is created a power of acceptance. (2)
An offer may create a power of acceptance in a specified
person or in one or more of a specified group or class of
persons, acting separately or together, or in anyone or
everyone who makes a specified promise or renders a
specified performance.

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7. R.2d 33. Certainty: (1) Even though a manifestation of

intention is intended to be understood as an offer, it cannot
be accepted so as to form a contract unless the terms of the
contract are reasonably certain (2) The terms of the contract
are reasonably certain if they provide a basis for determining
the existence of a breach and for giving an appropriate
remedy (3) The fact that one or more terms of a proposed
bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood
as an offer or as an acceptance
8. UCC 2-204. Formation in General: (1) A contract for a sale
of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which
recognizes the existence of such a contract (2) An
agreement sufficient to constitute a contract for sale may be
found even though the moment of its making is
undetermined
9. UCC 2-206. Offer and Acceptance in Formation of Contract:
(1) Unless otherwise unambiguously indicated by the
language or circumstances (a) an offer to make a contract
shall be construed as inviting acceptance in any manner and
by any medium reasonable in the circumstances; (b) an
order or other offer to buy goods for prompt or current
shipment shall be construed as inviting acceptance either by
a prompt promise to ship or by the prompt or current
shipment of conforming or nonconforming goods, but such a
shipment of nonconforming goods does not constitute an
acceptance if the seller seasonably notifies the buyer that
the shipment is offered only as an accommodation to the
buyer (2) Where the beginning of a requested performance
is a reasonable mode of acceptance an offeror who is not
notified of acceptance within a reasonable time may treat
the offer as having lapsed before acceptance.
10. A contract can still be formed even if the price, place of
delivery, time of delivery or payment of delivery are left
open (UCC 2-305, 308 10)
iii. Written Memorial Contemplated
1. Agreements in principle or letter of intent
a. fairly far along in process, most details have been
hashed out; price, consideration etc. but there are
things left to be decided
b. parties who make their pact subject to a later
definitive agreement have manifested an (objective)
intent not to be bound; doesnt matter what parties
intended, unless the intentions are expressed openly
R.2d 26 (Empro, 1989 (sale of factory))

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C.

i. if the buyer has the option to pull out of deal so

should the seller
ii. Revoking an Offer
1. Person who makes an offer has the right to revoke it at any
time before acceptance, may do so orally or by actions even if
you have language keeping it open (Dickinson v. Dodd, 1876
(sell farm))
2. Revocation only becomes valid when the offeree hears/learns
about revocation. If accepted before hears about revocation,
must allow acceptanc
3. R.2d 22. Mode of Assent: Offer and Acceptance
4. R.2d 35. The Offerees Power of Acceptance: (1) An offer
gives to the offeree a continuing power to complete the
manifestation of mutual assent by acceptance of the offer (2)
A contract cannot be created by acceptance of an offer after
the power of acceptance has been terminated in one of the
ways listed in 36.
5. R.2d 36. Methods of Termination of the Power of Acceptance:
(1) An offerees power of acceptance may be terminated by
(a) rejection or counter-offer by the offeree, or (b) lapse of
time, or (c) revocation by the offeror, or (d) death or
incapacity of the offeror or offeree. (2) In addition, an offerees
power of acceptance is terminated by the non-occurrence of
any condition of acceptance under the terms of the offer
6. R.2d 42. Revocation by Communication from Offeror
Received by Offeree: An offerees power of acceptance is
terminated when the offeree receives from the offeror a
manifestation of an intention not to enter into the proposed
contract.
7. R.2d 43. Indirect Communication of Revocation: An offerees
power of acceptance is terminated when the offeror takes
definite action inconsistent with an intention to enter into the
proposed contract and the offeree acquires reliable
information to that effec.
8. OPTION CONTRACT: option contract involves an extra
consideration to allow the offer to remain open for a set
period of time without being able to be revoked
a. R.2d 37. Termination of Power of Acceptance Under
Option Contract: Notwithstanding 38-49, the power of
acceptance under an option contract is not terminated
by rejection or counter-offer, by revocation, or by death
or incapacity of the offeror, unless the requirements are
met for the discharge of contractual duty.
WHAT IS AN ACCEPTANCE?
1. Acceptance that Varies Terms
a. Mirror Image Rule: An offer imposes no obligation of the
offeror unless it is accepted by the offeree exactly as it

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was presented originally. Acceptance must mirror the

terms of the offer. Otherwise it is a counter-offer and
subject to acceptance by the original offeror. (Ardente v.
Horan, 1976 (house purchase w/ new terms for
furniture))
b. R.2d 61. Acceptance Which Requests Change of Terms:
An acceptance which requests a change or addition to
the terms of the offer is not thereby invalidated unless
the acceptance is made to depend on an assent to the
changed or added terms
2. Acceptance by Correspondence
a. Mailbox Rule: An acceptance is effective upon dispatch
(into the mailbox)
i. Reasoning: offeree is already relying on the deal
being on while the offeror is just holding it open
ii. Offeror always has the option to make the
acceptance rely on receipt
iii. Contract formed on mailing even if lost and offeror
may no longer revoke although it may delay
performance if lost
iv. Offeree may also not revoke after dispatch
v. If revocation is received by offeror before
acceptance it does not revoke contract, however,
it may:
1. Be considered an offer to revoke
2. May bar the offeree from suing to enforce
the contract
3. May be considered a repudiation of the
contract which would give the original
offeror the right to avoid the contract
4. May justify offeror in withholding
performance and demanding adequate
assurance
vi. When in the form of an option, acceptance is only
operative on receipt by the offeror
vii. The letter must be properly sent, i.e. not
addressed wrong or a stamp forgotten
3. Acceptance by Performance or Unilateral Contracts?
a. Involve acceptance by performance instead of
acceptance by promise, like in bilateral contracts
b. Offer v. promise
i. Offer is a commitment to do something upon
acceptance by another party
ii. Promise is a commitment to do somethin
c. An advertisement can be an offer to do something upon
the performance of something, acceptance can be

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communication in a number of ways (by seeking out an

offered cash amount (Carbolic Smoke Balls, 1893))
d. Notification before performance is not necessary
e. Timely notification of completed performance is
necessary
i. R.2d 54. Acceptance by Performance; Necessity
of Notification to Offeror: (1) Where an offer
invites an offeree to accept by rendering a
performance, no notification is necessary to make
such an acceptance effective unless the offer
requests such a notification. (2) If an offeree who
accepts by rendering a performance has reason to
know that the offeror has no adequate means of
learning of the performance with reasonable
promptness and certainty, the contractual duty of
the offeror is discharged unless (a) the offeree
exercises reasonable diligence to notify the offeror
of acceptance, or (b) the offeror learns of the
performance within a reasonable time, or (c) the
offer indicates the notification of acceptance is
not required.
f. 19 Conduct as Manifestation of Assent & 54. The
offeror must be notified of performance as assent in a
reasonable time or by reasonable means for conduct to
qualify as assent (White v. Corlies, 1871 (building
suites))
g. R.2d 45 Option Contract Created by Part Performance
or Tender: (1) Where an offer invites an offeree to
accept by rendering a performance and does not invite
a promissory acceptance, an option contract is created
when the offeree tenders or begins the invited
performance or tenders a beginning of it. (2) The
offerors duty of performance under any option contract
so created is conditional on completion or tender of the
invited performance in accordance with the terms of the
offer.
h. R.2d 62. Effect of Performance by Offeree Where Offer
Invites Either Performance or Promise: (1) Where an
offer invites an offeree to choose between acceptance
by promise and acceptance by performance, the tender
or beginning of the invited performance or a tender of a
beginning of it is an acceptance by performance. (2)
Such an acceptance operates as a promise to render
complete performance.
4. Acceptance by Silence
a. Conduct can indicate acceptance

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b. In the course of regular business dealings when there is

a relationship between two parties, the act of sending a
product , despite no explicit acceptance, is enough to
expect payment or the product returned in rejection of
the offer. (Hobbs v. Massasoit Whip, 1893 (eels >
whips))
c. R.2d 69 Acceptance by Silence or Exercise of Dominion:
(1) Where an offeree fails to reply to an offer, his silence
and inaction operate as an acceptance in the following
cases only: (a) Where an offeree takes the benefit of
offered services with reasonable opportunity to reject
them and reason to know that they were offered with
the expectation of compensation (b) Where the offeror
has stated or given the offeree reason to understand
that assent may be manifested by silence or inaction,
and the offeree in remaining silent and inactive intends
to accept the offer (c) Where because of previous
dealings or otherwise, it is reasonable that the offeree
should notify the offeror is he does not intend to accept.
(2) An offeree who does any act inconsistent with the
offerors ownership of offered property is bound in
accordance with the offered terms unless they are
manifestly unreasonable. But if the act is wrongful as
against the offeror it is an acceptance only if ratified by
him.
iii. E-COMMERCE AND MUTUAL ASSENT
1. The UCC, although meant for the purchase and sale of goods,
can be applied to free software because it involves basically
the same transaction process as software bought on the
internet.
2. Like all contracts there must be mutual assent (UCC 2-204)
3. Online licenses
a. Shrink wrap licenses: license agreement contained
inside the software package which is only able to be
viewed after purchase and opening
b. Click-wrap licensing: Products available over the
internet; user must manifest assent by clicking on an
icon, product cannot be attained or used until clicking
c. browse-wrap: Notice of license agreement appears on
website but user does not have to read/look
at/click/assent to its terms before using the website or
downloading
4. Shrink and click-wrap were both found by courts to be valid as
they involved an affirmative action of assent before they used
the software
5. Browse wrap users have not assented to the terms because
they did not usually look at them and assent to them, thus no

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III.

contract was formed (Specht v. Netscape, 2001

(SmartDownload))
a. Accepting these terms of assent would so expand it as
to make it meaningless
6. Assent by conduct, seeing the terms and conditions many
times, even if they appeared after submitting ones
information, continuing to use it implies assent (Register.com
v. Verio, 2004)
Discerning the Agreement
A. INTERPRETING THE MEANING OF TERMS AMBIGUOUS TERMS
i. Ambiguous: parties have assigned different meanings to the same
word or words
ii. When there is an ambiguity of words and the two parties agree to
something which ends up being two different things, there can be
no contract because they did not assent to the same terms (Raffles
v. Wichelaus, 1864 (Peerless)) (Oswald v. Allen, 1969 (Swiss coins))
1. Not a subjective interpretation of what the parties thought,
but the objective interpretation of what they actually referred
to
iii. R.2d 200. Interpretation of Promise or Agreement: Interpretation of
a promise or agreement or a term thereof is the ascertainment of its
meaning
iv. R.2d 201: Whose Meaning Prevails: (1) Where the parties have
attached the same meaning to a promise or agreement or a term
thereof, it is interpreted in accordance with that meaning. (2) Where
the parties have attached different meanings to a promise or
agreement or a term thereof, it is interpreted in accordance with the
meaning attached by one of them if at the time the agreement was
made (a) that party did not know of any different meaning attached
by the other, and the other knew the meaning attached by the first
party; or (b) that party had no reason to know of any different
meaning attached by the other, and the other had reason to know
the meaning attached by the first party. (3) Except as stated in this
Section, neither party is bound by the meaning attached by the
other, even though the result may be a failure of mutual assent.
v. UCC 1-205: (1) A course of dealing is a sequence of previous
conduct between the parties to a particular transaction which is
fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct
(2) A usage of trade is any practice or method of dealing having
such regularity of observance in a place, vocation or trade as to
justify an expectation that it will be observed with respect to the
transaction in question. The existence and scope of such usage are
to be proved as facts. If it is established that such a usage is
embodied in a written trade code or similar writing the
interpretation of the writing is for the court. (3)*Two parties should
be aware of vocational/trade definitions of which they are involved

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(4)*Express terms of an agreement and trade definitions will be

used wherever reasonable (5) An applicable usage of trade in the
place where any part of performance is to occur shall be used in
interpreting as to that part of the performance (6) Evidence of a
relevant usage of trade offered by one party is not admissible
unless and until he has given the other party such notice as the
court finds sufficient to prevent unfair surprise to the latte.
B. VAGUE TERMS
i. Vague terms: disputes over whether and to what extent the words
used were meant to apply beyond their agreed core meaning
ii. Weinberg v. Edelstein, 1952 (what constitutes a dress?) There is no
standard, objective definition of dress. Must use trade standards.
iii. Frigaliment Importing Co. v. B.N.S., 1960 (What constitutes a
chicken?)
iv. R.2d 202. Rules in Aid of Interpretation: (1) Words and other
conduct are interpreted in the light of all the circumstances, and if
the principal purpose of the parties is ascertainable it is given great
weight. (2) A writing is interpreted as a whole, and all writings that
are part of the same transaction are interpreted together. (3) Unless
a different intention is manifested, (a) where language has a
generally prevailing meaning it is interpreted in accordance with
that meaning, (b) technical terms and words of art are given their
technical meaning when used in a transaction within their technical
field (4) Where an agreement involves repeated occasions for
performance by either party with knowledge of the nature of the
performance and opportunity for objection to it by the other, any
course of performance accepted or acquiesced in without objection
is given great weight in the interpretation of the agreement (5)
Wherever reasonable, the manifestations of intention of the parties
to a promise or agreement are interpreted as consistent with each
other and with any relevant course of performance, course of
dealing or usage of trade.
C. FILLING GAPS IN THE TERMS
Supplying terms when a contract is silent on an issue
Gap-filling
1. Implied-in-fact: terms that the parties actually, albeit
implicitly, have agreed to
2. Implied-in-law: terms that are thought to be imposed on
parties without their consent
a. Default rules: legal rules that the parties can avoid or
vary by means of an express clause that differs from the
term a court will otherwise supply by default
b. Immutable rules: may not be varied by consent and will
override any express clause to the contrary
Courts are traditionally reluctant to fill gaps in parties
agreements, the question that then arises is whether this

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incomplete manifestation is sufficient to warrant legal

enforcement
1. AGREEMENTS TO AGREE
a. R.2d 34. Certainty and Choice of Terms; Effect of
Performance or Reliance: (1) The terms of a contract may be
reasonably certain even though it empowers one or both
parties to make a selection of terms in the course of
performance (2) Part performance under an agreement may
remove uncertainty and establish that a contract
enforceable as a bargain has been formed (3) Action in
reliance on an agreement may make a contractual remedy
appropriate even though uncertainty is not removed
b. UCC 2-204. Formation in General: (1) A contract for a sale
of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which
recognizes the existence of such a contract (2) An
agreement sufficient to constitute a contract for sale may be
found even though the moment of its making is
undetermined
c. R.2d 204 Supplying an Omitted Essential Term: When the
parties to a bargain sufficiently defined to be a contract
have not agreed with respect to a term which is essential to
a determination of their rights and duties, a term which is
reasonable in the circumstances is supplied by the court.
i. What is the difference between UCC 2-204 and R
204?
d. Open contract system: parties shouldnt be required to stay
in contracts they didnt agree to and people shouldnt be
able to get out of contracts they did agree to (Sun Printing
1923, (delivery of paper at unspecified time)
i. If duration of term had been known it may have
changed outcome because the price would have been
known because plaintiff offered highest price
ii. If UCC had applied at this time, case would probably
have been different
1. 2-305. Open Price Term: (1) The parties if they
so intend can conclude a contract for sale even
thought the price is not settled. In such a case
the price is a reasonable price at the time of
delivery if (a) nothing is said as to price; or (b)
the price is left to be agreed by the parties and
they fail to agree; or (c) the price is to be fixed in
terms of some agreed market or other standard
as set or recorded by a third person or agency
and it is not so set or recorded (2) A price to be
fixed by the seller or by the buyer means a price
for him to fix in good faith. (3) When a price left

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to be fixed through fault of one party the other

may at his option treat the contract as cancelled
or himself fix a reasonable price. (4) Where,
however, the parties intend not to be bound
unless the price be fixed or agreed and it is not
fixed or agreed there is no contract. In such a
case the buyer must return any goods already
received or if unable so to do must pay their
reasonable value at the time of delivery and the
seller must return any portion of the price paid
on the account.
2. ILLUSORY PROMISES
a. Requirements contracts
i. New York Central Iron Works, 1903 agreed to only
buy radiation from for a set price, one year ordered
twice as much as usual
1. Court operated under the assumption that the
was acting in good faith in response to the
market
2. Difference between this and Sun Printing ->
there were risks and obligation assumed on both
sides
3. Court chose to fill the gap in the contract and
found that had a right to the extra radiation
ii. Eastern Airlines v. Gulf Oil Corp., 1973 Gulf wanted to
up Easterns gas prices, said there had been no prior
contract because it lacked mutuality
1. UCC 2-306(1): (1) A term which measures the
quantity by the output of the seller or the
requirements of the buyer means such actual
output or requirements as may occur in good
faith, except that not quantity unreasonably
disproportionate to any stated estimate or in
absence of a stated estimate to any normal or
otherwise comparable prior output or
requirements may be tendered or demanded.
2. Court concluded the document was binding and
enforceable requirements contract
3. If the parties dont talk about it, amount required
will be consistent with the previous year
4. Does this provision and the other fill a gap? No,
its imposing a new standar.
b. Exclusive Dealings Contracts
i. Wood v. Lucy, Lady Duff-Gordon, 1917 - attests
there was a contract binding to only deal through
him despite it not being expressly written in the
contract

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1. A promise may be lacking but the whole

document may be instinct with an obligation. If
so, there is a contract.
2. UCC 2-306(2). Output, Requirements and
Exclusive Dealings: A lawful agreement by
either the seller or the buyer for exclusive
dealing in the kind of goods concerned imposes
unless otherwise agreed an obligation by the
seller to use best efforts to supply the goods and
by the buyer to use best efforts to promote their
sale.
3. IDENTIFYING THE TERMS OF THE AGREEMENT
a. Form Contracts or Contracts of Adhesion
Often written by one of the parties and not fully read by the
other, they challenge notions of assent
i. Carnival Cruise Lines v. Shute, 1991 received form
contract to bring all litigation in FL, after purchase
1. Where a person has sufficient notice of a forumselection clause and the clause was not included
in a contract in order to deter legitimate claims
or obtained from the person through fraud or
overreaching, the clause is enforceable.
a. Court upholds because it was made in
good faith
2. DISSENT: (1) Contracts of adhesion, form
contracts offered on a take-or-leave basis, are
questionably able to be enforced because the
weaker power rarely knows what they are
consenting to (2) Forum selection contracts are
contrary to public policy
ii. Reasons to Enforce:
1. Creates certainty in commerce
2. Efficiency
a. lower litigation costs for company
b. lower prices for customers
3. Limits confusion in general
4. Contracts are more comprehensive
5. Courts don not have that much to interpret
iii. Problems:
1. buyer is stuck
2. buyer didnt know terms when purchase
completed
3. buyer had no ability to negotiate
4. transactional costs precludes day in court
5. buyers may not understand terms
6. terms come after basic deal was done
b. Which Terms Were Agreed To?

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i.

Step-Saver Data Systems, Inc. v. Wyse, 1991 Step.

sued TSL for problems w/ software. TSL said it couldnt
because Step. Accepted box-top license agreements
on purchase and use.
1. Court found that box-top license was not part of
the contract, but were additional terms, which
Step. never accepted and which TSL did not
clearly say required assent to continue contract
2. Gaps in contract could be easily filled by UCC or
other statutes means contract was sufficiently
definite enough without box top license
3. Their was not enough proof that the license
agreement counted as a counter-offer b/c it did
not say use of the product was conditional on
acceptance of the terms
4. UCC 2-207: Additional Terms in Acceptance or
Confirmation: (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. (2) The additional
terms are to be construed as proposals for
addition to the contract. Between merchant
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. (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.
5. Rejects last shot rule for merchants in which
the parties are bound by the last form sent if
they do not dissent
a. Still apply to common law?
ii. Union Carbide v. Oscar Mayer, 1991 Carbide moves
out of Chicago to stop paying taxes, gets caught, tries

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Professor Pike

to get Oscar to pay all the back taxes owed from not
charging them
1. Additional terms v. material changes to a
contract
a. Contracts may still be upheld when
additional terms are added to which the
offeror is unlikely to object and which
simply flesh out the contract
b. Only acceptable if they do not materially
alter the contract so as to cause surprise
and possibly hazard to the offeror
i. If offeree materially alters the
contract, there is still a contract, but
only on the terms agreed to by both
parties
c. Terms That Follow Later
i. ProCd v. Zeidienberg, 1996 Zeidenberg used
consumer product for commercial use after receiving a
license agreement in software packaging and seeing it
every time the program was booted up
1. Under UCC 2-204(1): A contract for a sale of
goods may be made in any manner sufficient to
show agreement, including conduct by both
parties which recognizes the existence of such a
contract.
2. Under UCC 2-606(1)(b) a buyer accepts goods,
when after an opportunity to inspect, he fails to
make a rejection under 2-602(1)
3. 2-207 does not apply because they are not both
merchants and there is only one form
ii. Hill v. Gateway, 1997 Hills bought computer over the
phone, came with license agreement that said if any
problems return in 30 days and arbitration clause, Hills
returned after 30 days and didnt want to follow
arbitration clause
1. Used same theory as ProCD, by purchasing and
not returning the product within the set time
they submitted to the license agreement
a. When did the contract begin? At the
purchase over the phone or after
acceptance of the final terms? Does it
matter? Additional terms would have been
accepted because they did not return
item.
iii. Klocek v. Gateway, 2000 Klocek sues Gateway for
various things, had a 5 day return policy, Gateway

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IV.

cites to License Agreement arbitration clause and

ProCD and Hill.
1. ProCD and Hill both negated the use of 2-207
because there was only one form, court in
Klocek does not agree that that is viable
a. UCC 2-207: Additional Terms in
Acceptance or Confirmation: (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. (2) The
additional terms are to be construed as
proposals for addition to the contract [if
the contract is not between merchant]
b. Gateway provided no notice that its
selling of the computer was conditional on
the acceptance of the terms and therefore
Klocek was not bound to accept them
c. Because plaintiff is not a merchant, the
additional terms did not become part of
the contract unless plaintiff expressly
agreed to them
d. The buyer was the offeror by offering to
buy the computer to which the seller was
the offeree who accepted by selling or
shipping the merchandis
Written Manifestations of Intent
A. INTERPRETING A WRITING THE PAROL EVIDENCE RULE
Parol Evidence: Evidence of the meaning of a written contract that is
extrinsic to the writing itself
1. Thompson v. Libbey, 1885 Libbey sued Thompson because he
said that the two of them had agreed to him buying high quality
logs from Thompson, although it was not in the contract, Libbey
contends that it had been guaranteed verbally.
a. parol contemporaneous evidence is inadmissible to
contradict or vary the terms of a valid written document
b. Parol Evidence Rule: Where the parties have deliberately put
their engagements down into writing in such terms as to
import a legal obligation, without any uncertainty as to the
object or extent of such engagement, it is conclusively
presumed that the whole engagement of the parties, and the
manner and extent of their undertaking, was reduced to
writing.

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c. If it imports on its face to be a complete expression of the

whole agreement that is, contain such language as imports
a complete legal obligation it is presumed that the parties
introduced into it every material item and term; and parol
evidence cannot be admitted to add another term to the
agreement, although the writing contains nothing on the
particular one to which parol evidence is directed
2. Brown v. Oliver, 1927 Brown purchased land w/hotel and
furniture from Oliver, who came back two years later, leased a
room and when asked to leave took all the furniture with him,
Brown claims furniture was part of contract although not explicitly
discussed
a. If the item or function in question is not discussed at all in the
written agreement it may be submitted to the jury to
determine whether agreement on the subject took place
outside the agreement and is viable to be included
a. In this case it was decided that it did and was meant to
be included
b. The general test to determine whether the writing of a
contract was intended to cover a certain subject:
a. Whether a particular subject of negotiation is embodied
by the writing depends wholly upon the intent of the
parties. The parties are not obliged to embody their
transaction in a single document but may if they
choose. Hence it becomes a question of whether they
intended to do so.
b. This intent must be sought in the conduct and language
of the parties and the surrounding circumstances
c. Whether the particular element of the alleged event is
covered in the writing.
c. R.2d 210. Completely and Partially Integrated Agreements:
(1) A completely integrated agreement is an integrated
agreement adopted by the parties as a complete and
exclusive statement of the terms of the agreement. (2) A
partially integrated agreement is an integrated agreement
other than a completely integrated agreement. (3) Whether
an agreement is completely or partially integrated is to be
determined by the court as a question preliminary to
determination of a question of interpretation or to application
of the parol evidence rule.
a. Thompson: completely
b. Brown: partially
d. R.2d 213. Effect of Integrated Agreement on Prior
Agreements (Parol Evidence Rule): (1) A binding integrated
agreement discharges prior agreements to the extent that it is
inconsistent with them. (2) A binding completely integrated
agreement discharges prior agreements to the extent that

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they are within its scope (3) An integrated agreement that is

not binding or that is voidable and avoided does not discharge
a prior agreement. But an integrated agreement, even though
not binding, may be effective to render inoperative a term
which would have been part of the agreement if it had not
been integrated.
e. UCC 2-202. Final Written Expression: Parol or Extrinsic
Evidence: Terms with respect to which the confirmatory
memoranda of the parties agree or which are otherwise set
forth in a writing intended by the parties as a final expression
of their agreement with respect to such terms as are included
therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may
be explained or supplemented (a) by course of dealing or
usage of trade (1-205) or by course of performance (2-208);
and (b) by evidence of consistent additional terms unless the
court finds the writing to have been intended also as a
complete and exclusive statement of the terms.
3. Pacific Gas v. G.W. Thomas Rigging, 1968 Thomas was hired to
fix Pacifics turbine and agreed in contract to indemnify Pacific
for any damage caused. Thomas damaged Pacifics property, but
claimed that contract only meant to cover third party damages.
a. The test of admissibility of extrinsic evidence to explain the
meaning of a written instrument is not whether it appears to
the court to be plain and unambiguous on its face, but
whether the evidence offered is relevant to prove a meaning
to which the language of the instrument is reasonably
susceptible.
b. Taking the meaning of the words of the contract without
considering the extrinsic evidence would only be possible if
words had absolute meanings
c. Traynor is concerned the courts will impose duties on parties
that were not part of the contract if you stringently uphold
parol evidence
4. Trident Center, 1988 Intentionally breached contract because the
prepayment fee and a new loan was cheaper than repayment.
a. J. Kozinski doesnt want to allow parol evidence in for Trident
to prove that it was allowed to breach, however, under Pacific
Gas precedent in CA it must.
b. States that PG sets precedent that a contract is always
susceptible to parol evidence because no contract can ever be
completely clear with its words.
a. By giving credence to the idea that words are
inadequate to express concepts, PG undermines the
basic principle that language provides a meaningful
constraint on public and private conduct.

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c. Parol evidence rules keep people from forcing a party to do an

agreement they didnt agree to (people could lie)
B. REFORMING A WRITING MISTAKES IN INTEGRATION
1. Travelers Insurance v. Bailey, 1964 Insurance company mixed up
Baileys form promising him more money at 65, Bailey also didnt
realize the mistake. When caught the court found that he was only
entitled to the originally intended agreement.
a. R.2d 155. When the Mistake of Both Parties as to Written
Expression Justifies Reformation: Where a writing that
evidences or embodies an agreement in whole or in part fails
to express the agreement because of a mistake of both
parties as to the contents or effect of the writing, the court
may at the request of a party reform the writing to express
the agreement, except to the extent that rights of third
parties such as good faith purchasers for value will be unfairly
affected.
C. Requiring a Writing THE STATUTE OF FRAUDS
Overenforcement v. Underenforcement
o Overenforcement: the erroneous enforcement of an alleged
exercise of assent that in fact never occurred
o Underenforcement: the failure of the legal system to enforce a
legitimate exercise of assent
Law of contracts has gone ping pong between the two in an effort to
strike a balance, the statute of frauds is one way in which it has
attempted to remedy that
R.2d 110. Classes of Contracts Covered: (1) The following classes
of contracts are subject to a statute, commonly called the Statute of
Frauds, forbidding enforcement unless there is a written
memorandum or an applicable exception: (a) a contract of an
executor or administrator to answer for a duty of his decedent (the
executor-administrator provision) (b) a contract to answer for the
duty of another (the suretyship provision) (c) a contract made upon
consideration of marriage (the marriage provision) (d) a contract for
the sale of an interest in land (the land contract provision) (e) a
contract that is not to be performed within one year from the
making thereof (the one-year provision) (2) The following classes on
contracts, which were traditionally subject to the Statute of Frauds,
are now governed by Statute of Frauds provisions of the Uniform
Commercial Code: (a) a contract for the sale of goods for the price
of $500 or more (UCC 2-201) (b) a contract for the sale of
securities (UCC 8-319) (c) a contract for the sale of personal
property not otherwise covered, to the extent of enforcement by
way of action or defense beyond $5,000 in amount or value of
remedy (UCC 1-206) (3) In addition the UCC requires a writing
signed by the debtor for an agreement which creates to provides for
a security interest in personal property or fixtures not in the
possession of the secured party (4) Statutes in most states provide

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Professor Pike

that no acknowledgement or promise is sufficient evidence of a new

or continuing contract to take a case out of the operation of a
statute of limitations unless made in some writing signed by the
party to be charged, but that the statute does not alter the effect of
any payment of principal or interest. (5) In many states other
classes of contracts are subject to a requirement of a writing.
1. The Statute and Its Exceptions
a. Boone v. Coe, 1913 Boones moved from KY to TX to work
Coes farm on a verbal contract, when they arrived, Coe said
that they couldnt work it. Court found there was no contract
within the statute because it was not written down and
Boones could have been lying.
a. Statute of Frauds (KY): No action shall be brought to
charge any person: (6) Upon on any contract for the
sale of real estate, or any lease thereof, for longer term
than one year; nor (7) Upon any agreement which is not
to be performed within one year from the making
thereof, unless the promise, contract, agreement,
representation, assurance, or ratification, or some
memorandum or note thereof, be in writing, and signed
by the party to be charged therewith, or by his
authorized agent; but the consideration need not be
expressed in writing, it may be proved when necessary
or disproved by parol or other evidence.
b. Exceptions:
i. Services rendered upon a person until their death
on the promise that the person rendering the
services will be left something. If falls under
statute of frauds, usually can still recover
something
ii. Vendee of land under a parol contract is entitled
to recover any amount of purchase money and
compensation for improvements
c. R.2d 125. Contract to transfer, Buy or Pay for an
Interest in Land: (1) A promise to transfer to any person
any interest in land is within the Statute of Frauds. (2) A
promise to buy any interest in land is within the Statute
of Frauds, irrespective of the person to whom the
transfer is to be made (3) When a transfer of an interest
in land has been made, a promise to pay the price, if
originally within the Statute of Frauds, ceases to be
within it unless the promised price is itself whole or in
part an interest in land (4) Statutes in most states
except from the land contract and one-year provisions
of the Statute of Frauds short-term leases and contracts
to lease, usually for a term not longer than one year.

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Professor Pike

b. Riley v. Capital Airlines, Inc., 1960 Airline tried to get out of 5

year contract for methanol. Said it fell under AL Statute of
Frauds because it was not performed in one year. However,
Riley claims that it is exempt from statue because of the
condition:
a. If the goods are to be manufactured by the seller
especially for the buyer and are not suitable for sale to
others in the ordinary course of the sellers business, the
provisions of this section shall not apply.
b. Not found applicable because batches were not made
for whole five years, but rather for each individual order
which were in turn a separate contract which fell outside
Statute of Frauds, but could not hold up the 5 year
contract
c. also contended that part performance removes
contract from effects of Statute of Frauds but court
found that partial performance does not remove the rest
of the contract from being dissolved under Statute of
Frauds
c. UCC 2-201. Formal Requirements; Statute of Frauds: (1)
Excep as otherwise provided in this section a contract for the
sale of goods for the price of $500 or more is not enforceable
by way of action or defense unless there is some writing
sufficient to indicate that a contract for sale has been made
between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker. A
writing is not insufficient because it omits or incorrectly states
a term agreed upon but the contract is not enforceable under
this paragraph beyond the quantity of goods shown in such
writing. (2) Between merchant if within reasonable time a
writing in confirmation of the contract and sufficient against
the sender is received and the party receiving it has reason to
know its contents, it satisfies the requirements of subsection
(1) against such party unless written notice of objection to its
contents is given within 10 days after it is received. (3) A
contract which does not satisfy the requirements of
subsection (1) but which is valid in other respects is
enforceable (a) if the goods are to be specifically
manufactured for the buyer and are not suitable for sale to
others in the ordinary course of the sellers business and the
seller, before notice of repudiation is received and under
circumstances which reasonably indicate that the goods are
for the buyer, has made either a substantial beginning of their
manufacture or commitments for their procurement; or (b) if
the party against whom enforcement is sought admits in his
pleading, testimony or otherwise in court that a contract for
sale was made, but the contract is not enforceable under this

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V.

provision beyond the quantity of goods admitted, or (c) with

respect to goods for which payment has been made and
accepted or which have been received and accepted.
2. Satisfying the Requirement of a Writing
a. Schwedes v. Romain, 1978 wanted to buy a plot of land in
Montana but never made any performance on attorneys
instruction and lost it because no contract.
a. Difference between partial performance and
contemplation of eventual performance
b. The seller prepared a written offer but there was no
document signed by both parties
c. Real Estate is almost governed by Statute of Frauds
d. Statute of Frauds is a rebuttable agreemen
b. R.2d 131. General Requisites of a Memorandum: Unless
additional requirements are prescribed by the particular
statute within the Statute of Frauds is enforceable if it is
evidence by any writing, signed by or on behalf of the party to
be charge, which (a) reasonably identifies the subject matter
of the contract, (b) is sufficient to indicate that a contract with
respect thereto has been made between the parties or offered
by the signer to the other party, and (c) states with
reasonable certainty the essential terms of the unperformed
promises in the contract
c. In re RealNetworks, 2000 does email count as written
agreement?
a. Email can count as written agreement if it is easily
printable and storable
3. Satisfying the Requirement of a Signature
a. Cloud Corp. v. Hasbro, 2002 Cloud over manufactured a
product for Hasbro who refused to accept/pay for it.
Correspondence via email. Does that count as signature?
a. Senders name on an email satisfies the signature
requirement, neither common law or UCC explicitly
require a handwritten signature
b. Point of rule is to prevent fraud and an electronic
handwritten signature could just as easily be forged as a
typed one, type of signature should not be a bar to
preventing fraud.
The Doctrine of Consideration
A. THE BARGAIN THEORY OF CONSIDERATION
i. Consideration can refer to whatever circumstances render a
commitment legally binding, in this century it came to be identified
with the existence of a bargain.
ii. To constitute consideration, a performance or a return promise must
be bargained for. R.2d 71(1)

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1. (2) A performance or return promise is bargained for if it is

sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that promise.
iii. Restatements approach to enforceability can be summarized as
follows
1. A contract is an enforceable promise (1 and 2)
2. With some exceptions (17(2)), to be enforceable a promise
must be supported by a consideration (17(1));
3. A promise is supported by a consideration if it is bargained for
(71(1));
4. A promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promisee in
exchange for that promise (71(2)).
B. Distinguishing Bargains from Gratuitous Promises
i. Gratuitous or gift promises are only effective upon actual delivery
of the thing that was promised
ii. Can be revoked at any time before delivery
iii. Difference between a promise and a contract: a contract is legally
binding
1. 5 of R.2d
a. Court differentiates by consideration (71)
2. Jonhson v. Otterbein University, 1885 promised to donate
$100 to liquidate the indebtedness of the university and
wanted refund if that was not the use it was put to
a. Court found that there was no difference in donating to
an institution generally and donating to an institution for
something specific and thus there was no consideratio
3. Hamer v. Sidway, 1891 uncle offers nephew money to not
drink, smoke etc. until 21, but dies before paying him.
Executor contends that there was no consideration because
uncle did not benefit and nephew was not detrimented.
a. Court finds that consideration means not so much that
one party abandons some legal right in the present or
limits his legal freedom of action in the future as an
inducement for the promise of the first.
b. Nephew gave up a legal right and whether the uncle
was considered to get any benefit out of it other than
getting what he wanted doesnt matte
4. Dahl v. Hem, 1993 chronic fatigue test in exchange for 1
years worth of drugs
a. Hem argued that because they were volunteers they
had no binding obligation and were free to leave
whenever they wanted
b. Court found that submission to the tests was
consideration in exchange for the promise of drugs at
completion

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Professor Pike

5. R.2d 71. Requirement of Exchange; Types of Exchange: (1) To

constitute consideration, a performance or a return promise
must be bargained for. (2) A performance or return promise is
bargained for if it is sought by the promisor in exchange for
his promise and is given by the promisee in exchange for that
promise. (3) The performance may consist of (a) an act other
than a promise, or (b) a forbearance, or (c) the creation,
modification, or destruction of a legal relation. (4) The
performance or return promise may be given to the promisor
or to some other person. It may be given by the promisee or
by some other perso.
C. PAST CONSIDERATION AND MORAL CONSIDERATION
i. Past consideration
1. Moore v. Elmer, 1901 Clairvoyant predicts that Moore will die
before 1900 and he does. Wants to collect the payoff of her
mortgage that was promised if he did.
a. Court finds there was no consideration
b. There was no mutual exchange of promises because she
told him as a favor or for payment, before he made the
promis.
ii. Moral consideration
1. Mills v. Wyman, 1825 son is taken care of by stranger, father
promises to repay after all expenses had already been
incurred and then doesnt pay.
a. Court finds that there is no consideration, no prior
agreement for compensation
b. The rules that a mere verbal promise, without any
consideration, cannot be enforced by action, is universal
in its application, and cannot be departed from to suit
particular cases in which a refusal to perform such a
promise may be disgraceful.
c. The general position, that moral obligation is a sufficient
consideration for an express promise, is to be limited in
its application, to cases where at some time or another
a good or valuable consideration has existed.
d. 86 Restatement
e. The moral obligations of a parent to support a child is a
sufficient consideration for an express promise, unless
the child has reached an independent age
2. Webb v. McGowin, 1935 Webb stopped block from falling on
McGowin but sustained injuries himself, McGowin agreed to
pay for his care for the rest of his life, McGowin died and
estate stopped payment
a. By McGowin saving Webbs life, he became morally
bound to compensate for services rendered
b. Where the promisee cares for, improves and preserves
the property of the promisor, though done without his

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VI.

request, it is sufficient consideration for the promisors

subsequent agreement to pay for the service, because
of the material benefit receive
3. R.2d 86. Promise for a Benefit Received: (1) A promise made
in recognition of a benefit previously received by the promisor
from the promisee is binding to the extent necessary to
prevent injustice. (2) A promise is not binding under
subsection (1) (a) is the promise conferred the benefit as a
gift or for other reasons the promisor has not been unjustly
enriched; or (b) to the extent that its value is disproportionate
to the benefit.
iii. Contract Modification and the Preexisting Duty Rule
1. Attempts by parties to adjust their contractual obligations
during the performance stage of the contract
2. UCC doesnt require consideration for modification of promise
but doesnt apply when made in bad faith
3. Does a promise to modify an existing contractual obligation
require additional bargained for consideration?
a. Stilk v. Myrick, 1809 captain promised to pay the rest
of the crew the salaries of the two who abandoned, but
didnt when they docked.
i. Court said there was no duty because there was
no consideration
ii. Crew was already obligated to bring in ship
despite emergencies, which loss of crew counts as
iii. Difference between this and previous cases is
there was already a contract in existence
b. Alaska Packers Assn v Domenico, 1902 once at sea a
crew demanded the captain pay them more, to which he
agreed and then his company denied once on shore
i. No consideration because they forced consent
from captain to do exactly what they had already
been contracted to do
ii. Captain had no power to change contract
regardless
The Doctrine of Promissory Estoppel
A. PROMISSORY ESTOPPEL AS SUBSTITUTE FOR CONSIDERATION
1. Principle underlying promissory estoppel is compensation for
detrimental reliance
2. Way to enforce informal commitments that have not been bargained
for and therefore generally unenforceable
3. Promises do not just give rise to expectations, they induce promisees
to act in reliance upon them, changing their situation or circumstances
in ways they otherwise would not have done
a. In such cases it seems fair to hold promisor to promise, or at
least to compensation
4. Development of Promissory Estoppel as Substitute for Consideration

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a. Family Promises
i. Ricketts v. Scothorn, 1898 Grandfather offered
granddaughter money to stop working. She quit, then
resumed working after awhile and tried to collect money on
his death but was denied.
1. No consideration given by granddaughter or asked of
my grandfather, she did not HAVE to quit work.
2. When the payee changes his position to his
detriment, in reliance on the promise, a right of
action does arise
3. Questionable whether she actually relied on the
promise to her detriment as she began working again
4. Court still found in her favor
5. Should have been damages of he lost employment
for year she didnt work
b. Promises to Convey Land
i. Greiner v. Greiner, 1930 mother was going to make up for
son being left out of will by giving him some land. He
moved and lived on the land and improved it but no written
agreement was made and then mother changed her mind.
1. Court found that son moved and took up residence
on the land and improved it on the reliance that the
mother was giving it to him.
c. Charitable Subscriptions
i. Allegheny College v. Bank, 1927 woman pledges to
donate money to college on her death, executor didnt
follow through, so college sued.
1. charitable subscriptions have generally been held to
be non-enforceable
2. Cardozo finds that the setting aside of the money
already received and not using it for other things was
a reliance detrimental to the college and thus was
promissory estoppel
a. Not a strong argument
d. Construction Bids
i. Baird v. Gimbel Bros., 1933 mis-measured linoleum in
subcontracting bid
1. Usually need acceptance to create contract but
contractor could not accept before it received bid
from govt
2. Sub withdrew before contr. could accept and create a
contract but had already relied on bid to win major
bid with govt
3. Court found that it couldnt be promissory estoppel
because offered to deliver the linoleum in
exchange for s acceptance not for its bid, offer
could only become a contract when the equivalent

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was received; that is when the promised to take

and pay for it
ii. Drennan v. Star paving Co., 1958 Drennan relied on the
bid of sub. Star to make a bid on a construction site. Star
refused to do work for price originally offered so Drennan
had to higher a more expensive paver. Sued for difference.
1. 87 if someone does something that they know
another person will rely on, it is treated as an option
contract and not revocable
2. However, when a price is way too low to be
reasonable, it is on the offeree to be responsible
3. Reasonable reliance serves to hold the offeror in lieu
of the consideration ordinarily required to make the
offer binding
4. Defendant had reason not only to expect plaintiff to
rely on bid, but wanted him to
iii. R.2d 87. Option Contract: (2) An offer which the offeror
should reasonably expect to induce action or forebearance
of a substantial character on the part of the offeree before
acceptance and which does induce such action or
forebearance is binding as an option contract to the extent
necessary to avoid injustice.
5. Promissory Estoppel as an Alternative to Breach of Contract
a. Up until now promissory estoppel has been used in cases where
there was a promise but no consideration
b. Goodman v. Dicker, 1948 Plaintiffs applied for radio dealer
franchise which they were assured was a shoe-in, so they bought
a store and furnished it and then didnt get the franchise.
i. In speaking of equitable estoppel th court said the vital
principle is that he who by his language or conduct leads
another to do what he would not have otherwise done,
shall not subject such person to loss or injury by
disappointing the expectation upon which he acted. Such a
change of position is sternly forbidden.
c. Hoffman v. Red Owl Stores, 1965 A rep from Red Owl said
Hoffman could have a franchise which got him to sell his store,
move etc. they kept upping the price until they finally said he
wasnt getting one.
i. There was never any agreement laying out the details of
where and how a store would be run so the court did not
force Red Owl to give Hoffman a store, it just required them
to compensate him
ii. The requirements for promissory estoppel need not meet
the requirements of an offer that would lead into a contract
1. R.2d 90. Promise Reasonably Inducing Action or
Forebearance: (1) A promise which the promisor
should reasonably expect to induce action or

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forebearance on the part of the promisee or a third

person and which does induce such action or
forebearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy
granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage
settlement is binding under Subsection (1) without
proof that the promise induced action or
forebearance.
6. Establishing the Elements of Promissory Estoppel
a. Promise
i. Blatt v. USC, 1970 man was not admitted to the Order of
the Coif after they told him he would be eligible and he met
all requirements. He claimed it was a detriment to his
profession.
1. There was no consideration so if a contract existed at
all it would have to be under promissory estoppel
a. The alleged promises did not induce actions
from the promisee
b. The promise only said it would make him
eligible, not that he would get in
ii. Spooner v. Reserve Life Insurance, 1955 Company offered
to give its insurance agents a bonus and then reneged on
the offer. The promise held that the bonus was voluntary
on the part of the company and that it could be withheld.
1. Action in reliance upon a supposed promise creates
no obligation on an individual or corporation whose
only promise is entirely illusory.
a. A supposed promise may be illusory because it
is so indefinite that it cannot be enforced, or by
reasons of provisions contained in the promise
which in effect make its performance optional
or entirely discretionary on the part of the
promisor.
iii. Ypsilanti v. GM, 1993 township allowed GM tax
abatements to stay in town. An employee made a
comment about continuing employment because of the
continued tax abatement and then GM moved. Town
claimed statements were a promise to stay.
1. No contract was created because it was not stated
that GM had to do anything for the tax abatements
2. In terms of promissory estoppel court found that the
employees words were a promise to stay if there
was favorable market demand
a. The fundamental element of promise seems to
be an expression of intention by the promisor
that his future conduct shall be in accordance

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VII.

with his present expression, irrespective of

what his will may be when the time for
performance arrives.
3. Court reversed saying the point of the tax
abatements was to tempt companies to coming to
their towns and that all statements made by
employee were hopes of employee but not promise
b. Reasonable Reliance
i. Alden v. Vernon Presley Elvis made a gratuitous promise
to pay off the mortgage of his girlfriends mother and
passed away be fore he did. Mother said she got divorced
and took house because relying on his contribution.
1. Court found that there was a promise but that there
was no reliance because she went through with the
divorce etc. after she was informed that she wasnt
getting the house.
2. She did not prove that she incurred any detriments in
her reliance
c. Injustice of Nonenforcement
Performance
A. THE IMPLIED DUTY OF GOOD FAITH PERFORMANCE
i. UCC 1-203: Every contract or duty within this Act imposes an
obligation of good faith in its performance or enforcement
ii. Goldberg v. Levy, 1938 lessee intentionally did not make a lot
of money by diverting attention to another of their stores and
generally running a bad business so that they could get out of
their lease
1. Court held this to be acting in bad faith of the spirit of the
contract
2. A promise may be lacking, and yet the whole writing may
be instinct with an obligation imperfectly expressed
3. There was a promise to use reasonable efforts to bring
profits into store
iii. Mutual Life Ins. V. Tailored Woman, 1955 2 leases in same
building with different entrances, moved all furs to floor where
lessor would not get share of profits.
1. Court found that the plaintiff intentionally moved the furs
to avoid giving part of the profit to lessor and that this was
not in terms of lease
2. When in a contract, you can adjust your business practices,
but not when you get too sleazy, like trying to avoid paying
what you owe under a lease
B. IMPLIED AND EXPRESS WARRANTIES
i. Implied Warranties of Merchantability and Fitness for a Particular
Purpose
1. Step-Saver v. Wyse, 1990 -Step. sued TSL for problems w/
software. TSL said it couldnt because Step. Accepted box-

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top license agreements on purchase and use. Also looked

to see if there were implied or express warranties.
a. Step did not prove that Wyses terminals were not up
to the merchantable standards and in fact were the
best selling terminals on the market at the time
b. The terminals did not have to be outstanding under
the Implied Warranty of Merchantability
c. UCC 2-314. Implied Warranty: Merchantability;
Usage of Trade: (1) Unless excluded or modified
(section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale id
the seller is a merchant with respect to goods of that
kind. Under this section the serving for value of food
or drink to be consumed either on the premises or
elsewhere is a sale. (2) Goods to be merchantable
must be at least such as (a) pass without objection in
the trade under the contract description; and (b) in
the case of fungible goods, are of fair average quality
within the description; and (c) are fot for the ordinary
purposes for which such goods are used; and (d) run,
within the varioations permitted bu the agreement,
of even kind, quality and quantity within each unit
and among all units involved; and (e) are adequately
contained, packaged, and labeled as the agreement
may require; and (f) conform to the promises or
affirmations of fact made on the container or label if
any. (3) Unless excluded or modified (Section 2-316)
other implied warranties may arise from course of
dealing or usage of trade.
d. Wyse did not at the time of purchase know of the
particular use to which the terminals were being put
and Step did not relay on Wyses expertise to
properly pick out appropriate terminals.
e. UCC 2-315. Implied Warranty: Fitness for Particular
Purpose: Where the seller at the time of contracting
has reason to know any particular purpose for which
the goods are required and that the buyer is relying
on the sellers skill or judgment to select or furnish
suitable goods, there is unless excluded or modified
under next section an implied warranty that the
goods shall be fit for such a purpose.
2. Express Warrantie
a. Entail a promise to make good for losses within their
scope, whether or not such losses were foreseeable
uncertain or avoidable.
b. Royal Business Machines v. Lorraine Corp., 1980
Royal sold Booher several copy machines which did

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not hold up to the express warranties that came with

the machines.
i. Difference between the seller stating a fact of
which the buyer is ignorant or merely states an
opinion or judgment on a matter, and which
the buyer may have an opinion or judgment
on; the best of good quality etc. are
opinion.
ii. An affirmation of fact which the buyer from his
experience knows to be untrue cannot form a
part of the basis of the bargain therefore to
each purchase would expand Boohers
knowledge and the same representations that
could have constituted an express warranty
early in the series of transactions may not later
on.
iii. Breach occurs only if the goods are defective
on delivery and not if they become so later on.
c. UCC 2-313. Express Warranties by Affirmation,
Promise, Description, Sample: (1) Express warranties
by the seller are created as follows: (a) Any
affirmation of fact or promise made by the seller to
the buyer which relates to the goods and becomes
part of the basis of the bargain creates an express
warranty that the goods shall conform to the
description. (b) any description of the goods which is
made part of the basis of the bargain creates an
express warranty that the goods shall conform to the
description (c) Any sample or model which is made
part of the basis of the bargain created an express
warranty that the whole of the goods shall conform
to the sample or model. (2) It is not necessary to the
creation is an express warranty that the seller use
formal words such as warrant or guarantee or
that he have specific intention to make a warranty,
but an affirmation merely of the value of the goods
or a statement purporting to be merely the sellers
opinion or commendation of the goods does not
create a warranty.
3. Express Disclaimers of Warranty
a. Parties may contract around the default rules
imposed by the law.
b. Schneider v. Miller, 1991 man bought a used car
as is and tried to sue when he found out the entire
undercarriage was shot.
i. Terms like as is mean the buyer takes the
entire risk of the purchase

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1. Buyer had time to look over purchase

and test driv
ii. An integration clause which provides that the
entire agreement between the two parties is
contained in the four walls of the contract is
effective to waive any implied warranty.
c. UCC 2-316. Exclusion or Modification of Warranties:
(1) Words or conduct relevant to the creation of an
express warranty and words or conduct tending to
negate or limit warranty shall be construed wherever
reasonable as consistent with each other; but subject
to the provisions of this Article on parol or extrinsic
evidence (Section 2-202) negation or limitation is
inoperative to the extent that such construction is
unreasonable. (2) Subject to subsection (3), to
exclude or modify the implied warranty of
merchantability or any part of it the language must
mention merchantability and incase of a writing must
be conspicuous, and to exclude or modify any
implied warranty of fitness the exclusion must be a
writing and conspicuous. Language to exclude all
implied warranties of fitness is sufficient if it states,
for example, that There are no warranties which
extend beyond the description on the face hereof.
(3) Notwithstanding subsection (2) (a) unless the
circumstances indicate otherwise, all implied
warranties are excluded by expressions like as is
with all faults or other language which in common
understanding calls the buyers attention to the
exclusion of warranties and makes plain that there is
no implies warranty; and (b) when the buyer before
entering into the contract has examined the goods or
the sample or model as fully as he desired or has
refused to examine the goods there is no implied
warranty with regard to defects which an
examination ought in the circumstances to have
revealed to him; an (c) an implied warranty can also
be excluded or modified by course of dealing or
course of performance or usage of trade. (4)
Remedies for breach of warranty can be limited in
accordance with the provisions of this Article on
liquidation or limitation of damages and on
contractual modification of remedy.
VIII. Breach
A. Anticipatory Repudiation
i. One reason a party will be able to cancel a contract is if, before
the time for performance arrives, the other party indicates that

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she does not intend to perform and thereby repudiates the

contract. Because this repudiation happens before performance
is due, it is called anticipatory repudiation.
ii. Reason for s belief that contract will get repudiated must be
proven or close to make valid repudiation.
1. Albert Hochster v. Edgar de la Tour, 1853 courier brought
suit against man who was supposed to lead around Europe
and breached the contract before its beginning date.
a. tried to say couldnt bring claim until end of
contract period but court finds otherwise and says
that can bring claim as soon as repudiates the
contract
2. Harrell v. Sea Colony, 1977 Harrell agreed to buy a condo.
He attempted to get out of contract properly, which condo
company ignored and then tried to say that he breached
the contract after re-selling the condo and not returning his
deposit.
a. Court found that Sea Colony unilaterally attempted
to covert Harrells request for mutual recission into a
anticipatory breach
b. Standard for anticipatory breach: In order to
constitute an anticipatory breach of contract, there
must be a definite and unequivocal manifestation of
intention on the part of the repudiatior that he will
not render the promised performance when the time
fixed for it in the contract arrives A mere request
for a change in terms of the contract is not itself
enough to constitute a repudiation.
3. UCC 2-210. Anticipatory Repudiation: When either party
repudiates the contract with respect to a performance not
yet due the loss of which will substantially impair the value
of the contract to the other, the aggrieved party may (a)
for a commercially reasonable time await performance by
the repudiating party; or (b) resort to any remedy for
breach (Section 2-703 or Section 2-711), even though he
has notified the repudiating party that he would await the
latters performance and has urged retraction; and (c) in
either case suspend his own performance or proceed in
accordance with the provisions of this Article on the sellers
right to identify goods to the contract notwithstanding
breach or to salvage unfinished goods (Section 2-704).
4. UCC 2-611. Retraction of Anticipatory Repudiation: (1)
Until the repudiating partys next performance is due he
can retract his repudiation unless the aggrieved party has
since the repudiation cancelled or materially changed his
position or otherwise indicated that he considers the
repudiation final. (2) Retraction may be any method which

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clearly indicates to the aggrieved party that the

repudiating party intends to perform, but must include any
assurance justifiably demanded under the provisions of this
Article (2-609). (3) Retraction reinstates the repudiating
partys rights under the contract with due excuse and
allowance to the aggrieved party for any delay occasioned
by the repudiation.
B. ADEQUATE ASSURANCES OF PERFORMANCE
i. The converse of the situation involving anticipatory repudiation
arises when one party wishes to withhold performance because
he suspects, for some reason that the other party may not
perform.
1. Scott v. Crown, 1988 Wheat seller was selling to buyer
when he talked to his banker and heard that buyer was not
the most reputable buyer. Seller stopped delivery on belief
that buyer would not pay.
a. Is rumor enough to warrant stopping performance?
b. Court determined that on these grounds there was
enough evidence for insecurity but not for breach
and seller could ask for reassurance from buyer, and
must before breaching contract.
c. Generally, a demand for reassurance must be in
writing in order to be effective, oral will suffice when
there is clear understanding between the parties that
if there is not assurance, performance will be halted
d. Demand for assurances cannot come with
modifications to the contract
2. UCC 2-609. Right to Adequate Assurance of Performance:
(1) A contract for sale imposes an obligation on each party
that the others expectation of receiving due performance
will not be impaired. When reasonable grounds for
insecurity arise with respect to the performance of either
party the other may in writing demand adequate assurance
of due performance and until he receives such assurance
may if commercially reasonable suspend any performance
for which he has not already received the agreed return (2)
Between merchants the reasonableness of grounds for
insecurity and the adequacy of any assurance offered shall
be determined according to commercial standards. (3)
Acceptance of any improper delivery or payment does not
prejudice the aggrieved partys right to demand adequate
assurance of future performance. (4) After receipt of a
justified demand failure to provide within a reasonable time
not exceeding thirty days such assurance of due
performance as is adequate under the circumstances of
the particular case is repudiation of the contract.
C. MATERIAL BREACH

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i. In determining whether the promisee can unilaterally put an end

to the contract, instead of seeking to find a constructive
condition courts sometimes try to determine whether a
particular breach by the promisor was material.
ii. ** Only if a breach is material does it relieve the nonbreaching
party of its duty of performance under the contract.
1. Parties are free to expressly empower the victim of any
breach however small to cancel the contract. But, in the
absence of such an express condition, courts will not
construe or imply a condition empowering the victim of a
breach to cancel the contract when there has been
substantial performance.
iii. B & B Equipment v. Bowen, 1979 Brought Bowen on to be third
party but did not live up to expectations, wanted to buy back
stocks and kick him out stating he materially breached his
contract to perform adequately.
1. R.2d 275. Guidelines to determining a material breach: (A)
The extent to which the injured party will obtain the
substantial benefit which he could have reasonably
anticipated. (B) The extent to which the injured party may
be adequately compensated in damages for lack of
complete performance. (C) The extent to which the party
failing to perform has already partly performed or made
preparations for performance (D)The greater or less
hardship on the party failing to perform in terminating the
contract (E) The willful, negligent or innocent behavior of
the party failing to perform. (F) the greater or less
uncertainty that the party failing to perform will perform
the remainder of the contract.
iv. Lane Enterprises v. L.B. Foster, 1997 steel bridge component
makers. Couldnt do the work properly, so subcontracted people
to do it correctly at their own expense, Lane would not pay for
Phase I until it had assurance of Phase II and Foster would not do
Phase II because it felt that Lane materially breached Phase I
contract by not finishing payment.
1. R.2d 241: Determining Materiality for purposes of
breaching a contract: (a) the extent to which the injured
party will be deprived of the benefit which he reasonably
expected; (b) the extent to which the injured party can be
adequately compensated for that part of the benefit of
which he will be deprived; (c) the extent to which the party
failing to perform to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or offer
to perform will cure his failure, taking account of all the
circumstances including any reasonable assurances; (e)
the extent to which the behavior of the party failing to

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IX.

perform or offer to perform comports with standards of

good faith and fair dealin.
D. COST OF COMPLETION vs. DIMINUTION IN VALUE
i. Jacob & Youngs v. Kent, 1921 Man wanted certain type of pipes
in house and found out after completion that only about 40% of
the pipes were the correct kind. Contractor sued for final
payment.
1. Courts have found that an omission both trivial and
innocent will sometimes be atoned for by allowance of the
resulting damage and will not always be a breach of a
condition to be allowed by forfeiture
2. Nowhere will change be tolerated, however, if it is so
dominant or pervasive as in any real or substantial
measure to frustrate the purpose of the contract.
Obtaining Assent by Improper Means
A. Rebutting the Prima Facie Case of Contract
i. A person can deny ever having signed the contract or like cases,
this is not a defense but rather is a denial
ii. Or the other party may allege additional facts and circumstances
that deprive the prima facie case of contract (even if it is
accepted as true) of its normal moral significance, thereby
avoiding the obligation that is normally incurred when one
breaches a contract.
1. What is meant by defense is what the common law
referred to as a plea in avoidance the setting out of
additional facts and circumstances that rebut or avoid the
normal significance of the prima facie case of contractual
obligation, breach, and damages.
B. OBTAINING ASSENT BY IMPROPER MEANS
i. Halpert v. Rosenthal, 1970 man bought a house he was assured
did not have termites and then it ended up having termites.
Wouldnt pay the rest of the balance on house. Seller sued.
1. Rule: Where one induces another to enter into a contract
by means of a material misrepresentation, the latter may
rescind the contract. It does not matter if the
representation was innocent or fraudulent.
a. It would be unjust for a person who made the
misrepresentation, innocently or no, to reap the
benefits
2. R.2d 159. Misrepresentation Defined: A misrepresentation
is an assertion that is not in accord with the facts.
3. R.2d 162. When a Misrepresentation is Fraudulent or
Material: (1) A misrepresentation is fraudulent if the maker
intends his assertion to induce a party to manifest his
assent and the maker (a) knows or believes that the
assertion is not in accord with the facts, or (b) does not
have the confidence that he states or implies in the truth of

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the assertion, or (c) knows that he does not have the basis
that he states or implies for the assertion. (2) A
misrepresentation is material if it would be likely to induce
a reasonable person to manifest his assent, or if the maker
knows that it would be likely to induce the recipient to do
so.
4. R.2d 164. When a Misrepresentation Makes a Contract
Voidable: (1) If a partys manifestation of assent is induced
by either fraudulent or a material misrepresentation by the
other party upon which the recipient is justified in relying,
the contract is voidable by the recipient. (2) If a partys
manifestation of assent is induced by either a fraudulent or
a material misrepresentation by one who is not a party to
the transaction upon which the recipient is justified in
relying, the contract is voidable by the recipient, unless the
other party to the transaction in good faith and without
reason to know of he misrepresentation either gives value
or relies materially on the transaction.
ii. Byers v. Federal Land Co., 1924 man tried to buy land from
Federal Land. Come to find that Fed. Did not own nor was in
possession of the land as they had construed to buyer and the
land was worth only half of what had been related to him.
1. Court found that the contract said it would convey the land
to buyer and that the fact that it did not at the time own
the land was not material
2. Court found that the opinion of how much the land was
worth was an honest misrepresentation because at the
time it was difficult to determine land prices and the sellers
honestly believed that was the worth
3. Court found that the seller was not in possession of the
land to be a material breach because it was never in
possession, was never given to the buyer and was the
would be lessee/part of Fed never offered to perform his
part
a. A misrepresentation may be made by words and also
by conduct
iii. Vokes v. Arthur Murray, Inc., 1968 dance studio takes oodles of
money from older widow, by telling her that she is improving.
1. General misrepresentation must be one of fact, not
opinion.
2. However, this does not apply when there is a fiduciary
relationship between the parties or where there has been
some artifice or trick employed by the representor or
where the representee does not have the equal footing to
apprise the truth or falsity of the fact represented
3. It could be reasonably supposed here that defendants had
superior knowledge as to whether plaintiff had potential

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4. R.2d 168. Reliance on Assertions of Opinion: (1) An

assertion is one of opinion if it expresses only a belief,
without certainty, as to the existence of a fact or expresses
only a judgment as to quality, value, authenticity, or
similar matters. (2) If it is reasonable to do so, the recipient
of an assertion of a persons opinion as to facts not
disclosed and not otherwise known to the recipient may
properly interpret it as an assertion (a) that the facts
known to the person are not incompatible with his opinion,
or (b) that he knows facts sufficient to justify him in
forming it.
5. R.2d 169. When Reliance on an Assertion of Opinion is not
Justified: To the extent that an assertion is one of opinion
only, the recipient is not justified in relying on it unless the
recipient (a) stands in such a relation of trust and
confidence to the person whose opinion is asserted that
the recipient is reasonable in relying on it, or (b)
reasonably believes that, as compared with himself, the
person whose opinion is asserted has special skill,
judgment or objectivity with respect to the subject matter,
or (c) is for some other special reason particularly
susceptible to a misrepresentation of the type involved.
C. UNCONSCIONABILITY
i. Williams v. Walker-Thomas, 1965 Furniture store sells furniture
on payment plans, and every time you buy more furniture it adds
the two prices together and then does a percentage. If you miss
one payment they revoke all the furniture.
1. Unconscionability has been generally recognized to include
an absence of meaningful choice on the part of one of the
parties together with contract terms which are
unreasonably favorable to the other party
ii. UCC 2-302. Unconscionable Contract or Clause: (1) If the courts
as a matter of law find the contract or any clause of the contract
to have been unconscionable at the time it was made the court
may refuse to enforce the contract, or it may enforce the
remainder of the contract without the unconscionable clause, or
it may limit the application of any unconscionable clause as to
avoid any unconscionable result. (2) When it is claimed or
appears to the court that the contract or any clause thereof may
be unconscionable the parties shall be afforded a reasonable
opportunity to present evidence as to its commercial setting.
iii. A bargain is not unconscionable merely because the parties to it
are unequal in bargaining position, nor even because the
inequality results in an allocation of risks of the weaker party. But
gross inequality of bargaining power, together with terms
unreasonably favorable to the stronger party, may confirm
indications that the transaction involved elements of deception

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X.

or compulsion, or may show that the weaker party had no

meaningful choice, no real alternative, or did not in fact assent or
appear to assent to the unfair terms.
iv. Gatton v. T-Mobile, 2007 - class action against T-Mobile for
charging an early termination fee and for providing locked
handsets that cant be used wit other subscribers. Also had an
arbitration clause.
1. Court found that unconscionability has two elements: a
procedural one and a substantive one
a. Procedural focuses on the existence of oppression or
surprise
i. Concerns the manner in which the contract was
negotiated and the circumstances of the
parties at the time
ii. Oppression: arises from an inequality of
bargaining power that results in no real
negotiation and an absence of meaningful
choice
iii. Surprise: the extent to which the supposedly
agreed upon terms of the bargain are hidden in
the prolix printed form drafted by the party
seeking to enforce the disputed terms
b. Substantive focuses on overly harsh or one-sided
results
i. No class action clauses for example
2. To be unenforceable, a contract must be both procedurally
and substantively unconscionable, but the elements need
not be present in equal degrees.
a. The more substantively oppressive a contract is the
less evidence of procedural unconscionability is
necessary
i. A contract of adhesion is written by the
superior bargainer and allows the bargainee to
simply accept or deny it, they are often at least
minimal evidence of procedural
unconscionability
Failure of Basic Assumption
A. MUTUAL MISTAKES
i. Just as a promise does not give rise to a contract, the mere fact
that it as a mistake to enter into a contract does not provide a
valid defense to its enforcement.
ii. The existence of a mistake, however, coupled with other
circumstances, can sometimes constitute a defense.
iii. R.2d 151. Mistake defined: A belief that is not in accord with the
facts.

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XI.

iv. Sherwood v. Walker, 1887 Seller sold a cow that they thought
was barren until they found out she was with calf and would not
deliver her.
1. Court found that the cow bargained for in the contract was
not the same as the cow that existed as a breeding cow
and non are of completely different worth and neither party
had no reason to know she could bare calves.
2. DISSENT: felt that the buyer thought she might be able to
be bred and just because he was more right about the cow,
shouldnt allow seller to just back out at any time
a. The mistaken party, acting entirely upon his own
judgment, without any common understanding with
the other party in the premises as to the quality of
the animal, is remediless if he is injured through his
own mistake
v. Nester v. Michigan Land, 1888 Buyer agreed to buy a certain
amount of land of pine trees. Turned out that half the pine was
bad. Wanted to pay only for the good half.
1. Court found that the two parties had entered into the
contract for the amount on the land, not the quality and
that the buyers own people had checked out the product.
If there had been twice as much good pine, would not be
expected to pay twice as much. Buyer must pay full price
because to do otherwise would be making a new contract
not enforcing the one already in existence.
vi. Wood v. Boynton, 1885 Woman sold a gem thinking that it was
a topaz and in reality to was a diamond.
1. If there is no suppression of knowledge on the part of the
buyer as to the value of the stone and there is an absence
of fraud or warranty, the value of the property sold, as
compared with the price paid, is no ground for rescission of
a sale.
vii.
Lelawee County Board of Health v. Messerly, 1982 Buyer
attempted to purchase land to turn into rentable property. After
purchase discovered that it was uninhabitable, which was
unknown to both buyer and purchaser.
1. Court found that cases of mutual mistake must be taken on
case by case basis
2. Rescission is indicated when the mistaken belief relates to
a basic assumption of the parties upon which the contract
is made, and which materially affects the agreed
performances of the parties
3. Purchaser agreed to contract that they had examined the
property and agreed to take it in its present condition,
purchaser assumed the risk
Damages for Breach of Contract
A. Limitations on Damages: Remoteness or Foreseeability of Harm

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Professor Pike

i. Hadley v. Baxendale, 1854 Mill had to shut down because piece

broke. Sent piece out to get fixed saying they wanted it within a
day, ended up taking longer and so they sued for lost profits.
1. Where two parties have made a contract which one of
them has broken, the damages which the other party
ought to receive in respect of such breach of contract
should be such as may fairly and reasonably be considered
either arising naturally, i.e., according to the usual course
of things, from such breach of contract itself, or such as
may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it.
2. If the special circumstances under which the contract was
actually made were communicated by the plaintiffs to the
defendants, and thus known to both parties, the damages
resulting from breach of such a contract, which they would
reasonably contemplate, would be the amount of injury
which would ordinarily follow from a breach of contract
under these special circumstances so known and
communicated.
3. Consequential damages: those that dont inherently come
from the breach
ii. Martinez v. Southern Pacific Transportation Co., 1979 a piece of
equipment was being transported by rail in 5 cars. The 5th car
was delayed by one month and the whole machine could not be
used for the month. Sued for loss profits for the month.
1. RR company could foresee that a missing piece of
equipment would stall its use and making of profits.
2. The equipment itself had a value as a whole or in parts
3. These are not consequential damages but rather parts that
have value in their own right as opposed to Hadley where
the broken part did not really have its own value.
iii. Morrow v. First National Bank, 1977 Plaintiff asked bank
employee to notify him when safe deposit boxes came in so that
he could store his valuable coin collection. Employee did not
immediately inform him and coins were stolen.
1. Employees words were not a tacit agreement and there
was no consideration guaranteeing that the bank would
notify him as soon as the safe deposit boxes came in
a. Tacit agreement test: plaintiff must prove more than
the defendants mere knowledge that a breach of
contract will entail special damages to the plaintiff. It
must also appear that defendant at least tacitly
agreed to assume responsibility.
b. There must be notice and tacit agreement of special
circumstances
2. ** MAJORITY VIEW: there only need be notification (UCC)

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Professor Pike

a. economic view: once notified they are in best

position to avoid
B. CERTAINTY OF HARM
i. Chicago Coliseum v. Dempsey, 1932 Plaintiff arranged contract
with boxer to fight for them at a designated place and time and
required that he not fight or train for other fights. He backed out
and began training for other fight.
1. Court found that some damages were not recoverable:
a. Expectation damages from the fights profit: not
easily measurable, too many factors, not built in
explicitly to the contracts terms
b. Cant recover damages incurred before a contract
was signed
c. Expenses after contract signed are recoverable
d. Expenses in judicial matters not recoverable because
taken at own risk
ii. It is subject that whenever profits are rejected as an item in the
calculation of damages, it is because they are subject to too
many contingencies of business to constitute a safe criterion for
an estimate of damages.
1. Otherwise the amount of damages would be conjecture
and could be left to an impassioned jury which could be
unfair
iii. R.2d 346 Availability of Damages: (1) The injured party has a
right to damages for any breach by a party against whom the
contract is enforceable unless the claim for damages has been
suspended or discharged. (2) If the breach caused no loss or if
the amount of the loss is not proved under the rules stated in
this Chapter, a small sum fixed without regard to the amount of
loss will be awarded as nominal damages.
iv. R.2d 349 Damages Based on Reliance Interest: As an alternative
to the measure of damages stated in 347, the injured party has
a right to damages based on his reliance interest, including
expenditures made in preparation for performance or in
performance, less any loss that the party in breach can prove
with reasonable certainty the injured party would have suffered
had the contract been performe.
v. Anglia Television v. Reed, 1971 Agent committed Reed to do a
TV movie and then backed out 4 days later because of another
commitment. Producers were unable to find anyone else to do
the movie and had to scrap the whole project. Sued Reed for
expenses.
1. Court found that the plaintiff had the choice of suing for
loss of profits or expenses paid, but not both.
a. If he cannot sue for loss of profits or cannot prove
what his profits might have been must sue for

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Professor Pike

expenses paid/expenditure that has been thrown

away because of the breach.
b. If claims wasted expenditure can claim expenses
incurred both expenses after contract was concluded
and before, such as would reasonably be in the
contemplation of the parties as likely to be wasted if
the contract was broken.
c. When breaching parties breach makes it infeasible to
continue
vi. Mistletoe Express v. Locke, 1988 Mistletoe breached contract
because Locke was losing money.
1. Where the contract requires a capital investment by one of
the parties in order to perform, that partys reasonable
expectation of profit includes recouping the capital
investment.
a. To recover these expenditures they must have
reasonably made in performance of the contract or in
necessary preparation.
b. R.2d 349: As an alternative to expectation damages,
the injured party has a right to damages based on his
reliance interest, including expenditures made in
preparation for performance or in performance, less
any loss that the party in breach can prove with
reasonable certainty the injured party would have
suffered had the contract been performed.
i. It is on the party in breach to prove the amount
of loss the plaintiff would have incurred if there
had been no breach
C. AVOIDABILITY OF HARM
i. Default Rule: lost profits + amount expended (same position as if
contract had been performed, expectation)
ii. Rockingham v. Luten Bridge Co., 1929 County told bridge
builders to stop building but kept building anyways. Told them
they would only pay for bridge up until breach.
1. When a party anticipatorily breaches a contract, non
breaching party can,
a. Ask for assurance
b. When unsure, can proceed with work
c. When sure, should stop
i. DUTY TO MITIGATE DAMAGES: make damages
as less as possible, not ok to take advantage of
breaching party, put innocent party in position
as if contract had been performed and
breaching party in least bad position as
possible
ii. Always mean to stop work?

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Professor Pike

1. Sometimes doesnt make sense so

continue work and replace (duty to a
third party or if will lose value of work
done [exposed wood])
th
iii. Shirley McLaine v. 20 Century Fox, 1970 Canned film McLaine
was supposed to work on and then she declined the other movie
they offered her for same price but she wouldnt do it. She sued
for breach.
1. Duty to mitigate damages must be work that is
substantially comparable and similar in kind
2. Duty is not absolute
iv. R.2d 350. Avoidability as a Limitation on Damages: (1) Except as
stated in Subsection (2), damages are not recoverable for loss
that the injured party could have avoided without undue risk,
burden or humiliation (2) The injured party is not precluded from
recovery by the rule stated in Subsection (1) to the extent that
he has made reasonable but unsuccessful efforts to avoid loss.
v. Neri v. Retail Marine Corp., 1972 Buyer ordered a boat and then
wouldnt pay for it. Seller sued for breach of contract.
1. The court found that because the seller had an unlimited
supply of the boats and that the only damages incurred
were that the seller could have gotten another sale.
2. Damages were the profits seller would have made from
another sale
3. UCC 2-708: Sellers Damages for Non-Acceptance or
Repudiation: (1) Subject to subsection (2) and to the
provisions of this Article with respect to proof of market
price (Section 2-723), the measure of damages for nonacceptance or repudiation by the buyer is the difference
between the market price at the time and place for tender
and the unpaid contract price together with any incidental
damages provided in this Article (Section 2-710), but less
expenses saved in consequence of the buyers breach. (2)
If the measure of damages provided in subsection (1) is
inadequate to put the seller in as good a position as
performance would have done then the measure of
damages is the profit (including reasonable overhead)
which the seller would have made from full performance by
the buyer, together with any incidental damages provided
in this Article (Section 2-710), due allowance for costs
reasonably incurred and due credit for payments or
proceeds of resale.
4. UCC 2-718: Liquidation or Limitation of Damages;
Deposits: Damages for breach by either party may be
liquidated (set at a precise #) at a reasonable price before
hand limited by restrictions.
D. Contracting Around the Default Rules of Damages

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Professor Pike

i. EXPRESS LIMITATIONS ON CONSEQUENTIAL AND INCIDENTAL

DAMAGES
1. Parties may seek to limit their liability under the default
rules of contract damages by including a warranty clause
that is expressly intended to be the exclusive remedy for
breach of contract, thereby excluding other foreseeable
losses.
2. UCC 2-719. Contractual Modification or Limitation of
Remedy: (1) Subject to the provisions of subsections (2)
and (3) of this Section and of the preceding section on
liquidation and limitation of damages, (a) the agreement
may provide for remedies in addition to or in substitution
for those provided in this Article and may limit or alter the
measure of damages recoverable under this Article, as by
limiting the buyers remedies to return of the goods and
repayment of the price or to repair and replacement of
non-conforming goods or parts; and (b) resort to a remedy
as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.
(2) where circumstances cause an exclusive or limited
remedy to fail of its essential purpose, remedy may be had
as provided in this Act. (3) Consequential damages may be
limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for
injury to the person in the case of consumer goods is prima
facie unconscionable but limitation of damages where the
loss is commercial is not.
ii. LIQUIDATED DAMAGES vs. PENALTY CLAUSES
1. Kemble v. Farren, 1829 Actor refused to act second
season. Had a liquidation clause for 1000 pounds.
a. If the two contracting parties determined reasonable
damages on their own, there is no reason not to
enforce.
b. Liquidated damages are usable for:
i. Efficient
ii. There may be no proper legal remedy
iii. Allows someone to recover when damages are
uncertain
iv. Allows to still recover for things like damage to
reputation
c. Can be a lump sum or a formula
2. Wasenaar v. Towne Hotel, 1983 fired employee with 21
months left in contract and didnt want to pay liquidated
damages of whole contract, employee then got a job 2.5
months later, hotel only wanted to pay 2.5
a. Court found that hotel should pay full contract
because it was bargained for. If you dont enforce

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Professor Pike

XII.

liquidation contracts then it takes away incentive to

use them.
Other Remedies and Causes of Action
A. SPECIFIC PERFORMANCE
i. And equitable remedy type of extraordinary relief, defendant is
subjected to enforcement of the judgment, not punishment of
disobedience.
ii. Specific performance order is a form of injunction that compels
the defendant to act to perform his contract with the plaintiff
iii. CONTRACTS FOR LAND
1. In cases of land, specific performance is often awarded as
a matter of course
iv. CONTRACTS FOR GOODS
1. In the case of things that are functionally unique or difficult
to come by, usually the remedy will be specific
performance.
v. UCC 2-716. Buyers Right to Specific Performance or Replevin:
(1) Specific performance may be ordered where the goods are
unique or in other proper circumstances. (2) The judgment
(decree) for specific performance may include such terms and
conditions as to payment of the price, damages, or other relief as
the court may deem just. (3) The buyer has a right of replevin for
goods identified to the contract if after reasonable effort he is
unable to effect cover for such goods or if the goods have been
shipped under reservation and satisfaction of the security
interest in them has been made or tendered.

Questions
Can you only recover on breach of contract OR promissory estoppel? (Essay)
Promissory estoppel is only if there was no contract, right?