110 Page Outline

Contracts
Professor Pat Gudridge
Housekeeping Issues:
• One final exam – essay, open book, all materials allowed.

• Is not a stickler for being on time since it is an 8a class, come in back if late.
• Participation will not count towards grade.
• Strong inferences that you should key in carefully to the things that the
Professor feels are key, watch his reactions and responses to see what HE
thinks is important.
• Professor feels that too much attention to individual cases is not helpful and
that you cannot assume that the judge is always correct in the case. We will
act as if every case in the course is “up for grabs” and we won’t
assume that the judge got it right.
• He does not like supplements because he feels that at the end of the
day, there is little that is fully clear in contracts law. Sounds like he
wants exam answers that are less formulistic and more
philosophical…
Prof asks – what is a contract?
Gives example of sale of drugs – is this enforceable? Response to student who said
that a contract must/would be enforceable by the court. We have a concept that
agreements should be enforceable by the court as a last resort.
Problem of efficient breach. Involves a business contract that will take place
over time when it is later in the agreement and the deal is no longer advantageous
for one of the parties.
• Prof says that we can imagine a regime of promises based on self-interest
and that most will keep them because they care about their reputation and
ability to contract again but clearly we don’t think this is good enough
because we feel that we cannot trust everyone to keep such promises. This
is one obvious reason to ensure the court backs such promises. Worry of
promise breaking being contagious if there is no enforcement via the court.
• Discussion of the importance of relying on formal arrangements. If they are
too easy to break because it may not longer be a good deal for one party, it
would allow the “out” to be used so frequently there could be no reliance on
making an arrangement. Bear in mind this is one view, not the only one.
This view says contracts are about being able to predict and rely on
arrangements.
• Focus of the law is not so much spot transactions but arrangements that
require deals / performance over a longer period of time.
Contract law deals with conspicuous efforts to make agreements. In other words,
we don’t fall into an agreement accidentally. This is one difference between tort
law and contract law.
Contract Notes
Page 1 of 124
Discussion of “easy promise making”. We need enforceability so that we can
make promises easier but is that necessary a good thing? Gives example of current
housing crisis.
Discussion of what makes a contract-
• Could include such formalities – signatures, seals, various requirements, in

writing
• When evaluating what makes a contract, we will often go back to the theory
behind why we believe we need formal enforceable contracts.
• Initial intention? Why is this weighed so heavily? Is it because they are the
most “moral” at this point before they know if the deal will be a good one?
Intro concept in Chapter 4 – Formation of a K requires 2 basic elements:

1. The mutual assent of the parties and
2. Some showing that this assent is the kind that the law will enforce.
Next cases deal with the objective theory of assent.
Embry v. Hargadine, McKittrick Dry Goods (p 290) Yes K
Summary: Alleged verbal agreement between an employee and employer for a

renewal of employment contract for 1 year. Different versions of the verbal
conversation, employee alleges there was an agreement, employer states he never
agreed. Employer stated that he was really just telling him that he needed to go
back to work and employee feels that he statement was assuring him that his
employment would be renewed for another year. Was there a meeting of the
minds??? Court finds a K based on what was stated by the employer and that a
reasonable person would have interpreted what was said as a K. Court felt that a
reasonable person would have interpreted the employers comments as a K and
stresses that a basic rule of contract law is that contracts are based on actual words
and deeds, not what one or the other person might have been internally thinking.
Class Notes:
Think about how you would argue for the employer.
Discussed the idea of the Learned Hand formula as applied to this case – not just
the reasonable person standard. Burden of adequate precautions. What were the
possible risks and harm vs the burden of precautions? Could/ should this test be
used to make a determination?
Texaco v. Pennzoil (p 295)
Summary: This case deals with objective manifestation of intent – i.e., that which
is overt and obvious – acts and words and written information. As in the case above
the court finds contracts must be based on objective manifestations by deeds and
acts. Here Texaco asserted that the court erred by limiting evidence of an
agreement to just what took place between the two main parties and excluded
other outward manifestations of intent. Here, that they alleged that other evidence
consisted of a filing with the SEC and board meeting discussions. Court agreed
Contract Notes
Page 2 of 124
that the SEC filing would be considered an objective outward manifestation of intent
and could be considered but that conversations to which Pennzoil was not a party
were secret, subjective manifestations that were property excluded. Case
discussed the Restatement (Second) of Contracts which states:
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.
Lucy v. Zehmer (p 296) Yes K
Summary: This case deals with a written agreement to sell a piece of property for
a fixed amount. The sellers then claim that it was all a drunken joke and that it was
not enforceable even though it had been written and signed by both sellers
(husband and wife). Court finds a K and is willing to enforce it, as there was no
compelling reason not to enforce it and the buyer clearly had good reason to
believe it was an actual offer. Here it seems pretty clear since it was a written
agreement (albeit on a scrap pieces of paper) that was signed by all parties and had
been written with some care in regards to specific provisions of the sale.
Leads into discussion of what an offer really is. Today most business deals are too
complex to be so easily viewed as a straightforward offer and acceptance but the
concept remains.
Restatement (Second) of Contracts
§17 Requirement of a Bargain

(1) Except as stated in Subsection (2), a formation of a contract requires a
bargain in which there has been a 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 under the rules stated in §§ 82-94.
§ 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.
§ 19. Conduct as Manifestation of Assent

(1) The manifestation of assent may be made wholly or partly by written or
written or spoken words OR by other acts OR by failure to act.
(2) The conduct of a party is not effective as 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 clause.
What is an Offer
Nebraska Seed Co v. Harsh (p 305) No K
Contract Notes
Page 3 of 124
Summary: Action by a company selling and buying seed against a farmer. Famer
sends letter proposing to sell seed for a set amount. Seed company interprets the
letter as an offer and they accept it for the terms the famer had placed in the letter.
Famer then refuses to sell. Court determines that the letter(s) should not be
construed as a K but more as an invitation to bid. There were several issues
the court found with the letter that they used to justify not viewing it as a contract.
The farmer did not fix a time frame and did not fix an exact amount. Further, there
is the issue that the famer may have sent the same letter to a number of seed
companies – there would have to be further conversation before the company (or
any company) would be able to reasonably assume it was a firm offer.
Class Notes:
Why was the judge incorrect with this decision? Could you not say that an offer was
made with the letter and accepted with the return letter? What if Harsh had sent
the letter to a number of people and someone else had responded first and he sold
it to them? (That is likely what happened)
One option – this is a straightforward spot transaction. Anther view is that both
parties understand that it is a complex agreement with details to be worked out and
thus cannot be so easily accepted, must first confirm exact details. Middle ground
might be the example of buying a cell phone that seems like a spot transaction but
comes with detailed contract. Remember two things – we are talking about deals
that people make with one another. Some subset of these deals count as legally
enforceable contract… we are dealing with which ones fit and which do not.
The court says the burden is on the recipient to figure out what is really
occurring. You could say that this outcome would be harmful to the
market in some respects.
What about the outcome of this case if looked at under the UCC language?
2-204 is a good place to start. Suggests that intent is subjective. If there are not
holes and it seems reasonable to the court that a deal was intended – should
enforce it.
Leonard v. PepsiCo (p 308) No K
Summary: In short, the plaintiff in the case was seeking to

compel the Pepsi Company to comply with what the plaintiff
considered to be a binding contract with offer and acceptance, to
purchase a military fighter jet worth approximately 23 million
dollars with 7,000,000 “Pepsi points”. Pepsi had been running a promotion in which
customers could earn Pepsi points by purchasing and drinking Pepsi and then use
those points to buy such promotional items as t-shirts, jackets, bikes, etc. In a
commercial the Pepsi ran for the promotion, they made a humorous commercial
showing some of the items that could be redeemed for Pepsi points and concluded
with a depiction of a teenager buying a Harrier jet (shown at a price of 7,000,000
Pepsi points) and driving the jet to school. The plaintiff did not see the commercial
as a joke and decided he would attempt to obtain the jet. Pepsi also had an offer
that allowed consumers to buy the points themselves at .10 per point if they did not
have enough and thus the plaintiff raised money and eventually sent in a check for
some 700,000 odd dollars with a demand for the jet. Pepsi explained that no
reasonable person would have seriously believed that they could buy a jet with
Contract Notes
Page 4 of 124
Pepsi points and did not deliver the jet. Plaintiff sues Pepsi for performance and
defendant Pepsi wins a summary judgment. There are several contract law theories
used in the case:
1. Advertisements are not considered offers as a general rule but as
mere invitations to negotiate. Only exception is if the offer is very
explicit and specific and leaves nothing open to negotiation. Court found the
commercial to be a mere advertisement, not an offer.
2. Offers have to be judged by a reasonable person standard – i.e.,
would a reasonable person believe that an offer is seriously being made? If it
is clear the offer is not serious, no offer has been made.
Class Notes:
What is the plaintiff really seeking? Perhaps a settlement from Pepsi to avoid
negative publicity.
§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.
§24 Offer Defined: An 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.
§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.
Illustration: A clothing merchant, advertises overcoats of a certain kind for
sale at $50. This is not an offer, but an invitation to the public to come and
purchase. The addition of the words “Out they go Saturday; First Come, First
Serve” might make the advertisement an offer.
§29 To Whom An Offer is Addressed (1) The manifested intention of the

offeror determines the person or persons in whom is created a power of
acceptance.
(2) [Power may be had by individual or group]
§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 a 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
Contract Notes
Page 5 of 124
an acceptance.
Sales Contracts: The UCC
§2-204. Formation in General:

(1) A contract for sale of goods may be made in any manner sufficient to
show agreement, including offer and acceptance, conduct by both parties
which recognizes the existence of a contract, the interaction of electronic
agents, and the interaction of an electronic agent and an individual.
(2) An agreement sufficient to constitute a contract for sale may be found
even if the moment of its making is undetermined.
(3) Even if one or more terms are left open, a contract for sale does not fail
for indefiniteness if the parties have intended to make a contract and there is
a reasonably certain basis for giving an appropriate remedy.
Prof feels 2-204 is somewhat a radical notion…
§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 the shipment of nonconforming goods is not
an acceptance if the seller seasonably notifies the buyer that the
shipment is offered only as an accommodation to the buyer.
(2) If the beginning of a requested performance is a reasonable mode of
acceptance, an offeror that is not notified of acceptance within a reasonable
time may treat the offer as having lapsed before acceptance.
§2-305. Open Price Term

1) The parties if they so intend may conclude a contract for sale even if the
price is not settled. In such a case the price is a reasonable price at the time
for delivery if:
(a) nothing is said as to price;
(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 to be fixed
in good faith.
(3) If a price left to be fixed otherwise than by agreement of the parties fails
to be fixed through fault of one party the other may at the party's option
treat the contract as cancelled or the party may fix a reasonable price.
(4) If, however, the parties intend not to be bound unless the price is fixed or
agreed and it is not fixed or agreed there is no contract. In such a case the
Contract Notes
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buyer must return any goods already received or if unable to do so must pay
their reasonable value at the time of delivery and the seller must return any
portion of the price paid on account.
§2-308. Absence of Specified Place for Delivery

Unless otherwise agreed
(a) the place for delivery of goods is the seller's place of business or if
none, the seller's residence; but
(b) in a contract for sale of identified goods which to the knowledge of
the parties at the time of contracting are in some other place, that
place is the place for their delivery; and
(c) documents of title may be delivered through customary banking
channels.
§2-309. Absence of Specific Time Provisions; Notice of Termination

1) The time for shipment or delivery or any other action under a contract if
not provided in this Article or agreed upon shall be a reasonable time.
(2) If the contract provides for successive performances but is indefinite in
duration, it is valid for a reasonable time but unless otherwise agreed may be
terminated at any time by either party.
(3) Termination of a contract by one party except on the happening of an
agreed event requires that reasonable notification be received by the other
party and an agreement dispensing with notification is invalid if its operation
would be unconscionable.
§2-310. Open Time for Payment or Running of Credit; Authority to

Ship Under Reservation.
Unless otherwise agreed
(a) payment is due at the time and place at which the buyer is to
receive the goods even though the place of shipment is the place of
delivery;
(b) if the seller is required or authorized to send the goods, the seller
may ship them under reservation, and may tender the documents of
title, but the buyer may inspect the goods after their arrival before
payment is due unless the inspection is inconsistent with the terms of
the contract (Section 2-513);
(c) if tender of delivery is agreed to be made by way of documents of
title otherwise than by paragraph (b), then payment is due regardless
of where the goods are to be received (i) at the time and place at
which the buyer is to receive delivery of the tangible documents, or (ii)
at the time the buyer is to receive delivery of the electronic documents
and at the seller's place of business or if none, the seller's residence;
and
(d) if the seller is required or authorized to ship the goods on credit the
credit period runs from the time of shipment but postdating the invoice
or delaying its dispatch will correspondingly delay the starting of the
credit period.
Empro Manufacturing Co. v. Ball-Co Manufacturing, Inc. (p 319) No K
Contract Notes
Page 7 of 124
Summary: This is an issue of preliminary negotiations between two companies
that appeared purely conditional which one company then tries to enforce as a
binding offer / contract – an argument the court rejects. Ball-Co (defendant)
decides to sell its assets on the open market and Empro (plaintiff) sends letter of
intent that was clearly conditional and made sure that they were not obligated to
buy. The two companies did not reach agreement on security for the note and Ball-
Co starts negotiating with someone else for the sale. When Empro learns of this,
they file suit, alleging that the letter of intent obligates Ball-Co only to sell to Empro.
Empro asserts that the binding effect of the letter comes from the parties intent.
The court recognizes that intent in this area of law is based on objective
manifestations, i.e., what is written in the letters. Parties may bind themselves in
the preliminary negotiation stages but this would happen through clearly written
language which is how the intent would be determined. Here the intent was clearly
that there were provisions on both sides that ensured that both parties understood
that the letter of intent sent by Empro was conditional and subject to further
negotiations before it could be considered a binding contract.
Class Notes:
Once again, this is about a deal that falls apart. Letter of intent is at issue here.
How do we analyze the letter of intent? Court here says it is of no legal
significance. Too conditional.
• Discussion of the differences between Empro case and Texaco case.
○ In one there was a K, in one there was not a K. How to distinguish.
Letters of agreement were similar in both cases.
○ Jury case in Pennzoil, not in Embro. In Embro it was dismissed due to
failure to state a claim, never went to a jury.
○ Case are very different but they show an underlying question – should
we just be working with the documents? The UCC suggests that it is
not only the documents but also within the background of the statue.
So… do we just take the documents and look at them as freestanding
or do we bring in other factors? In Embro it was really only about the
documents. We will see these two approaches competing in this
course…..
§27 Existence of Contract Where Written Memorial is Contemplated

Manifestations of assent that are in themselves sufficient to conclude a
contract will not be prevented from so operating by the fact that the parties
also manifest an intention to prepare and adopt a written memorial thereof;
but the circumstances may show that the agreements are preliminary
negotiations.
Texaco v. Pennzoil (p 323) Yes K – Really a Torts Case
Summary: Pennzoil is trying to acquire Getty. Getty begins to deal with Texaco
and seems to pursue a better deal. Getty breaches and Texaco is felt to have been
responsible due to interference with the deal. This is yet another issue of intent (to
form an agreement) and again the court recognizes that in order to determine the
Contract Notes
Page 8 of 124
intent of the parties, they must look at objective manifestations of that intent –
words and deeds. Texaco (who says there is no deal) is relying on the press release
that was sent which did have some language that the agreement was subject to
approval and execution and stated that this showed conclusively that an actual
enforceable agreement had not yet been reached. In reading the language, the
court did not find it so clear as there were also many statements that suggested
that the approval was a mere formality and there was an appearance that a deal
had been reached. Jury determines that the Memo of Agreement was clear enough
that despite the position of Texaco that it was only a negotiation, that it was in fact
an agreement. Four factors were considered:
Class Notes:
• Does this case really belong in our contracts book? Three parties involved
and Pennzoil was not really a party to the agreement. They are suing in tort,
not really in contract. Suing for tortious interference. They are suing for
what they feel they lost – i.e., the profits they think they lost from not getting
to purchase the company.
• Constitutional issue in the background.
• Went to jury in this case.
Revoking an Offer – once there is an offer, when or whether it may be

revoked…
Dickinson v. Dodds (U.K. 1876) (p 328) No K
Summary: The issue in this case is if while an offer for the sale of property is still
open but before it is accepted, if the offeror sells that property to someone other
than the offeree and the offeree somehow receives notice of this transaction, can
the offeree still make a binding contract by the acceptance of the offer?
Facts: On Wed, Dodds offered to sell house to Dickinson. On Thurs, Dodds sold to
Allan (then Dodds found out). On Fri, Dickinson tried to accept offer and was
refused. The defendant offered to sell property for 800 pounds on June 10, 1874 to
the plaintiff. The offer was said to be open until 9:00 June 12, 1874. On June 11 the
plaintiff was informed that the defendant had sold the property to someone else. On
hearing this, the plaintiff went to the defendant's mother-in-law's house (where the
defendant was staying) and gave an acceptance to the mother-in-law. This never
reached the defendant as she forgot to give it to him. The next morning, an agent
of the plaintiff and then the plaintiff himself each gave the defendant acceptances
as well. They were both told that the defendant had already sold the property to
someone else. The plaintiff brought an action for specific performance against the
defendant.
Held: An offer does not bind the offeror to hold the offer open until the time that he
claimed that he would. The law is that, in order to make a contract, the two minds
must be in agreement at some one time (the time of the acceptance). When the
offeree knows that the offeror has sold the property to someone else then he knows
that the offeror has not remained in the same frame of mind to sell it to the offeree.
Contract Notes
Page 9 of 124
Law: Before acceptance, parties free to change – if offer revoked, then there is no
meeting of minds at time of supposed acceptance. Dickinson knew offer was
revoked because Dodds sold to Allen. No contract. See Restmt. § 43
Class Notes:
• Court seemed to hinge on the fact that there was no “meeting of the minds”
because Dickinson knew that Dodds was already selling to someone else and
thus Dodd’s was not in agreement.
• Why should we not enforce this? Good faith?
• This case introduces us to the ritualized process of offer and acceptance. If
you follow the process we will consider there to be a deal, if not, we won’t. It
is not clear that offer and acceptance is always a clear concept.
• Under UCC/Restatement is Dickinson correctly decided? I say yes – see sec
43. Professor seems to stress the fact that it is not so easy to apply sec 43
since it requires a “definite action” inconsistent with the intention to enter
into the proposed contract and it may be hard to say what a definite action is.
• Idea of option contract. If Dodd’s had agreed to deal only with Dickinson, it
may have been an option contract and there would have been damages.
Class Notes Jan 20
Discussion of Uniform Commercial Code (UCC). What is it? Is it the same

as the Restatement or is it different?
• American Law Institute is the organization responsible for the Restatement.
Volunteers who feel they are helping the law with evolution and clarity.
• There was a feeling that the law was a mess and that it needed to be better
organized.
• Historical discussion of West and the importance of the key note system of
organizing cases. This also let to finding that the law was not consistent.
Leads to Pound who becomes the Dean of Harvard and then leads to the ALI.
• We work with the Second Restatement of Contracts (from Corbin).
• The UCC is law, unlike the restatement, which is not considered law. UCC is
almost identical from state to state. Hugely influential, one of the most
important aspects of this course. Somewhat analogous to tort law in some
ways in that you use a reasonable person standard.
• The Uniform Commercial Code (UCC) is a collection of modernized, codified,
and standardized laws that apply to all commercial transactions with the
exception of real property. Developed under the direction of the National
Conference of Commissioners on Uniform State Laws, the American Law
Institute, and the American Bar Association (ABA), it first became U.S. law in
1972. Since that time, it has undergone a process of constant revision.
For Thur – will discuss Dickinson and UCC.
§17 Requirement of a Bargain
§18 Manifestation of Mutual Assent

Contract Notes
Page 10 of 124
§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.
§24 Offer Defined: An 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.
§25 Option Contracts
§35 The Offeree’s Power of Acceptance
§36 Methods of Termination of the Power of Acceptance
§37 Termination of Power of Acceptance Under Option Contract
§42 Revocation by Communication From Offeror Received by Offeree
§43 Indirect Communication of Revocation
§2-205. Firm Offers
Leads Into What is Acceptance?
Offer can be revoked until it is accepted (unless an option) so the issue of mutual
assent sometimes depends on whether or not an offeree has accepted.
Mirror Image Rule
Addresses situations in which the acceptance differs from the offer in some way. If
there is acceptance or not depends on:
• Has the contract performance begun? Before performance, it is easier to
contest.
The Mirror Image Rule basically states that when an offer is accepted, any
qualification or departure from the original terms invalidates the offer unless agreed
to by the party who made it.
Ardente v. Horan (p 336) No K
Summary: This case deals with the mirror image rule. The potential buyer made
an offer, which the seller accepted, but when the potential buyer returned the sales
Contract Notes
Page 11 of 124
contract, they also included a letter that suggested that the sale would be
contingent on some new terms (inclusion of furniture, etc). The seller decided not
to sell to them and the potential buyer brought an action to force them to conclude
the deal. Court found no contract because the acceptance by the potential buyer
added new terms and was not an unambiguous acceptance – it suggested it was a
conditional acceptance and thus there was no clear offer and acceptance.
OVERVIEW: The buyer executed and returned the sellers' sales contract for the
purchase of real estate accompanied by a letter that indicated he desired for certain
items to have remained a part of the land. The sellers' refused to agree to sell the
listed items or sign the sales contract, so the buyer filed an action for specific
performance of the sales contract, but the trial court granted the sellers' motion for
summary judgment on the ground that the letter constituted only a conditional
acceptance of the sellers' offer to sell the property, therefore it was a counteroffer
that the sellers had not accepted, which was insufficient to have formed a binding
contract. The court affirmed on appeal. The court ruled that the delivery of the sales
contract to the buyer was an offer, but that the buyer's letter in response was not a
definite and equivocal acceptance of that offer because it imposed additional
conditions on the offer. In light of this construction, the court ruled that the trial
court had properly held that the buyer's response was a rejection of the sellers'
offer, therefore no genuine issue of material fact existed as to whether there was a
binding agreement.
OUTCOME: The court affirmed the judgment of the trial court that granted the
sellers' motion for summary judgment in the buyer's action for specific performance
of a real estate sales contract.
Class Notes:
• Shoot the lawyer for the plaintiff??? What should the lawyer have done?
Likely accepted clearly and unambiguously and then make a separate inquiry
about the other items that were of interest to the buyer. Lawyer enabled the
sellers to get out of the deal.
• Why was there no back and forth negotiation? Perhaps the seller got a better
offer and used the new conditions suggested by the potential buyer as a way
out.
• NOTE – THIS IS A REAL PROPERTY CASE AND THUS WOULD NOT BE
COVERED UNDER THE U.C.C.
• If it were under the U.C.C. 2-207, the plaintiff would have won the case and
the possibility of new terms would not have been a deal-breaker. Why does
the UCC reject the mirror image rule? I think because the UCC is governing
everyday business transactions and wants to ensure they go smoothly.
• Professor speaks to the idea that sometimes lawyers screw up the deal and
that sometimes it might be better (if you want the deal to go thru) to leave
well enough alone.
• Idea that certain industries have a goal of straightforward and simplified rules
(industry custom) and you may need to know what this is to do a good job if
you are involved.
An option contract is defined as "a promise which meets the requirements for the
formation of a contract and limits the promisor's power to revoke an offer."
Restatement (Second) of Contracts § 25 (1981).
Contract Notes
Page 12 of 124
• Quite simply, an option contract is a type of contract that protects an offeree
from an offeror's ability to revoke the contract.
• Consideration for the option contract is still required as it is still a form
of contract. Typically, an offeree can provide consideration for the option
contract by paying money for the contract or by rendering other performance
or forbearance. See consideration for more information.
Acceptance by Correspondence – The Mailbox Rule
Basically – acceptance is effective upon dispatch.
Acceptance by Performance or “Unilateral” Contracts.
This is an issue dealt with in Carbolic Smoke Ball case below.

On rare occasion, an offeror will invite the offeree to accept by actually performing
the acts that the offeror is bargaining for.
The difference is the mode of acceptance.
• Bilateral contacts are agreements that result from acceptance of a
promise.
• Unilateral contracts are those that result from acceptance of
performance.
Carlill v. Carbolic Smoke Ball Co. (p 343) YES K
Summary: Reward offered for anyone who gets sick while using smoke ball,
woman uses and gets sick. Not a unilateral contract because there is payment in
exchange for the promise that you won’t get sick. The reward is the liquidated
damages if they breach and you do get sick. Performance is sufficient without
notice. Not a contract with the world, but a valid offer to the world. Basically an
enforceable warranty.
Class Notes:
• There is no clear offer and acceptance in this case, it is a different type of
contract case.
• There are 2 opinions given, why?
• There are 2 ideas in the case, one is that there was an offer and then
acceptance by performance and the other idea is that you can dispense
with the need for acceptance (which they did).
• Simpsons article – history of the smoke ball.
White v. Corlies & Tifft (p 358) NO K (No real acceptance communicated)
OVERVIEW: The action was for an alleged breach of contract.

Defendant (owned building) sent an offer for carpentry work to plaintiff (did
construction), and plaintiff purchased the necessary materials and started
working on them, but did not communicate his acceptance to the defendant.
Defendant withdrew his offer the next day, and plaintiff brought suit. The
court reversed the judgment for the plaintiff, holding that while there can
be an acceptance without the offeror being aware of it, the
acceptance must be manifested by an appropriate act, and plaintiffs
Contract Notes
Page 13 of 124
purchase of the materials and working on them, even if he had
mentally accepted the offer, were not such as to manifest
acceptance to defendant.
Facts: The plaintiff was a builder, with his place of business in Fortieth
Street, New York city. The defendants were merchants at 32 Dey Street. In
September 1865, the defendants furnished the plaintiff with specifications,
for fitting up a suit of offices at 57 Broadway, and requested him to make an
estimate of the cost of doing the work. On September twenty-eighth the
plaintiff left his estimate with the defendants, and they were to consider upon
it, and inform the plaintiff of their conclusions. On the same day the
defendants made a change in their specifications and sent a copy of the
same, so changed, to the plaintiff for his assent under his estimate, which he
assented to by signing the same and returning it to the defendants. On the
day following the defendants' bookkeeper wrote the plaintiff the following
note:
“New York, September 29th.
Upon an agreement to finish the fitting up of offices 57 Broadway in
two weeks from date, you can begin at once. The writer will call
again, probably between five and six this P. M.
W. H. R.,
For J. W. Corlies & Co.,
32 Dey Street."
No reply to this note was ever made by the plaintiff; and on the next day a
second note from the defendants countermanded the same. Immediately on
receipt of the note of September twenty-ninth, and before the countermand
was forwarded, the plaintiff commenced a performance by the purchase of
lumber and beginning work.
And after receiving the countermand, the plaintiff brought this action for
damages for a breach of contract. The court charged the jury as follows:
"From the contents of this note which the plaintiff received, was it his
duty to go down to Dey Street (meaning to give notice of assent),
before commencing the work? In my opinion it was not. He had a right
to act upon this note and commence the job, and that was a binding
contract between the parties."
To this defendants excepted.
OUTCOME: Judgment for the plaintiff reversed and remanded for a new trial
because the evidence did not show plaintiff effectively accepted the
defendant's offer for a contract.
Class Notes:
• Is this outcome unfair to the contractor? Why would he not be compensated
for the materials or at least perhaps the storage of the materials? Prof says
perhaps the court got it right because there were ways the contractor could
have protected himself.
• Llewellyn’s poem seems to suggest that the judge got it wrong and there
should have been a contract.
Contract Notes
Page 14 of 124
§30 Form of Acceptance Invited – paraphrased, offer can invite
acceptance by an affirmative written answer, by performing or not
performing a specific act, or may allow the person accepting to chose the
terms of his acceptance. Part 2, if not stated in the language or by the
circumstances, an offer invites acceptance by any means reasonable under
the circumstances.
§32 Invitation of Promise or Performance - paraphrased, in case of

doubt, an offer is interpreted as inviting the person accepting to accept by
promising to perform or by performing, as the person accepting chooses.
Petterson v. Pattberg (p 362) NO K (offer withdrawn before it became a

binding promise)
OVERVIEW: Plaintiff executrix sought performance of an agreement

concerning a debt with defendant bond owner, which provided for a reduced
principal if it was paid off early. The decedent originally, paid defendant
installments of the principal. After several installment periods passed,
decedent attempted to relinquish the debt in full with a lump sum payment to
defendant. Litigation ensued when defendant refused to accept the sum. The
trial court awarded a judgment in favor of plaintiff, requiring fulfillment of the
agreement. Upon final determination, the court reversed the appellate court's
affirmance of this judgment. Specifically, the court held that due to the fact
that the provisions of the contract were unilateral, defendant was rightfully
able to withdraw the offer before decedent's act was completed. As a result,
plaintiff was required to pay the loan without interest forbearance.
Facts: Basically stated, the defendant made a unilateral offer to accept a

lump sum payment from the plaintiff and when the plaintiff came to perform,
the defendant changed his mind after being told that the plaintiff was here to
pay and told him he had already sold the debt.
PROCEDURAL POSTURE: Defendant bond owner appealed a decision

requiring performance of an agreement in favor of plaintiff executrix, from
the Appellate Division of the Supreme Court in the second judicial
department (New York), asserting that the contract was not binding as a
matter of law.
OUTCOME: The court reversed the appellate court on the grounds that that
since defendant and the decedent entered into a unilateral contract;
defendant was legally entitled to revocation rights before performance was
completed. The complaint was dismissed. Dissent felt that there was a K and
the outcome was unfair and the reasoning of the majority flawed.
Class Notes:
• Two competing views here, majority and dissent. Dissent addresses lack of
good faith and uses this as argument. Majority seems to say that these are
the rules of the game and he was within the rules.
Contract Notes
Page 15 of 124
§45 Option Contract Created by Part Performance or Tender –
paraphrased – when the offer invites the person accepting to accept by
performance and does not invite a promissory acceptance, an option contract
is created when the person accepting tenders or begins the invited
performance or tenders a beginning of it. 2nd, the duty of the person
offering under any option contract is conditional on the completion or or
tender of the invited performance in line with the terms of the offer.
§62 Effect of Performance by Offeree Where Offer Invites Either

Performance or Promise – paraphrased – when an offer invites the
person accepting to chose between accepting by promise and accepting by
performing, the beginning of the performance or a tender of a beginning of it
is an acceptance by performance. 2nd, such an acceptance operates as a
promise to fulfill complete performance.
Acceptance By Silence
Lead in to Hobbs – an offer can be accepted by the promise or performance of an

offeree – now the question is can it also be accepted by doing nothing at all?
Hobbs v. Massasoit Whip Co. (p 368) Yes K
OVERVIEW: Plaintiff testified that, as in previous sales, he delivered the

skins in question to an individual who forwarded them to defendant. The
action was initiated when plaintiff was not paid for the eel skins and
defendant kept them for some months until they were destroyed. The court
held that it was taken that plaintiff received no notice that defendant
declined to accept the skins. The case was before the court on exceptions to
an instruction to the jury which stated that plaintiff was warranted in sending
the company skins conforming to the requirements, and even if the offer was
not such that the contract was made as soon as skins corresponding to its
terms were sent, sending them imposed on the company a duty to act about
them. Silence on the company's part, coupled with a retention of the
skins for an unreasonable time, could be found by the jury to
warrant plaintiff in assuming that they were accepted, and thus to
amount to an acceptance. The court held that conduct importing
acceptance, the retention of the skins, was acceptance in the view of
the law and the jury instruction was warranted.
Facts: Contract, upon an account annexed for one hundred and eight
50/100 dollars, for 2,350 eelskins sold by the plaintiff to the defendant. At the
trial in the Superior Court, before Hammond, J., it appeared in evidence that
the plaintiff lived in Saugus, and the defendant had its usual place of
business in Westfield, and was engaged in the manufacture of whips.
The plaintiff testified that he delivered the skins in question to one Harding of
Lynn, on February 18, 1890, who upon the same or the following day
forwarded them to the defendant; that the skins were in good condition when
received by Harding, 2,050 of them being over twenty-seven inches in length
each, and the balance over twenty-two inches in length each; that he had
forwarded eelskins to the defendant through said Harding several different
Contract Notes
Page 16 of 124
times in 1888 and 1889, and received payment therefor from the defendant;
that he knew the defendant used such skins in its business in the
manufacture of whips; that the skins sent on February 18, 1890, were for
such use; that he understood that all skins sent by him were to be in good
condition and over twenty-two inches in length, and that the defendant had
never ordered of him skins less than twenty-two inches in length; and that
Harding took charge of the skins for him and that he received orders through
Harding, but that Harding was not his agent.
Harding, who was called as a witness, testified that he had some
correspondence for the plaintiff with the defendant in reference to skins; that
he acted for the plaintiff in forwarding skins to the defendant, and in
receiving pay therefor, and acted for the plaintiff in giving him any
information, order, or notice which he received from the defendant in
reference to skins sent or to be sent.
The defendant contended that Harding acted as the plaintiff's agent. The
plaintiff contended that Harding acted as the agent of the defendant, and not
as his agent. On this point the evidence was conflicting, and the question was
submitted to the jury, upon instructions not excepted to.
Four letters were offered in evidence, three of which, dated in 1889, showed
transactions between the plaintiff and the defendant, and the fourth of which,
dated Lynn, February 18, 1890, signed by Harding and addressed to the
defendant, was as follows: "We send you to-day, for Mr. Hobbs, 2,050
eelskins at .05 and 300 at .02."
One Pirnie, president of the defendant corporation, called by the defendant,
testified that before February 18, 1890, the plaintiff had sent eelskins four or
five times by Harding to the defendant, which were received and paid for by
the defendant; that the defendant agreed to pay five cents each for eelskins
over twenty-seven inches in length, and two cents each for eelskins over
twenty-two inches in length and less than twenty-seven inches, suitable for
use in the defendant's business; that Harding was not acting for the
defendant, but for the plaintiff; that the defendant never ordered the skins in
question, and did not purchase them in any manner, and that no officer or
employee of the corporation except himself had authority to order or
purchase skins, and that he never ordered or purchased those in question;
that skins came from Hobbs through Harding on February 19 or 20, 1890, and
were at once examined by him, and found to be less than twenty-two inches
in length, and found to be unfit for use, and that he notified Harding at once,
in writing, that the skins were unfit for use, and that they were held subject to
the plaintiff's order; that the skins remained some months at the defendant's
place of business in Westfield, and were then destroyed; and that the
defendant received no other skins in the month of February from the plaintiff
or from any other person.
One Case, the defendant's shipping clerk, and one Gowdy, the defendant's
treasurer, testified that the skins sent on February 18, 1890, and received
February 19 or 20, 1890, were examined by them, and were very short, in
very bad shape, not fit for use, and worthless.
The judge instructed the jury that the plaintiff could not recover for eelskins
less than twenty-two inches in length, nor for any of the eelskins if they were
in the condition described by the witnesses for the defendant.
Contract Notes
Page 17 of 124
The plaintiff denied that he received any notice from the defendant
that the skins were not suitable for use, or that they were held
subject to his order.
The judge, among other instructions, also gave the following: "Whether there
was any prior contract or not, if skins are sent to them (the defendants) and
they see fit, whether they have agreed to take them or not, to lie back and
say nothing, having reason to suppose that the man who has sent them
believes that they are taking them, since they say nothing about it, then, if
they fail to notify, you would be warranted in finding for the plaintiff, on that
state of things."
The jury returned a verdict for the plaintiff; and the defendant alleged
exceptions.
OUTCOME: The judgment was affirmed and the exceptions were overruled.
Class Notes:
• Discussion of Justice Holmes – wrote the Common Law. Series of lectures he
turns into a book. Topics almost mirror the first year law school curriculum.
• Becomes the editor of the American Law Review in law school.
• Life of the law is not logic, it is experience.
• Back to this case – (later Holmes opinion as he became shorter in his
opinions)
○ Prof asks how is it that the custom and past practice can result in
agreement without a formal agreement.
○ Bottom line – this is perhaps both an objective (Holmes would have
said it is an objective test) and subjective test – if conduct would
suggest acceptance in the view of the law – regardless of the
subjective state of mind of the parties, there is an agreement. Who
decides what the view of the law is? Jury. Holmes felt the issue could
be decided by the jury.
§69 Acceptance by Silence or Exercise of Dominion – paraphrased –

when there is no reply to an offer, silence can be taken as acceptance only in
certain cases.
1. Takes the benefit of offer with reasonable opportunity to reject and
has reason to know that compensation would be expected.
2. When the offeror has stated or given the offeree reason to
understand that agreement may be manifested by silence or
inaction.
3. Because of prior dealings it is reasonable that the offeree should
notify the offeror if they do not intent to accept.
E-COMMERCE AND MUTUAL ASSENT
Following cases deal with the issue of assent when it is applied to e-commerce and
Internet transactions.
Contract Notes
Page 18 of 124
Specht v. Netscape Communications (p 370) NO K. No manifestation of
assent to agreement
Summary: This case deals with a company that allows users to download
software. When it is downloaded, private information on the individual’s
computer (who is downloading it) is transmitted to the company. The issues
in this case become under what circumstances downloading software creates
a contract. A secondary issue is, if a K is found, if a mandatory arbitration
agreement must be enforced. Court found no agreement, as there was no
requirement on the user to agree to the terms.
Shrink wrap license – contained in the packaging of store bourt

software. Has been litigation but seems to be accepted.
Click wrap license- online but requires an actual manifestation of
assent by the act of clicking an acceptance or denial of terms.
Browser wrap license– online and link to terms but no requirement
to view and no requirement of assent by clicking acceptance.
Questionable. Most like this case.
PROCEDURAL POSTURE: Plaintiffs, computer users and website provider,

alleged that defendants, software vendor and its parent corporation, violated
the Electronic Communications Privacy Act, 18 U.S.C.S. ß 2510 et seq., and
the Computer Fraud and Abuse Act, 18 U.S.C.S. ß 1030. The vendor and
parent moved to compel arbitration and stay the proceedings.
OVERVIEW: The users and provider alleged that usage of the vendor's
download software transmitted to the vendor and parent private information
about the user's file transfer activity on the Internet, effecting unlawful
electronic surveillance. The issue was whether an offer of a license
agreement, made independently of freely offered software and not expressly
accepted by a user, nevertheless would bind the user to an arbitration clause
contained in the license. The court found that the software allowed a user to
download and use it without taking any action that plainly manifested assent
to the terms of the associated license or indicated an understanding that a
contract was being formed. The mere act of downloading was not an
indication of assent. The primary purpose of downloading was to obtain a
product, not to assent to an agreement. Unlike the user in the case of "click-
wrap" or "shrink-wrap" licenses, a user obtaining the software in question
was not made aware that he was entering into a contract. Failure to require a
user to indicate assent to the vendor's license as a precondition to
downloading and using its software was fatal to its argument that a contract
was formed.
OUTCOME: The court denied the vendor's and parent's motion to compel
arbitration.
Class Notes:
• The issue stemmed from the fact that Netscape was using monitoring
software to monitor the people who downloaded the software.
• We seem to go back to the idea of a meeting of the minds in this case. (even
though we have already begun to reject the meeting of the minds).
Contract Notes
Page 19 of 124
• Professor asks – if there were no license, would there be a contract in this
case? There could still be an issue – what if someone took the free software,
changed it and marketed it.
Regisiter.Com, Inc. v. Verio, Inc. (p 379) Yes K
PROCEDURAL POSTURE: Defendant, who was engaged in the business of

selling a variety of web site design, development, and operation services,
appealed from an order of the United States District Court for the Southern
District of New York granting the motion of plaintiff, a registrar of Internet
domain names, for a preliminary injunction.
OVERVIEW: The district court's order enjoined defendant from: using

plaintiff's trademarks; representing or otherwise suggesting to third parties
that defendant's services had the sponsorship, endorsement, or approval of
plaintiff; accessing plaintiff's computers by use of automated software
programs performing multiple successive queries; and using data obtained
from plaintiff's database of contact information of registrants of Internet
domain names to solicit the registrants for the sale of web site development
services by electronic mail, telephone calls, or direct mail. On appeal, the
court found that it had no reason to assume that plaintiff's conduct should be
considered unethical, especially where the district court made no such
finding. The district court acted within its discretion in concluding that
plaintiff showed a likelihood of success on the merits of its contract claim.
And, the district court had not abused its discretion in finding that, unless
specific relief were granted, defendant's actions would cause plaintiff
irreparable harm through loss of reputation, good will, and business
opportunities.
OUTCOME: The ruling of the district court was affirmed.
Class Notes:
• In this case, Verio clearly knew (or certainly should have) the guidelines that
they could use the information under and violated it repeatedly.
• They assented to the conditions by taking the information.
• When you think of this case, ask yourself why this is in contracts and not
torts. Or, is it more about identifying property rights?
• Professor states that these cases invite you to think about the best way to
deal with these types of electronic transactions. Leads into the development
of what follows….
• One of the issues with the development (revision) of the UCC was how to
work in the complexity of electronic transactions.
The Uniform Computer Information Transactions Act (p 386)

First uniform contract law designed specifically to deal with the new information
economy.
Here there is recognition that the information economy requires new guidelines in
order to function under contract law. There are different expectations, different
Contract Notes
Page 20 of 124
industry practices, and different policies from those governing transactions in
goods. With goods, someone buys the goods (i.e. toaster oven) and has exclusive
rights to the property. Here when you obtain computer information you may or may
not be considered to own it and rarely would you obtain all the rights associated
with the information. UCITA is designed to help deal with these issue but, as with
UCC and others, must be adopted by state legislatures.
Sec 112. Manifesting Assent; Opportunity to Review – goes into the ways
that assent can be manifested electronically. Somewhat follows the theme in
the Restatement of Contracts § 19(1) that states that manifestation of assent
can be by written or spoken language and by acting or failure to act. Important
because electronic transactions mostly involve conduct.
• Deals with the idea of “authenticating” and manifesting assent.
• Provision “G” may be very important – says that the Internet provider itself
do not enter into any contractual agreement merely by providing the service
or conduit.
• Provision “E” also important – says we will be comfortable with inferring
assent if there is access to information, either before the deal or while it is
still possible.
• Notice that it is drafted from 2 points of view, the parties themselves and to
“us” as lawyers and judges as those who need to apply them.
Discussion of the Uniform Electronic Transactions Act (1999) – UETA. (Is

this the same as the UCITA mentioned above???)
• Purpose is to remove barriers to electronic commerce by validating and
effectuating electronic records and signatures.
• It is NOT a general contracting statute. Substantive contract rules remain
unaffected.
• Also, it is NOT a digital signature statute. If a state has a Digital Signature
Law, the UETA is deigned to support and complement that statute.
Sec. 14. Automated Transaction – under the UETA, gives rules for how
contract formation can occur via electronic agents.
• Discussion of how merely going to a website does not imply agreement but
for sites that use a “click to agree” there may be agreement. Depends on
context of site.
Page 390 – Discussion of ABA workgroup on electronic contracting

practices, click-thru agreements, and for strategies for avoiding disputes
o validity of assent. Recommended guidelines that are designed to
develop good working electronic business strategies.
Contract Notes
Page 21 of 124
DISCERNING THE AGREEMENT – CHAP 5
After determining mutual assent, you then must determine the terms that are
binding on the parties. Can be divided into 3 areas that represent potential
problems in practice.
• Interpreting the meaning of words used by the parties
• Gap-filling, when a situation comes up that is not covered by the parties
agreement
• Identifying which term is adopted by the parties when the terms of the offer
differ from the terms of the acceptance.
Interpreting the Meaning of the Terms
Some problems in this area involve ambiguous terms or vagueness of terms.
Ambiguous Terms
Raffles v. Wichelhaus (p 396) No K (Surprising outcome – hinged on the name

of the ship)
Summary: Action for breach of contract by buyer of cotton. The agreement

listed a ship name that was to carry the cotton but there were two ships of
the same name.
Facts: Plaintiff was seller, defendant buyer of cotton. The P and D entered
into a K for the sale of certain number of bales of cotton arriving by ship from
India. The ship was called “Peerless,” however two ships of that name sailed
from Bombay. First ship arrived and did not have cotton on it. After the
second arrived, the D did not appear, but the P did P filed for breach of K.
Issue(s): Whether a mistake as to which ship the cotton is due to arrive

upon is a valid defense for failure to perform?
Court’s Holding: No
Contract Notes
Page 22 of 124
Procedure: Tr ct D filed a motion of demurrer; granted, per curiam judgment
for the D.
Court Rationale: The moment it appears that two ships called Peerless were
about to sail from Bombay there is latent ambiguity, and parol evidence may
be given for the purpose of showing that the D meant one Peerless and the P
another. That being so there was no consensus between the parties and
therefore no binding K.
Plaintiff’s Argument: The D’s refused to accept the cotton or pay the P for the
bales when they arrived. The identity of the carrying ship was not a true
condition of the contract and was only there to protect the D if the ship were
lost completely.
Defendant’s Argument: A material term of the K was ambiguous and
therefore the D’s failure is excused. They say they meant the “other
Peerless” (which did not have any cotton on it).
DISSENT: The K was for the sale of a number of bales of cotton, which the Pl
was ready to deliver. It is immaterial by which ship the cotton was to arrive
upon. If the K was for the sale of a ship named the Peerless and two existed,
then the question of what was meant or the intention of the parties would be
relevant. The P did not have any goods on board the other ship. Intention is
of no avail UNLESS stated at the time of the K. The time of sailing is not part
of the K.
Class Notes:
• Very famous case – in every contracts text ever.
• Text suggests that a change in price of cotton may have been the reason the
D’s tried to use a technicality to avoid performance. Surprisingly, they won!
• Judges treated the case as if the identity of the carrying ship was a material
term and critical to the contract.
• Attempt by P to use the argument that parol evidence was inadmissible lost
and the case was quickly lost.
• What do we think Holmes would have said about this case? On an objective
view, would not one see a contract? Well, Holmes did speak on the case and
seemed to somewhat contradicts his usual position although he says not.
• What about the idea that the parties were at fault and careless for not being
more clear about the terms (i.e. names of ship).
• If UCC were applied, the contract would be upheld. Does not need to be
“meeting of the minds” just the clear intent that they intended to make a
deal.
• This case is an example of a “spot transaction” there is no likelihood of an
ongoing contractual relationship between the parties. It is a little misleading
to say that the court will find no contract since in essence the deal is already
done. The court is really saying that the court is taking no position.
• Long discussion of what would be a just result in this case? Hard to say – did
either or both know that there were multiple ships? Did neither know? If the
court did split the difference, would they have somehow been supporting
badly planned contracts?
• Perhaps the problem is that the judges really could not decide on the best
outcome themselves so the easy way was to blame the parties for poorly
drafting the agreement.
Contract Notes
Page 23 of 124
• No industry custom in this case to apply? Also compounded by the lack of
on-going relationship. This was a spot transaction.
• Prof asks if we could compare with the smoke ball case – could we consider
this a unilateral contract with the buyer obligated to buy regardless of ship?
• We could consider this a “veil of ignorance” case – they did not know what
the outcome would be due to fluctuating market.
• Best result might have been to make them take whatever arrives on the first
ship? Puts both on equal footing since neither can know what the market will
do.
• Discussion of Rawls – that if the background market will allow for an
avoidance of the worst-case scenario, the losses should be accepted.
• Reading of Simpson – there were many Peerless ships, thus usually identified
by Captain, not just ship name.
• Reading of Gilmore essay – seemed to think court got it wrong by considering
the ship name an essential term.
• There is a school of thought called rational contract analysis and this states
that if the court can determine what rational people might have meant, they
can supply the missing term. If it were that important to the parties, they can
put it in explicitly.
Oswald v Allen (1969) (pp 407) No K – (Did not meet requirements of UCC)
Summary: Plaintiff was interested in D’s coin collection and viewed it, not
knowing that it was actually two separate collections. P could not speak
English and used a translator to negotiate. There was an agreement reached
for 50k but the Plaintiff thought it was for all the coins and the D thought it
was for only one of the collections. Various communications occurred and
eventually D decided not to sell the coins,
Issue: Was a valid contract for the sale of the coins formed?
PROCEDURAL POSTURE: Plaintiff appealed an order of the United States

district court, which entered judgment in favor of defendant in an action
alleging the existence of a contract for the sale of coin collections.
OVERVIEW: Plaintiff coin collection purchaser filed a complaint against

defendant coin collection seller, alleging that a contract had been formed for
the sale of a Swiss coin collection. The trial court found that plaintiff thought
the offer was for all of the Swiss coins, while defendant thought she was
selling only a specific coin collection and not the Swiss coins in another
collection also. The court below concluded that a contract did not exist since
the minds of the parties had not met. Several letters or other writings could
be used for the agreed-upon terms but nevertheless, these writings had to be
connected either expressly or by the internal evidence of subject matter and
occasion. The letter from defendant to plaintiff failed to fulfill the first and
third requirements set forth in the Uniform Commercial Code ß 2-201: to
evidence the existence of a contract, and to specify a quantity.
OUTCOME: The judgment finding that no contract existed for the sale of the
coins was upheld because the letter from defendant to plaintiff failed to fulfill
Contract Notes
Page 24 of 124
the first and third requirements set forth in the Uniform Commercial Code: to
evidence the existence of a contract, and to specify a quantity.
Class Notes:
• Court follows the rule from Raffles that when terms used to make an
agreement are ambiguous and the parties understand them in different ways,
there is no K.
• Court is still talking about a “meeting of the minds” which they say did not
occur.
• UCC?
• This is a genuine spot transaction, says Prof. Before you get bent out of
shape, you should ask yourself how easy is it to undo the deal?
Seems to think this is not a very interesting or significant case. It was very
easy to put the 2 parties back as they were.
§200 INTERPRETATION OF PROMISE OR AGREEMENT – interpretation of

a promise or agreement or a term is the acertainment of its meaning.
§201 WHOSE MEANING PREVAILS – deals with situations in which the

parties have attached different meanings to a term. If the same meaning,
the same meaning. Rules for which party shall overcome when one of the
parties views the terms differently.
§202 RULES IN AID OF INTERPRETATION – words and conduct viewed in

light of circumstances and based on the principle purpose of the parties.
Writing is interpreted as a whole. If the language has a generally accepted
meaning, it will be used. Technical terms will be given their technical
meaning when in a technical area. If ongoing business and there continues
to be performance and acceptance without objection, this is given great
weight in interpreting the agreement.
§ 1-205 COURSE OF DEALING AND USAGE OF TRADE – paraphrased –

deals with ongoing relationship and how this shows a basis for common
understanding of terms and how trade custom can be applied.
§ 2-208 COURSE OF PERFORMANCE OR PRACTICAL CONSTRUCTION –

paraphrased – states that when there is an ongoing business relationship and
continuing performance or acceptance happens without objection, that will be
considered in determining the meaning of the agreement, that terms of the
agreement and trade custom will be construed to be consistent with one
another when possible, and that performance may be relevant in terms of
showing a wavier or modification of the terms.
Vague Terms (p 411)
Contract Notes
Page 25 of 124
Weinberg v. Edelstein (p 411) No K – Although not really a contract case?
When a dress is not a dress…. More vague terms.
Summary: Disagreement between 2 stores in the same building over the

sales of dresses. One sold actual dresses (P), the other (D) skirts and blouse
combos that amounted to a dress. The D was not allowed to sell dresses
under a restrictive covenant, P sought injunction but court found that the
term dress was very specific in meaning and that it did not apply to the
company making the combo outfits out of two separate pieces. So.. a dress
was not a dress.
PROCEDURAL POSTURE: Plaintiff dress retailer brought an action for an

injunction to enforce a restrictive covenant in his lease against defendant
skirt retailer.
Issue: Based on the terms of the covenant, what are the meanings of the
terms used in the leases and is one party breaking the covenant? In order
words – is a dress a dress or can a dress be a two-piece dress?
OVERVIEW: The dress and skirt retailers operated retail stores in the same
building. Each of their leases contained covenants restricting what they could
sell. The dress retailer claimed the skirt retailer was violating the restrictive
covenant by selling matched skirts and blouses because the combination
thereby became a dress. The court held that no matter how incongruous to
the spheres of lexicography and logic, a matched skirt-and-blouse garment,
although identical with a two-piece dress of the same material, did not come
within the restriction--and so, theoretically, a "dress" was not a "dress." In the
industry there was a long-established division between houses which
manufactured dresses, and sportswear houses which manufactured skirts
and blouses. The court found the language used in the covenant did not
require the skirt retailer to ignore the almost universal trends in the
sportswear industry, even though the garments he sold tended to resemble
the apparel sold by the dress retailer. If the restrictive covenant had not
merely employed the generic and ambiguous term of "dress," but
clearly forbade the sale of "blouse and skirt combinations," the
conclusion could have been different.
OUTCOME: The court denied the dress retailer's application for an injunction
to prevent the skirt retailer from selling skirt and blouse combinations. The
court ordered that the skirt retailer could not compel the purchase of a skirt
and blouse combination as a unit, and was to permit the purchase by his
customers of skirts and blouses separately or together, as the customer
wished--and in any case, each at an individual price.
Class Notes:
• Court states that industry practice and customs of the trade should guide the
interpretation of the term “dress”. Both businesses were in the trade and
should have known the common understanding of the terms.
• Court does impose a restriction to indicate that the D cannot sell the two
items together and marketing it as a dress.
Contract Notes
Page 26 of 124
• Judge is willing to work on this case and try to figure out a fair result. In order
to do this, he must research the history of skirts and dresses.
Frigaliment Importing Co v. BNS International Sales Corp. Yes K – No

Breach. Chicken Case
Summary: Argument over the use of the term chicken in a sales contract
and if the defendant was providing the type of chicken called for in the
agreement. In this case the court found the plaintiff had not made a
compelling case that the defendant was in breach over the use of the term
chicken.
PROCEDURAL POSTURE: Plaintiff, a foreign corporation, brought an action

for breach of the warranty, alleging that goods sold should correspond to the
description in two contracts with defendant, a state sales corporation.
Issue: What is the meaning of the term chicken as applied to the sales
contract and is the defendant in breach of the agreement? Court says no.
OVERVIEW: Defendant state sales corporation had two contracts with

plaintiff foreign corporation for the sale of "chicken". After plaintiff received
one shipment of stewing chicken and another was stopped, plaintiff brought a
breach of warranty action, alleging that the goods sold should have
corresponded to the description because the chicken was not suitable for
broiling and frying. In dismissing plaintiff's complaint, district court held that
plaintiff's reliance on the fact that the contract forms contained words with a
blank not filled to negate agency was wholly unpersuasive where the clause's
purpose was to permit filling in an intermediary's name to whom commission
would be payable. Defendant's subjective intent that it could comply with the
contracts by delivering stewing chicken coincided with objective meaning of
"chicken," which had at least some usage in the trade; and plaintiff did not
sustain its burden that "chicken" was used in the narrower rather than in the
broader sense.
OUTCOME: Plaintiff foreign corporation's complaint was dismissed where

plaintiff did not sustain its burden of persuasion that the contract with
defendant state sales corporation used the word "chicken" in the narrower
sense and defendant's subjective intent coincided with an objective meaning
of "chicken."
Class Notes:
• At the end of the whole chicken analysis, we still don’t know what a chicken
is and so the burden falls on the plaintiff to show that their version of chicken
was the correct one and they failed to do this, thus they lost the case. In
essence, the judge is saying he can’t figure it out but the plaintiff has the
burden of proof.
• Judges can always fall back upon the burden of proof rule.
• This is just pure process, not rational contract analysis.
• Questions of law v questions of fact. Questions of law are for the judge,
questions of fact for the jury. Here Judge Friendly treats the issue of “what is
Contract Notes
Page 27 of 124
chicken” as a matter of fact and he is acting as the fact-finder. Of course, he
also says, basically, I don’t know.
• In these cases, there is a tension between the court trying fix a problem the
contractors made and the court recognizing that they are setting a potential
precedent for others.
• So… if all else fails and you can’t see how to apply existing contract law, treat
it as a matter of fact, not law, and go home!
Filling Gaps in the Terms
There is a difference between filling in the gaps of a contract and interpreting the
terms of a contract. Supplying terms when the contract is silent on the issue is
sometimes called “gap-filling.” When the court does this, there are two versions:
○ Implied in fact – terms the parties have agreed to even if not clear
○ Implied in law – imposed by the law without parties consent
1. Agreements to Agree
Sun Printing & Publishing Ass’n v. Remington Paper & Power Co. (p 422)
NO K
Facts: Sun Printing (buyer, π) agreed to buy from Remington (seller, ∆) 1000
tons of paper per month from Sep 1919 to Dec 1920 (16000 tons total). For
the balance of the period of the agreement, the price of the paper and length
of terms for which such price shall apply shall be agreed upon by and
between the parties 15 days prior to the expiration of each period for which
the price and length of term thereof have previously agreed upon, but in no
point shall it be higher than the contract price for newsprint charged by the
Canadian Export Paper Company to the large consumers. Time arrived when
there was to be an agreement on a new price and upon the term of its
duration. Seller gave notice to π that the contract was imperfect and
disclaimed for future obligation to deliver. Buyer claimed that the price was
to be ascertained by resort to an established standard (Canadian Export
Paper Company to large consumers). Seller refused to deliver
Procedure: Newsprint paper buyer sued a newsprint paper

manufacturer/seller for damages for based on sellers repudiation of
agreement to agree contract to sell 16000 tons of paper. Trial court denied a
motion by the π for judgment on the pleadings. π appealed, Appellate
Division of the Supreme Courts reverse the order and granted the π’s a
motion on the pleadings. ∆ appealed, on the ground that no exclusive option
was given to the π under the agreement; language used in the agreement
does not sufficiently define the price or terms to create an enforceable
obligation
Holding: If a buyer and a seller enter into a contract in which the terms
pertaining to the price and length of time are indefinite, where both parties
agreed to agree upon such price at a specified date, and where that price
was ascertainable but the duration was not, then there is no enforceable
contract
Contract Notes
Page 28 of 124
Reasoning: Judgment reversed in favor of ∆’s (Cardozo). Two terms were
to be settled: price and duration of price; without one, the other was
not sufficient. If price alone had been left open for adjustment, there might
have been reason for the contention that they guy would be viewed as the
holder of an option. Problem is that the price is not ascertainable for the
want of the necessity for agreement in respect of the term during which the
price is to apply. If during the term the price charged by Canadian Export
was changed, the price payable to the seller would fluctuate, so that the
agreement on a maximum payable this month is not the same as it would be
in the future. While the term was unknown the contract was useless; the
result is that this was nothing more than an agreement to agree. Seller
reserved the privilege of doing business its own way; seller was not bound as
the parties had not reached an agreement as to its obligations demanded.
Court cannot see the intent of the parties; if the intent is not clearly stated
then it is obvious-ly an agreement to agree. Cardozo construes the case as
an agreement to agree. It also looks like there are two radical terms that are
indefinite: price (agreement to agree) and time.
Notes:
• Crane’s dissent:
○ Sounds like Cardozo
○ Wants to interpret the indefinite terms and enforce the contract; he
sees the case as indefinite and not as an agreement to agree
○ He says it is obvious they intended to make the deal and he wants to
use evidence from the contract and other places to determine a price
and length of time that will work and hold them to the contract
• Why would the seller breach when they could charge the max Canadian
price? Suggests a price disparity between US price and Canadian price. The
buyer is happy to pay the Canadian max price because it would still be lower
than the US price.
• 2-203 and 2-204, 2-305. 2-305(1) would suggest that there should be an
agreement, 2-305(4) would suggest no.
• Professor seems to suggest that this should have been a deal since there had
been performance for some time already and that the UCC would suggest
that a deal would be found.
§34 CERTAINTY AND CHOICE OF TERMS; EFFECT OF PERFORMANCE

OR RELIANCE. (paraphrased). Terms of the contract may be reasonably
certain even though one party may get to choose from a selection of terms.
Part performance may remove uncertainty and make the contract
enforceable. Action in reliance of an agreement may make a contractual
remedy appropriate even though uncertainty is not removed.
§204 SUPPLYING AN OMITTED ESSENTIAL TERM – When the parties to a

bargain sufficiently defined to be a contract have not agreed to a term that is
essential, a term which is reasonable under the circumstances is supplied by
the court.
Contract Notes
Page 29 of 124
Texaco v. Pennzoil (again) (p 428)
Summary: In this portion of the case, the issue seemed to be if the terms are
enforceable and in order to be, the court says that they must be ascertainable to a
reasonable degree of certainty. This case stands for the concept that not all terms
need to be explicitly spelled out in order for the contract to succeed.
Notes:
• Court seems to be saying that you can’t take the Sun Printing opinion and
use it as an excuse to get out of an obligation. Can’t read the indefiniteness
doctrine that broadly.
1. Illusory Promises
New York Central Iron Works Co. v. U.S. Radiator Co. (p 429) YES K
PRIOR HISTORY: Appeal from a judgment of the Appellate Division of the

Supreme Court in the fourth judicial department, entered January 30, 1902,
affirming a judgment in favor of plaintiff entered upon the report of a referee.
PROCEDURAL POSTURE: Defendant sought review from a judgment of the

Appellate Division of the Supreme Court in the fourth judicial department
(New York), which affirmed a judgment in favor of plaintiff entered upon the
report of a referee.
OVERVIEW: In the underlying action, plaintiff sought to recover damages for

the breach of a written executory contract between the parties for the sale
and delivery of goods. The contract was an open one as to the quantity of
goods that defendant was to deliver. When plaintiff ordered significantly
more goods than usual, defendant refused to provide the additional goods.
Defendant construed the contract as calling for only the usual amount of
goods and not materially exceeding the quantity delivered in any one year
before under a similar contract. Defendant claimed that there was a mutual
mistake in framing the contract, and defendant asked that the contract be
reformed in this respect. The trial court found for the plaintiff, and defendant
appealed. On appeal, defendant argued that a limitation of quantity was
necessarily imported into the contract and that it should be construed as
containing it. The court rejected that argument and affirmed the lower court's
judgment. The court determined that the parties intentionally left the
contract open and indefinite as to the quantity of goods that the plaintiff
might order from time to time.
OUTCOME: The court affirmed the lower court's judgment, which affirmed a
judgment in favor of plaintiff entered upon the report of a referee.
Notes:
• Good faith analysis seems to come into play again here.
Contract Notes
Page 30 of 124
• From the seller’s perspective, this is a bad deal. The buyer seems to be
taking advantage of the seller.
• The case seems to be saying that if the contract is clear that the buyer can
buy all they want, it may not be the place of the court to intervene. They
may have made a bad deal but does that mean the court should get
involved?
Eastern Air Lines, Inc. v. Gulf Oil Corp. (p 431) YES K – Requirement K’s are
Enforceable Despite Lack of Definite Terms – see UCC §2-306
PROCEDURAL POSTURE: Alleging breach of contract, plaintiff airline sought

injunctive relief from the district court (Florida) requiring defendant oil
company to specifically perform requirements contract to supply aviation
fuel, despite defendant's assertion of the commercial impracticability
doctrine of the Uniform Commercial Code, U.C.C. ß 2-615.
OVERVIEW: Plaintiff airline brought action alleging that defendant oil

company breached a longstanding requirements contract to supply aviation
fuel. Plaintiff sought injunctive relief requiring specific performance of the
contract in spite of an embargo by oil-producing nations that had raised
crude oil prices. Defendant sought to repudiate the contract by invoking the
commercial impracticability doctrine of the Uniform Commercial Code, U.C.C.
ß 2-615. Plaintiff contended that it was entitled to specific performance
because both parties knew an embargo was imminent, and they had tied the
contract price to domestic postings in an oil publication. The court agreed
and granted injunctive relief, because commercial impracticability was not a
defense where there was no evidence that defendant was losing money.
Rather, the evidence showed that defendant was making a profit and its
losses were merely paper losses.
OUTCOME: The court granted permanent injunctive relief to plaintiff and

required defendant to specifically perform contract according to its terms,
because commercial impracticability was not a defense where there was no
evidence that defendant was losing money on the contract.
Notes:
• At one time requirement contracts were found invalid for lack of definite
terms or on lack of mutuality. This is no longer the case and this is captured
in the UCC §2-306(1) as referenced in this case. Addresses good faith
and reasonableness. What does good faith really mean?
Reasonable forseeability?
• Are the comments in the UCC law? See comment 2. They are taken
very seriously – similar to legislative history.
• Question here is – should the court do something or leave it as it stands?
Wood v. Lucy, Lady Duff Gordon (p 434) Yes K – Mutuality Implied (more good
faith issues)
Contract Notes
Page 31 of 124
Facts: Designer (∆) professes herself to be a fashion trendsetter. ∆
employed an agent (π) to create clothing to bear her seal. π was to have the
exclusive right, subject to her approval, to put her endorsements on the
designs and the exclusive right to license others to market them. π was to
receive half of all the profits and revenues from any contracts he made, ∆
would receive the other. Exclusive right was to last one year and then year
to year, subject to 90 days termination notice. ∆ placed her endorsement.
Procedure: This was an action by an agent against a fashionista for

damages on the ground that the ∆ broke the contract by indorsing fabrics,
dresses and millinery without his knowledge and withholding the profits. Trial
court found in favor of the π. Appellate division of the Supreme court
reversed, found in favor of the ∆. π appealed, on the ground that a covenant
on the part of the π to use his best efforts to place endorsements must
necessarily be implied from the terms of the contract itself
Holding: If a designer enters into a contract with an agent, and the agent
has the exclusive rights, and there is no mention of the duty owed by the
agent, and the agent uses reasonable efforts to get contracts (good faith
efforts), then mutuality will be implied-Judgment reversed (Cardozo)
Notes:
• If you examine this in light of reasonable efforts – good faith and fair dealing
– both parties would be better off by the agreement (assuming that Wood is
any good at marketing).
• This is not a zero sum circumstance (one wins / the other loses), it is a “same
boat” case in that they will both succeed or fail together. This distinguishes it
from Sun Printing?
• Cardozo is saying that there must be a notion of good faith operating in the
background otherwise the arragment makes no sense – why would she give
him the option if he did nothing?
• ∆ claimed the employment contract lacked the elements of a contract
because it does not bind the π to anything; but π is bound- he is impliedly
bound to make reasonable efforts to place ∆’s endorsements and market her
designs.
• Law has outgrown this stage of formalism that requires a written promise
where every slip is fatal
• The whole writing of the contract may be instinct with an obligation,
imperfectly expressed; without an implied promise of him to do anything, she
would never get anything so why would she enter into this contract unless
she acknowledged the implied promise (she is being sneaky)
• ∆ had no right to place her own endorsements or market her own designs
except thought the π; π is thus entitled to half of what the ∆ made
• Lack of mutuality case that introduces the idea of good faith into contracts
• Instinct with obligation; a matter of good faith
• Back in the day, if a mutuality of obligation was lacking, the contract could
not be found
• Now, there is an escape from the requisite mutuality of obligation through the
theory of implied promise set forth by Cardozo in this case
• Cardozo is on the warpath in his campaign to introduce a new method of
reading commercial documents
Contract Notes
Page 32 of 124
• He has now swung a majority of the bench all the way to the holding in Lady
Duff
§ 2-306 Output, Requirements and Exclusive Dealings –

UCC seems to address the good faith is
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 no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or requirements
may be tendered or demanded.
(2) 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.
C. IDENTIFYING THE TERMS OF THE AGREEMENT
1. Form Contracts or “Contracts of Adhesion”
These are often written by just one party and unread by the other so they
challenge our notion of assent. Sometimes the form used by one party conflicts
with the form used by the other party and this can raise the problem of
determining which terms govern. Contracts of adhesion are also linked with the
doctrine of unconscionability.
Carnival Cruise Lines, Inc. v. Shute – Yes K, Forum Selection Clause – (p

445)
Facts: P –Wa, D- Fl. Purchase – WA, shipment FL to WA. Choice of forum

provision. Passengers on a cruise bought tickets in Washington from travel
agent. Tickets expressly were marked that purchase of the tickets subjected
the passenger buying them to resolve any dispute (forum selection clause) in
court of Florida, where the company had its principle place of business.
Passenger went on the cruise and had a slip and fall injury while in
international waters. π filed suit in Washington and the ∆ moved to get
summary judgment based on the fact that the π would have been required
to bring suit in Florida based on the forum selection clause. Intermediate
appellate court refused to enforce the forum selection clause and the ∆
appealed to the Supreme Court.
Issue: Did the appellate court rightfully refuse to enforce the forum
selection clause in the ticket contract?
Legal Reasoning: The issue of if the π had knowledge of the clause and
notification of the clause was not in dispute – all parties agreed that they
knew about it and had advance knowledge of it. Non-issue.
The π primary argument was that unlike prior case Bremen, the clause was
not a product of negotiation and that enforcement would effectively deprive
Contract Notes
Page 33 of 124
them of their day in court. The court rejects this argument for several
reasons.
• First, the ticket was a standard ticket with the same provisions given to
everyone so it is not logical that there would be any negotiation about
clauses in a ticket.
• Second, the cruse lie had a number of good reasons to have such a
clause (special interest in the forum due to the nature of a cruise line,
dispelling confusion about where to sue, benefit to passengers in
reduced prices by virtue of the fact that the company would not have
to expect to defend suits all over the world).
• Following this, the court speaks of the judicial fairness test and that the
court should look at the clause to see if it appears essentially fair. In
this case they felt it did and that there was no bad-faith motive for
having the clause nor was their any fraud or misrepresentation of the
clause. Some justices dissented. One argument is that it is commonly
held that forum selection clauses are not enforceable unless freely
bargained for.
Holding: The appellate court was incorrect in refusing to enforce the

forum selection clause in this case.
For the most part, rules of civil procedure are default rules. I.e.,
rules that come into play when you have not established other
governing rules. You can contract around the rules of civil
procedure.
Notes:
Other related terms in forum selection:
• Choice of law clause – does not say where suit will be brought but does say
what law will govern, i.e. laws of a particular jurisdiction
• Consent to jurisdiction clause – consents to suit in a particular place thus
waiving challenges to personal jurisdiction
• Forum selection clause – limiting the forum to a single location
• Arbitration clause – takes dispute out of the judicial system and places
them in arbitration process
• Cognovit Clause – written authority of a debtor, which allows automatic
judgment against him for default with no defense or appeal. Represents
outer limits.
Caspi v. Microsoft Network (p 453) – Forum selection clause upheld as valid in

this case.
OVERVIEW: Plaintiff members of defendants' on-line computer service filed

suit for breach of contract, common law fraud, and consumer fraud. Before
becoming a member of defendants' service, a prospective subscriber was
required to agree to the terms of the membership agreement, which
contained a forum selection clause. Members were required to click either "I
agree" or "I don't agree" to the membership agreement. A potential
subscriber could only use defendants' services after clicking "I agree."
Affirming the decision of the lower court granting defendant's motion to
Contract Notes
Page 34 of 124
dismiss the complaint for lack of jurisdiction, the court held that plaintiffs
failed to meet any of the exceptions to the general rule that forum selection
clauses were prima facie valid and enforceable. Because plaintiffs were not
subject to overwhelming bargaining power, where there were several
competitors in the provision of on-line services, and because enforcement of
the clause would not violate the strong public policy of New Jersey and would
not seriously inconvenience trial, the court agreed that clause was
enforceable.
OUTCOME: The judgment of the lower court granting defendants' motion to

dismiss plaintiffs' complaint for lack of jurisdiction was affirmed where
plaintiffs failed to meet their burden in establishing that the forum selection
clause was not valid.
Notes:
• This was another forum selection clause contract that was upheld.
• Court found that there was opportunity for adequate notice and there was no
bad faith.
• They had a choice to accept or not accept the terms and could have gone
elsewhere.
• Ask Prof how this squares with the UCC electronic assent stuff we already
covered that involved “click” assent.
• In comments it notes that we use these types of forms to facilitate business
getting done – they are inevitable. Individual people could be negotiating
terms on a case by case basis with something like an internet service…BUT,
still good faith comes into play.
§211 STANDARDIZED AGREEMENTS

1) Except as stated in Subsection (3), where a party to an agreement signs or
otherwise manifests assent to a writing and has reason to believe that like
writings are regularly used to embody terms of agreements of the same type,
he adopts the writing as an integrated agreement with respect to the terms
included in the writing.
(2) Such a writing is interpreted whereever reasonable as treating alike all
those similarly situated, without regard to their knowledge or understanding
of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting
such assent would not do so if he knew that the writing contained a particular
term, the term is not part of the agreement.
1. Which Terms Were Agreed To?
Step-Saver Data Systems, Inc. v. Wyse Technology (p 457) Yes there is a K

but what are the terms? Court says UCC 2-207 is most relevant.
Contract Notes
Page 35 of 124
OVERVIEW: Appellant argued that the box-top license accompanying
acquired software, disclaiming all warranties, was not intended as expression
of agreement with appellees. The court concurred, noting that essential
elements of the parties' contract were detailed upfront, orally and by
purchase orders, and that the license was only delivered later with software
order. The court pointed to U.C.C. § 2-207 as controlling, and viewed the
license's terms as a proposed addition to the existing contract, one never
accepted by appellant. Notwithstanding this rebuff, the court observed,
appellees' software producer demonstrated a willingness to supply additional
orders. Consequently, the disclaimer of warranty in the license did not
constitute a conditional acceptance by appellant of its terms, irrespective of
the repeated mailings of the license. The court held that it was error for
appellant's warranty claims to be dismissed. The court also found that no
evidence demonstrated any intentional misrepresentation by appellees on
issues of software or hardware compatibility.
OUTCOME: The court reversed the district court's directed verdict in favor of
appellee software producer and remanded the case.
Notes:
• Basically, TLS loses. They are trying to say that the preplaced agreement
that comes with each software package would be the controlling agreement
between the parties (this would allow them to get out of warranty liability)
but the court disagrees and cites 2-207.
Sales Contracts: The UCC (BATTLE OF THE FORMS)
§ 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 merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or
is given within a reasonable time after notice of them is
received.
(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.
NOTE – Professor stresses that the UCC purports to be dealing with
merchants and it may not always work when dealing with consumer.
Union Carbide Corp. v. Oscar Myer Foods Corp. No Breach of K (p 470)
Contract Notes
Page 36 of 124
Summary: Union Carbide is suing Oscar Myer for back sales taxes on orders
made by Oscar Myer under the theory that a clause on the invoice operated
an indemnity clause and would make them liable for the back taxes that were
later assessed against Union Carbide. Court rejects this argument, sees it as
materially altering the terms of agreement and does not find that there was
assent to the terms under the UCC 2-207.
OVERVIEW: Plaintiff taxpayer corporation filed a diversity action against

defendant customer corporation for breach of contract to recover sales tax it
had paid on products it had sold to defendant. Plaintiff claimed that
defendant had agreed to indemnify it for all sales tax liability. The district
court granted defendant's motion for summary judgment. On appeal, the
court affirmed the summary judgment because plaintiff's misreading of the
contract was clear enough to have been determined without a trial. There
was no breach of contract because the indemnity clause on the back of the
invoice was a material alteration in the parties' contract and was therefore
unenforceable where the clause was ambiguous and defendant's consent
could not be realistically inferred by its silence in the face of a succession of
invoices containing the new term.
OUTCOME: The court affirmed the district court's order granting summary
judgment for defendant customer corporation, and held that there was no
breach of contract because the indemnity clause on the back of the invoice
materially altered the parties' contract and plaintiff taxpayer corporation
could not infer consent to the alteration by defendant's silence.
Notes:
• Discussion of Judge Posner – was known for having an economic bent. Wrote
a book called the Economic Analysis of Law (showing how the law can be
applied to economic principles). Very influential work / movement in legal
field. May be the most famous currently living American judge.
• This is a battle of the forms case? Difference between UCC forms and OM
forms.
• Professor stresses that when you analyze 2-207 you have to go through it
mechanically and go to section 1 first and analyze before you get to what you
see as the controlling provision (2 in this case). EXAM TIP!! Most go right
to what they see as the controlling provision – this is the wrong
method.
• OM had other suppliers so they could have chosen not to work with UCC if
they had not lowered the taxes. So… this is one way you can analyze that
the term that UCC is trying to insert would materially altered the deal.
• 2-207 wants you to look at materiality but Posner seems to rest his argument
on surprise. Posner is not interested in hardship or industry custom.
1. TERMS THAT FOLLOW LATER
Contract Notes
Page 37 of 124
These cases raise the issue of if a party can be said to have
assented to terms that they could not examine until some time after
a purchase was made…
ProCD v. Zeidenberg (p 473) (A shrink-wrap license case…)
PROCEDURAL POSTURE: Appellant sought review of the order of the United

States District Court for the Western District of Wisconsin, which declined to
issue appellant an injunction on the basis that its license was ineffectual
since it was contained within packaged software.
OVERVIEW: Appellant included a shrink-wrap license in its packaged

software. Appellant also chose to discriminate in its pricing of the software
between commercial and non-commercial users. Appellee purchased a
consumer package of the software, but chose to ignore the license restricting
its use to non-commercial purposes. Seeking to enforce the license, appellant
filed for an injunction. The trial court denied the injunction, holding that the
license was ineffectual because the terms did not appear on the outside of
the package. On appeal, the court held that the license was to be treated as
an ordinary contract accompanying the sale of products. While the terms
of the license were included within the package, its terms afforded
the purchaser an opportunity to review the product and its terms
before being bound. Since the license agreement was a two-party
contract, it was not equivalent to the rights of copyright.
OUTCOME: The court reversed the denial of the injunction since under
ordinary contract principles, appellant's license was binding because appellee
had the opportunity to review its terms before being bound.
Notes:
• District court held that the shrink-wrap license was not enforceable because
the terms do not appear on the outside of the package. This is overruled
because the court felt that Zeidenberg had the opportunity to review the
license (in fact he had to once running the software) and he could have
decided not to keep the software.
• This decision is inconsistent with the prior decision in case above. In this
case, judge says 2-207 is irrelevant and rests on 2-204, which deals
with conduct that shows agreement. Judge also rests on common law in
contracts instead of the UCC.
• Perhaps what you can take away from this series of three cases is that the
UCC is not all you can rest on when looking at these types of commercial
transactions.
• A theory that is proposed here is that both the consumer and the company
benefit by enforcement here since it allows them to sell a consumer version
and a commercial version and the consumer can thus buy it less expensively.
• Discussion of how UCC 2-606 applies with acceptance of goods. Prof asks if
the UCC even applies in the sense that perhaps this is not a “good” and more
of an intellectual property? In other words, you did not buy a CD, you bought
data.
Contract Notes
Page 38 of 124
Hill v. Gateway 2000 (p 479) Arbitration Clause w sale of computer upheld…
Summary: In essence, computer purchasers sought to sue computer

manufacturer on a number of grounds but the literature in the box with the
computer indicated that there was an arbitration clause if there was any
disagreement. P’s used various strategies to suggest that the arbitration
agreement was not enforceable but the court on appeal rejected them and
enforced the agreement. They had the computer for 30 days and could have
returned it if they did not wish to agree to the arbitration clause…
PROCEDURAL POSTURE: Appellant suppliers sought review of an order of

the United States District Court for the Northern District of Illinois, which
denied their motion to enforce the arbitration clause contained in the items
they shipped to appellee customers because it found that the record was
insufficient to find that the customers were given adequate notice of the
arbitration clause.
OVERVIEW: The customers ordered a computer from the suppliers.

Dissatisfied with its performance, they filed an action against the suppliers,
which alleged various claims. The suppliers sought enforcement of the
arbitration agreement contained in the materials they shipped to the
customers. The trial court denied their motion. They appealed that decision,
which was vacated and remanded. The trial court was directed to compel
arbitration. Under a provision of the FAA, 9 U.S.C.S. ß 2, an arbitration
agreement was enforceable save upon such grounds as existed at law or in
equity for the revocation of a contract. Moreover, that provision of the FAA
was inconsistent was any requirement that an arbitration clause be afforded
prominence. Furthermore, the court stated that a contract did not have to be
read in order for it to become effective and that the terms inside a box of
software were binding on a consumer who subsequently used it. The court
found that rationale was also appropriate to the customers and, therefore,
concluded that they were bound by the arbitration clause.
OUTCOME: The court vacated the trial court's order, which denied the
suppliers' motion to compel arbitration, because the customers were bound
by the arbitration clause contained in the materials shipped to and accepted
by them, regardless of whether that provision was prominently displayed or
the customers were aware of its existence.
Notes:
• Another Easterbrook case. Said UCC not applicable, as there was only 1 form
– no battle of the forms.
• Discussion of who the arbitration clause benefits. Easterbrook suggests that
the consumer does benefit because they get a lower price and lots of free
software.
• The lower court did not want to uphold the agreement under the idea that the
purchasers were not given adequate notice of the arbitration clause.
Contract Notes
Page 39 of 124
• P’s claim they did not really read it closely.
• Court on review relies on ProCD and Carnival Cruise as precedent that they
could be bound.
• P’s had several arguments, all of which were rejected:
○ Wanted to limit the holding from ProCD to software
○ Wanted to limit the holding from ProCD to Executory contracts and to
licenses in particular – they say the contract was complete when the
box arrived at their home. Court rejects, as a warranty is a part of
continuing performance.
○ Wants to distinguish ProCD to merchants only. Court rejects this also.
○ Wants to distinguish ProCD because box in ProCD case hinted at
license agreement inside where computer box did not.
Klocek v. Gateway (p 483) (same situation with Gateway again and an

arbitration clause but this time the court analyzes it very differently and finds that
the consumer is NOT bound)
PROCEDURAL POSTURE: In a suit arising from the sale of defendant

manufacturer's computer and co-defendant manufacturer's sale of scanner to
plaintiff, defendant computer manufacturer filed a motion to dismiss;
defendant scanner manufacturer filed a motion to dismiss or in the
alternative for stay of proceedings; and plaintiff pro se filed a motion to
certify a class; a motion for writ of certiorari; motion for verification; and a
motion for sanctions.
OVERVIEW: Plaintiff pro se brought suit against computer manufacturer and

scanner manufacturer on claims arising from purchases of a computer and a
scanner. Defendants each filed a motion to dismiss. The computer
manufacturer argued that the case should be dismissed because plaintiff had
agreed to arbitrate any disputes. The scanner manufacturer argued that
plaintiff failed to allege the minimum amount in controversy for diversity
jurisdiction. Among the plaintiff's four motions was a motion to certify a class.
The court held that the computer manufacturer had not provided evidence
sufficient to support a finding that plaintiff agreed to the arbitration provision
contained in its standard terms, which it mailed inside its computer box for
plaintiff's later perusal. Alternatively, the court held that the motion was
procedurally defective, as it did not address the choice of law issue. The
scanner manufacturer's motion to dismiss was granted; plaintiff failed to
satisfy the diversity jurisdictional amount. Lastly, the court denied plaintiff's
motion to certify a class because plaintiff was appearing pro se, and thus,
was not an adequate representative.
OUTCOME: Defendant computer manufacturer's motion to dismiss denied,

as it was not certain that plaintiff agreed to arbitration. Alternatively,
defendant's motion was procedurally defective. Defendant scanner
manufacturer's motion to dismiss granted, as plaintiff failed to allege
minimum jurisdictional amount for diversity jurisdiction purposes. Plaintiff's
motions were denied in their entirety.
Contract Notes
Page 40 of 124
Notes:
• Here the court says that UCC does apply (2-207) and that it is not necessary
for a battle of the forms to exist to apply the provisions.
• Court finds that there is no finding by Gateway that the purchasers assented
to be bound by the terms or that the terms were a mandatory condition of
the sale.
• Only 5 days this time!
• One of the things we see here is that there seems to be an ability of the
judges to choose to apply or not apply the statutory language.
• Perhaps there are 3 ways to analyze these cases – consumer beware and
read the print, consumer should not be held to terms that they did not agree
to under UCC, and perhaps a 3rd is a fairness analysis under the Carnival
framework for a contract of adhesion.
Chapter 6 – Written Manifestations of Assent
A. Interpreting a Writing – The Parol Evidence Rule
Questions in these cases is if we can introduce outside evidence to

change / supplement / explain, etc a written contract….
To answer this question, we must ask – what else we must work

with?
• Are there statutes? Are they binding or default rules? (Remember

UCC is default)
• What about common law? May or may not control depending on
circumstances. Gives example of economic loss rule with the condo
case in which Supreme Court did not allow tort action because there
was a contract in place that should have controlled.
• Trade custom.
• Course of dealing.
• Course of performance.
• The document itself. (Implication of the parol evidence rule is that you
should work with the document when you can and not even apply parol
evidence)
• There are three possibilities:
○ One reason to start with the document is that the parties worked
it out and knew themselves and their own situation better then
anyone so we should leave it alone.
○ If there are areas where there are things unclear or divergences,
you may assume that there was some disagreement in that area
and perhaps the court needs to assist. So.. if the contingency
came up they gambled that the court would work it out.
○ Idea of on going relationships as opposed to spot transactions.
On-going relationships give parties some predictability which is
more efficient.
Contract Notes
Page 41 of 124
Thompson v. Libbey (p 488) (P is selling logs to D. D claims a verbal warranty
was given. Parol evidence not allowed, as the contract appeared complete on its
face.)
Facts: Seller/Plaintiff was selling logs to the D. They had a written

agreement. The D later claimed that there was a verbal warranty given that
was not in the written agreement. The court below allowed the parol
evidence and the P appeals. On appeal the court concluded that the court
below should not have allowed the parol evidence since the written
agreement seemed to be complete.
PROCEDURAL POSTURE: Plaintiff vendor appealed from an order of the

District Court for Dakota County (Minnesota), which refused a new trial in his
action against defendant purchaser for the purchase money, after admitting
evidence of a breach of a verbal warranty alleged to have been made at the
time of the sale over the vendor's objection.
OVERVIEW: The vendor brought an action to recover the purchase money

from the purchaser. The purchaser pleaded that the vendor had breached a
warranty of the quality of the logs, and the trial court admitted oral testimony
to prove the verbal warranty over the vendor's objection that such testimony
was incompetent to prove a verbal warranty, because the contract of sale
was in writing. Upon the vendor's appeal, the court reversed the trial court's
order, holding that it erred in admitting parol evidence of a warranty.
General rule: Parol contemporaneous evidence was inadmissible to
contradict or vary the terms of a valid written instrument. Because
the parties deliberately put their engagements into writing in such terms as
to create a legal obligation, without any uncertainty as to the object or extent
of such engagement, it was conclusively presumed that the whole
engagement of the parties, and the manner and extent of the undertaking,
was reduced to writing. There was nothing on its face to indicate that the
contract was a mere informal and incomplete memorandum. Furthermore, no
new term, forming a mere incident to or part of the contract of sale, could be
added by parol evidence.
OUTCOME: The court reversed the trial court's order, which refused the
vendor a new trial in his action against the purchaser to recover the purchase
money.
Notes:
• Professor says the critical nature of the American flavored contract is that – it
is written down. That is one reason this chapter is so significant.
• One of the core issues in contracts is that the real problems come up in
contracts that take place over time (even if a short time) and are not spot
transactions. Why? Perhaps because things change over time and this
creates issues with enforcing the contract.
• Prof asks if this case and the following case are inconsistent? They seem to
be – one disallows parol evidence and the second allows it?
• Would the UCC have made the case come out differently? UCC sometimes
applied warranties even when none are expressed.
Contract Notes
Page 42 of 124
Brown v. Oliver (p 489) (Purchaser of hotel claims that parol evidence can show
that furniture was agreed upon to be included in the sale although the agreement
does not mention it and is for land sale only)
PROCEDURAL POSTURE: Defendant seller appealed from a decision of the

Mitchell District Court (Kansas), which entered judgment in favor of plaintiff
purchaser in the purchaser's replevin action to obtain possession of hotel
furniture.
OVERVIEW: The purchaser (P) bought land on which stood a hotel operated
by a tenant. The contract of sale made no mention of the hotel furniture
owned by the seller (D), possession of which was surrendered to the
purchaser with the hotel. The seller subsequently removed the furniture from
the hotel, and the purchaser filed a replevin action. At trial, the trial court
admitted evidence concerning the parties' intent to limit the contract to the
single subject of land, as well as evidence that the sale of the hotel included
the furniture. On appeal from a judgment in favor of the purchaser, the court
held that:
(1) The contract by itself did not conclusively establish whether the
parties intended to exclude every subject of sale except land, and,
thus, parol evidence on the question of intent was properly received
for the information of the trial court;
(2) The trial court's conclusion that the contract was intended to
cover but one subject was sound; and
(3) Once the trial court determined that the contract was complete,
that it related to land only, and that the parol evidence rule did not
apply, the trial court was authorized to permit parol proof as to what
the sale embraced.
OUTCOME: The court affirmed the trial court's judgment
Notes:
• Prof agrees that the two judges in these two cases would clearly come out
differently.
• Is there a justification for why the cases are different and is one right and one
wrong?
• Wigmore is discussed and his theories on evidence. He was very influential
in this area. He suggests a number of ideas that apply when a contract may
not have included all the parts of the transaction. He gives ways that you
can analyze it. 1. Did the writing address the issue at all? And 2. Was the
writing meant to be definitive? If so and did not include, you are out of luck.
If it is not meant to be definitive, things are not resolved and you have to look
to outside evidence.
• Perhaps one distinction is that the land is property and furniture are goods.
Two different areas of law. Real prop and personal prop are different. Could
not be about both unless the document specifically addresses it this way and
here it does not. This is why the judge could make a determination.
Professor begins talking about contracts in general this morning – not all
agreements will be enforceable. We are concerned with the ones that are.
Contract Notes
Page 43 of 124
• One element to look at is the party’s intentions but that does not work well
because the parties may not have considered the issue that is now in
controversy at the time of making the contract.
• However, you can also look at background information to lend further insight
into what the parties were trying to do.
• Independent of the things mentioned so far, you also have trade custom /
industry practice to look at and this sometimes also sheds light. How do
businesses in this trade usually handle things?
• If none of the above work, we might also look at plain and simple economics
of the deal. Sometimes this may help you make a determination of what is
sensible in addressing the conflict.
• Says the third resource is to look to the law – i.e., what does the law expect in
the situation? Here we are not talking about intent of parties, trade custom,
economics, etc, we are simply looking at how the law would address the
issue. There is an argument that the UCC is there because we expect that
contracts will have problems and need the involvement of the law to address.
• Remember that the UCC provides default rules when parties were not clear
so they may not ever apply if the parties were explicit and clear.
• On an exam – ask three things.
1. What do I know about the deal and how it was meant to
happen?
2. Do we know anything about trade practice or custom?
3. Are there any legal expectations in the background?
(There is no real “hierarchy” here of importance but if you can

see conflicts it gives you rich material to write an excellent
exam answer…)
§209 INTEGRATED AGREEMENTS

(1) An integrated agreement is a writing or writings constituting a final
expression of one or more terms of an agreement.
(2) Whether there is an integrated agreement 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.
(3) Where the parties reduce an agreement to a writing which in view of its
completeness and specificity reasonably appears to be a complete
agreement, it is taken to be an integrated agreement unless it is established
by other evidence that the writing did not constitute a final expression.
§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.
Contract Notes
Page 44 of 124
§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 they are within its scope.
(3)
§214
§216 CONSISTENT ADDITIONAL TERMS

(1) Evidence of a consistent additional term is admissible to supplement an
integrated agreement unless the court finds that the agreement was
completely integrated.
(2) An agreement is not completely integrated if the writing omits a
consistent additional agreed term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted
from the writing.
§ 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 (Section 1-205) or by
course of performance (Section 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 of the agreement .
So – one question to ask is if the agreement is intended to be a complete and
exclusive agreement. I it the last word? If so – no parole evidence problem.
Pacific Gas & Electric Co v. G W Thomas Drayage & Rigging (p 494)

(Question of what the indemnity clause in the contract was meant to cover. Was
it standard meaning or should external evidence be allowed to show it might have
had another meaning?
PROCEDURAL POSTURE: Defendant contractor appealed from a judgment

of the Superior Court of the City and County of San Francisco (California),
holding that an indemnity clause covered damages to all property, regardless
Contract Notes
Page 45 of 124
of ownership, in plaintiff utility company's action to recover damages to
property under the indemnity clause.
OVERVIEW: Defendant contractor appealed from a judgment for plaintiff

utility company in an action to collect damages under an indemnity clause of
a contract. Defendant contracted to repair plaintiff's steam turbine, promising
to indemnify plaintiff for all property damage. The turbine was damaged
during repairs. Defendant argued that the parties intended that defendant
would indemnify plaintiff only for damage to the property of third
parties. Relying on the plain meaning of the contract language, the trial
court concluded that defendant was liable. Defendant appealed. The court
reversed the judgment, holding that looking only at the plain meaning of
contractual language ignored the possibility that the parties had
contrary intentions. The court therefore held that parol evidence
was admissible to ascertain the true intent of the contractual parties
even where the writing seemed clear and unambiguous.
OUTCOME: The court reversed the judgment, holding that parol evidence
was admissible to ascertain the true intent of the contractual parties even
where the writing seemed clear and unambiguous
Notes:
• Opinion written by Roger Traynor – very important judge who was very
influential. Modernized the California Supreme Court.
• Traynor here is saying that parol evidence must be allowed because
otherwise the judge’s linguistic interpretation of the plain meaning will be the
only one and it may not always be correct. He seems to feel that you have to
allow evidence of the meaning of the words even when they may appear to
be plain and clear. This view is vehemently disagreed with in the following
case….
• Ask yourself – does Traynor REALLY destroy the parol evidence rule in this
case? Prof feels not really and Kozinski exaggerates the impact.
• What is Traynor’s approach? That even though the essential terms, if clear,
should not be modified by parol evidence – the terms must first be
determined (by parol evidence) before you can determine if the parol
evidence is being offered for a prohibited purpose.
• Turns out this is a very important case in that it is later cited as holding that
no matter how clear the K, in California, parol evidence will be allowed to
evaluate how clear the K really is. It is this broad holding that comes into
play in the very next case below.
Trident Center v. Connecticut General Life Insurance Co. (p 497) Another

case about the parol evidence rule. Here the K appears complete and clear but
CA law still allows parol evidence to be introduced.
PROCEDURAL POSTURE: Plaintiff appealed a decision from the United

States District Court for the Central District of California that dismissed
plaintiff's complaint and, sua sponte (Latin for "on its own will or motion."
This term is most commonly used to describe a decision or act that a judge
decides upon without having been asked by either party.), sanctioned
plaintiff for the filing of a frivolous lawsuit.
Contract Notes
Page 46 of 124
OVERVIEW: Plaintiff contended that the language of a contract was
ambiguous and, thus, that plaintiff had an option of prepaying a loan if only it
was willing to incur the prepayment fee. Plaintiff also argued that under
California law, even seemingly unambiguous contracts were subject to
modification by parol or extrinsic evidence. Thus, argued plaintiff, the lower
court should have granted it an opportunity to prove that the contract
language did not accurately reflect the parties' intentions. The court rejected
the argument that the contract was ambiguous. The proffered interpretation
would have resulted in a contradiction between two clauses of the contract;
the default clause would have swallowed the clause prohibiting plaintiff from
prepaying. Whether to accelerate repayment of the loan in the event of
default was entirely defendant's decision. However, under California law,
extrinsic evidence was admissible.
OUTCOME: The court reversed the judgment below and remanded the case
for reinstatement of the complaint on the grounds that California did not
follow the traditional rule that barred extrinsic evidence in the case of
unambiguous integrated contracts. The court also reversed the award of
sanctions
Notes:
• There is a conflict between what judge Kozinski feels in this opinion and what
Judge Traynor wrote in the opinion preceding (above). He feels that Traynor
did a very poor thing by setting a precedent that parol evidence should
always be allowed.
• Issue here seems to be that there are some conflicting provisions in the K.
• Kozinski seems to feel that the parties themselves knew best what they
intended.
A. REFORMING A WRITING – MISTAKES IN INTEGRATION (p 506)
The Travelers Insurance Co. v. Bailey (p 507) (Insurance policy is placed on

the incorrect form resulting in incorrect written terms, court allows evidence of the
mistake and allows for change of the written K).
PROCEDURAL POSTURE: Defendant insured appealed the decree of the

Chancery Court, Windsor County (Vermont), in favor of plaintiff insurance
company; the chancellor allowed reformation of the annuity provisions of a
life insurance policy on the basis of mistake.
OVERVIEW: The insured submitted an application to an agent of the insurer

for a life insurance policy. The plan requested in the application was one
insuring the defendant's life for $ 5000, with an annuity at age 65 for $
500 a year for the balance of his life, 10 years certain. When the
application was accepted and the policy prepared, the correct descriptive
information was inserted on the wrong policy form. The printed portion of
Contract Notes
Page 47 of 124
the form used yielded the correct life insurance contract, but produced an
annuity obligation to pay $ 500 a month for life, 100 months certain. The
court affirmed the grant of reformation, holding that where there had been
established beyond a reasonable doubt a specific contractual agreement
between parties, and a subsequent erroneous rendition of the terms of the
agreement in a material particular, the party penalized by the error was
entitled to reformation, if there had been no prejudicial change of position by
the other party while ignorant of the mistake. Here the insured was not
prejudiced by the existence of the error.
OUTCOME: The court affirmed the decree.
Notes:
• Party asking for the reformation has the duty to prove beyond a reasonable
doubt the true agreement that was intended.
• Here, the D claims that the change should not occur because the mistake
was a result of the negligence and inattention of the plaintiff. Court
disagrees.
• Could basically holds that when it has been established beyond a reasonable
doubt that the contract was in error on a material term, the party penalized
by the error is entitled to reformation if there has been no prejudicial change
of position by the other party while ignorant of the mistake. Basically they
are looking to see if the other party would have been harmed in some way as
a result of the error. If not, despite negligence of the drafter, it is only fair to
allow the mistake to be corrected.
§155 WHEN MISTAKE OF BOTH PARTIES AS TO WRITTEN

EXPRESSION JUSTIFIES REFORMATION
Where a written memorial fails to express the agreement because of a
mistake of both parties as to its contents or effect, court may, at one
party’s request, reform the writing to express the agreement, expect to the
extent that the rights of third parties may be unfairly affected.
C. REQUIRING A WRITING – THE STATUTE OF FRAUDS (p 509)
If you are dealing with situation that does not include a writing –
you must ask if it would be a statute of frauds issue…
This section deals with the dual problems of under and over
enforcement of contracts and how this has swung back and forth.
• Under enforcement is the failure of the legal system to enforce a legitimate
exercise of assent (i.e. to refuse to enforce a valid contract).
• Over enforcement is the erroneous enforcement of an alleged exercise of
assent that in fact never occurred (i.e. to enforce a contract when there really
was not one).
Contract Notes
Page 48 of 124
§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 of 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 (Uniform
Commercial Code ß 2-201);
(b) a contract for the sale of securities (Uniform Commercial Code ß 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 (Uniform Commercial Code ß 1-206).
(3) In addition the Uniform Commercial Code requires a writing signed by the
debtor for an agreement which creates or provides for a security interest in
personal property or fixtures not in the possession of the secured party.
(4) Statutes in most states provide that no acknowledgment 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
Boone v. Coe (p 511) (P’s are promised a house to live in and other things if they
move to TX to farm on the D’s land. They do so and the D does not allow them to
farm or to take possession of the house. They sue for damages but court finds it
is not an enforceable contract.)
PROCEDURAL POSTURE: Plaintiff lessees sought review of a judgment from

the Monroe Circuit Court (Kentucky), which was entered in favor of defendant
lessor in the lessees' action for damages against the lessor regarding his
alleged breach of a parol contract between the parties for the lease of his
farm in Texas. The lessor's demurrer to the lessees' petition was sustained,
and the petition was dismissed.
OVERVIEW: The parties' agreement provided that if the lessees would leave
their homes and businesses in Kentucky, the lessor would furnish them with a
house and the necessary materials to live on and cultivate the lessor's farm
Contract Notes
Page 49 of 124
in Texas for the period of one year, commencing from the date the lessees
arrived in Texas. The lessees agreed, but when they arrived in Texas, the
lessor failed to have the house and materials ready and refused to grant the
lessees access to the farm. The lessees brought an action for damages, and
the circuit court entered judgment in favor of the lessor. The lessees
appealed, and the court affirmed, holding that because the lease was for
a longer term than one year from the making thereof and was not in
writing, the agreement was unenforceable under the Kentucky
statute of frauds and thus, the lessor had the legal right to decline
to carry it out. The court determined that the lessees merely
sustained a loss and that as the lessor received no benefit, there
was no implied obligation on the lessor's part to pay for such loss.
The court concluded that a contrary rule espoused in McDaniel v.
Hutchinson was against the weight of authority and was thus
overruled.
OUTCOME: The court affirmed the circuit court's judgment in favor of the
lessor in the lessees' action against him to recover damages for the lessor's
alleged breach of a parol contract between the parties for the lease of a farm.
Notes:
• The plaintiffs are not trying to enforce the lease; they are trying to recover
damages – Prof asks – should this not take it out of the statute of frauds?
• Why is this not a promissory estoppel case?
• Court is saying that even of you are not arguing breach of contract, if you
have to point to an agreement to get your argument before the court – if it is
not in writing – the Statute of Frauds would apply.
• This case hinged on the fact that the actions of the P did not convey any
benefit to the D.
§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 in 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.
§129 ACTION IN RELIANCE; SPECIFIC PERFORMANCE

A contract for the transfer of an interest in land may be specifically enforced
notwithstanding failure to comply with the Statute of Frauds if it is established
that the party seeking enforcement, in reasonable reliance on the contract and
on the continuing assent of the party against whom enforcement is sought, has
Contract Notes
Page 50 of 124
so changed his position that injustice can be avoided only by specific
enforcement.
§130 CONTRACT NOT TO BE PERFORMED WITHIN A YEAR

(1) Where any promise in a contract cannot be fully performed within a year
from the time the contract is made, all promises in the contract are within the
Statute of Frauds until one party to the contract completes his performance.
(2) When one party to a contract has completed his performance, the one-year
provision of the Statute does not prevent enforcement of the promises of other
parties.
Riley v. Capital Airlines, Inc. (p 515)
PROCEDURAL POSTURE: Plaintiff, in action for breach of an oral contract

under Alabama law, alleged that defendant airline breached a five-year
contract to supply water methanol to defendant for use in turbo-prop jet
aircraft.
OVERVIEW: Plaintiff proprietorship sued defendant airline for breach of an

alleged oral contract. Plaintiff contended that he was given a five-year
contract to supply water methanol to defendant for use in turbo-prop jet
aircraft. Defendant denied that it entered into a five-year contract and argued
that, if there was a contract, plaintiff's claim was barred by the statute of
frauds, 20 Ala. Code ß 3. In its conclusions of law, the court held that
each delivery under the oral contract fell outside the statute of
frauds and was enforceable, but the executory portion of the five-
year contract fell within the statute of frauds and was
unenforceable. The court held that plaintiff was not entitled to
recover for breach of the executory portion of the contract, but was
entitled to compensation for losses incurred in purchasing
equipment to perform the contract.
OUTCOME: The court held that plaintiff was not entitled to recover for
breach of the executory portion of its contract with defendant, but was
entitled to compensation for losses incurred in purchasing equipment to
perform the contract.
Notes:
• Riley feels he has a 5-year deal. Airline says they are treating it as a series of
spot transactions.
• Prof asks why in this case he is able to recover his expenses for setting up
the equipment. How is this different from the prior case? – In this case, there
WAS a benefit to the D based on the purchase of the equipment by the P.
• Discussion of the idea of restitution and unjust enrichment. In essence -
there is an implied obligation to compensate when someone benefits from
what the other party has done, even when there is no formal contract to
enforce… perhaps in some cases, when you can show unjust enrichment, the
courts may be willing to enforce.
Contract Notes
Page 51 of 124
§ 2-201 FORMAL REQUIREMENTS; STATUTE OF FRAUDS

1) Except 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 merchants if within a 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 specially manufactured for the buyer and are
not suitable for sale to others in the ordinary course of the seller's
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 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 (Sec. 2-606).
§139 ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE

(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
the action or forbearance is enforceable notwithstanding the Statute of Frauds if
injustice can be avoided only by enforcement of the promise. The remedy
granted for breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of the
promise, the following circumstances are significant:
(a) the availability and adequacy of other remedies, particularly cancellation
and restitution;
(b) the definite and substantial character of the action or forbearance in
relation to the remedy sought;
(c) the extent to which the action or forbearance corroborates evidence of
the making and terms of the promise, or the making and terms are otherwise
established by clear and convincing evidence;
(d) the reasonableness of the action or forbearance;
Contract Notes
Page 52 of 124
(e) the extent to which the action or forbearance was foreseeable by the
promisor.
§143 UNENFORCEABLE CONTRACT AS EVIDENCE

The Statute of Frauds does not make an unenforceable contract inadmissible in
evidence for any purpose other than its enforcement in violation of the Statute.
1. SATISFYING THE REQUIREMENTS OF A WRITING
Schwedes v. Romain (p 520) P were attempting to buy property from D’s. The
deal was in process verbally with some actions being taken on both sides but no
payment being made and no consideration given. Sellers sell to someone else
and first buyers sue. Court says no contract.
PROCEDURAL POSTURE: Appellant buyers sought review of an order of the

District Court of Flathead County (Montana), which granted appellee sellers
motion for summary judgment in an action brought by the buyers to obtain
either specific performance of an alleged contract with the sellers for the sale
of land, or damages for breach of such contract. The buyers appealed the
grant of summary judgment and the refusal to alter or amend the judgment.
OVERVIEW: The buyers claimed that there was a valid, enforceable contract
for the sale of the land and that they were entitled to specific performance
because they had partially performed the contract, which took it out of the
statute of frauds. The court affirmed the grant of summary judgment to the
sellers. The four essential elements of a contract were legally capable parties,
their consent, a lawful object, and consideration. There was no evidence that
any consideration moved from the buyers to the sellers. A mere oral promise
to pay was not sufficient consideration to support a contractual obligation.
There was no writing, memorandum, or note binding the buyers. Acts
undertaken in contemplation of eventual performance of the contract did not
constitute part performance to remove the operation of the statute of frauds.
Where a case was clearly within the statute of frauds, promissory estoppel
was inapplicable, therefore, the sellers were not estopped to deny the validity
of the contract. There was no evidence upon which the buyers could establish
a valid, enforceable contract and they could not obtain specific performance.
OUTCOME: The order granting summary judgment was affirmed

Notes:
• What do we learn from this case? What does it add?
• The problem in this case is not that there were no writings because there
were.
• Could the court have identified the terms and price from the writings that did
exist? Yes, clearly they could have. Not a pure statute of frauds case as a
result.
• Prof says to remember that again, this is not a spot transaction so it is a
complex transaction. It is not as easy to enforce a very complex transaction?
Contract Notes
Page 53 of 124
○ Could you consider it tortious interference? An agreement to agree?
Agreement that is complete all but for tiny details and we enforce it.
Or…. Here is seems more like an agreement to agree.
• Here the deal was in process with the sellers hiring an attorney to help with
the transaction. The buyers don’t send the $ based on the attorneys advice
and the sellers then sell to someone else for more money.
• Court considers it an oral agreement missing the required elements for an
enforceable contract. They consider it an oral promise to pay with no
consideration. Nothing in writing to make it binding on the seller.
• Attorney had no power to bind sellers? Why? If you hire an atty, wouldn’t
that imply they have the authority to act as your agent? Ask Prof.
○ Conflict of interest? The atty was hired by the realtors but were
assisting the buyers. Who did the realtors work for? Seemed to be
several conflicts of interest. If you consider this, the Schwedes might
not have been reasonable to think that he was representing their
interests.
• Discussion of principle / agent in agency law. Issue is always if the agent can
bind the principle. In agency law the crucial question often is – what is the
scope of the authority of the agent? Another related concept is parent
authority where we look at the situation from the perspective of a 3rd party.
If the Schwedes reasonably thought the atty was acting on behalf of the
seller, they might be bound.
• P’s claim there was partial performance on both seller and buyer side but
court rejects this argument and calls them acts in contemplation of eventual
performance.
• Court says promissory estoppel does not apply here, as the case would fall
within the statue of frauds.
• Prof says this is a dangerous case to have in our book – it is really a four
party deal. Realtor, lawyer, seller, buyer. What do you make of the conduct
of the lawyer and realtor? In many ways this case is more about the actions
of the intermediaries. Should the buyers consider them trusted
intermediaries? Apparently not. Says that you can’t just look at this as a
contract case.
• Court says 4 elements of K are:
○ Legally capable parties
○ Consent
○ Lawful object
○ Consideration
• Real estate deals are different – ordinary contract rules don’t always apply.
• What about consideration? Does it exist in this case? Court says no. There
was no deposit.
Leonard v. PepsiCo (again) (p 524) This is the PepsiCo / jet case again and this
time the court does an analysis under the NY statute of frauds and says there is
no writing to support a binding contract.
PROCEDURAL POSTURE: Plaintiff brought an action for specific

performance by a soft drink corporation to enforce an alleged contract to sell
plaintiff a jet as advertised in a commercial. Defendant filed a motion for
summary judgment.
Contract Notes
Page 54 of 124
OVERVIEW: Plaintiff saw an advertisement for a promotion that defendant
soft drink corporation was sponsoring for its products. The ad stated that one
could accumulate "points" by purchasing its products and exchange them for
merchandise with the product logo on it. At the end of the ad, a high school
aged student was shown landing a Harrier Jet at school with a subtitle that
indicated the cost of the jet was 7,000,000 points. The terms of the
promotion indicated that additional points could be purchased for ten cents.
Plaintiff, with the assistance of several friends, accumulated enough money
to "buy" the Harrier Jet and sent a check to the defendant, demanding the jet.
Defendant refused and sent a letter to plaintiff explaining that the jet was not
an item for purchase and referred him to the promotional brochure for the
rules. Plaintiff then sued for breach of contract. Defendant filed a motion for
summary judgment. The court granted the motion. The court stated that
advertisements were not contracts or offers to sell, but rather invitations to
negotiate. The court noted that offers made in jest were not contracts where
a reasonable person could see that no serious offer was intended.
OUTCOME: The court granted summary judgment in favor of defendant. The

court found that no contract existed between the parties because under an
objective standard, a reasonable person could tell that no offer was intended
and the alleged contract was void because it was for goods in excess of $
500.00 and not in writing
Notes:
• Here we are looking at it from a statute of frauds perspective. Court says
there is no writing that shows a transaction.
• P was trying to assert that the order form made the transaction valid.
• Court cites to a case in which gives two threshold tests for a valid writing,
none of which was met here.
○ Signed writing relied on must by itself establish a contractual
relationship between the parties (here court says commercial is not a
writing and the order form does not have D’s signature);
○ Undersigned writing must on its face refer to the same transaction as
that set forth in the one that was signed.
§131 GENERAL REQUIREMENTS OF A MEMORANDUM
§133 MEMORANDUM NOT MADE AS SUCH
Discussion of American Bar Association Model Rules of Professional

Conduct (2002) (p 526)
RULE 1.2 SCOPE OF REPRESENTATION
Contract Notes
Page 55 of 124
RULE 1.6 CONFIDENTIALLY OF INFORMATION
RULE 1.16 DECLINING OR TERMINATING REPRESENTATION
RULE 4.1 TRUTHFULNESS IN STATEMENTS TO OTHERS
RULE 4.3 DEALING WITH UNREPRESENTED PERSON
In re REALNETWORKS (p 530) Here we are dealing with if the court should

find an arbitration and forum selection clause enforceable. It was another “Click
to agree” electronic forms that came with downloading software. P’s contended
that since the statute required writing and this was electronic – it was not
enforceable. Also claimed it could not be printed or saved. Court disagrees and
enforces.
PROCEDURAL POSTURE: Intervenor filed additional arguments in support

of plaintiff class' opposition to the arbitration clause contained in defendant
corporation's licensing agreement in plaintiffs' action alleging trespass to
property and privacy.
OVERVIEW: Plaintiff class brought an action against defendant corporation

alleging trespass to property and privacy regarding plaintiffs use of
defendant's computer network. Defendant moved to stay and enforce
arbitration under the arbitration clause contained in its licensing agreement.
The court ordered arbitration pursuant to the arbitration clause. Intervenor
filed additional arguments in support of plaintiffs' opposition to arbitration,
claiming that the license agreement did not constitute a writing, that the
arbitration clause should be read narrowly to preclude enforcement in
plaintiffs' action, and that the arbitration provision was unenforceable
because it was unconscionable. The court rejected intervenor's additional
arguments, holding that defendant's license agreement was a written
agreement, that even a narrow reading of the agreement did not preclude
enforcement, and the agreement was not unconscionable.
OUTCOME: Additional arguments rejected because defendant corporation's

license agreement was a written agreement, even a narrow reading of the
agreement did not preclude enforcement of arbitration regarding plaintiff
class' action, and the agreement was not unconscionable.
Notes:
• P is upset over spyware. They want to sue but there is a forum selection
clause and an arbitration agreement. P claims that it is not enforceable
because the FAA requires a “writing” and here it is all electronic. Court
rejects this argument.
• There is a statutory construction issue here – since the FAA existed before
the prevalence of electronic signatures and agreements - should this argue
against using the FAA and simply assuming the FAA would apply?
1. SATISFYING THE REQUIREMENT OF A SIGNATURE
Contract Notes
Page 56 of 124
Cloud Corp. v. Hasbro, Inc. (p 533)
PROCEDURAL POSTURE: Plaintiff seller appealed an order of the United

States District Court for the Northern District of Illinois, Eastern Division,
which entered judgment after a bench trial in favor of defendant purchaser in
an action for breach of contract.
OVERVIEW: The purchaser acquired a powder made by the seller for use in a
toy sold by the purchaser. Mistakenly believing that the purchaser's market
was expanding, the seller manufactured a great many packets of powder in
advance of receiving formal purchase orders from the purchaser. The
purchaser refused to accept delivery of these excess packets or to pay for
them. Contending that this refusal was a breach of contract, the seller sued
the purchaser. The court held that there was a valid modification of the
quantity specifications in purchase orders submitted by the purchaser.
Although purchase orders could not be modified without the purchaser's
written consent, emails and other correspondence between the seller
and the purchaser indicated that the purchaser wanted an increased
quantity. The purchaser did not object within 10 days after the seller
sent an acknowledgement of the oral modification. The purchaser's
statute of frauds defense failed, and in any event, the seller was reasonable
in believing that if the purchaser did not want to be committed to buying the
additional quantity, it would so advise the seller, thereby waiving the
requirement that modifications be in writing.
OUTCOME: The court reversed the judgment for the purchaser and
remanded for a calculation of the seller's damages
Notes:
• Another Posner case.
• Prof starts comparing Schwedes vs this case.
• Here the key issue seems to be another “writing” issue and if emails qualify
as writings under the statute of frauds.
• Here the emails were sent before the Act came into being so could we
consider the electronic writings to be enough?
• Judge also discusses the idea that you could have a contractual statute of
frauds provision. In other words, the written agreement itself may spell out
“no parole evidence” or such. Could set their own standard higher than the
UCC default rules.
E-SIGN ACT (p 537)

Prof asks§101 General Rule of Validity
if these
would
help or Uniform Electronic Transactions Act (1999)
change §9 Attribution and Effect of Electronic Record and Electronic Signature
anything
in Uniform Computer Information Act (2001)
Cloud? § Determining Attribution
Contract Notes
Page 57 of 124
CHAPTER 7 – MULTIPARTY TRANSACTIONS
A. TRANSFERRING RIGHTS OR DUTIES TO THIRD PARTIES
Standard contract thinking involved two parties but now we address

multiparty contract issues.
Two key concepts:

• Assignment of rights – obligee’s transfer of a contract right
• Delegation of duties – empowering another to perform the duty
• Can also be a full transfer of contract that includes both of the above.
Discussion of problem of agency. How does one person become responsible or

acts in the place of another. If you have a contractual relationship between A and
B, how does C come in? One way to think of this is based on Roman slavery.
Master/servant concept. The person acting as the agent becomes subject to the will
of the original agent. This was a concept offered by Holmes which was rejected by
others due to its use of the slavery analogy.
1. Assignment of Contractual Rights
Kelly Health Care v. The Prudential Insurance Co. (p 541) Insurance

company won’t pay claim.
PROCEDURAL POSTURE: Plaintiff health care facility sought review of a

decision of the Circuit Court of the City of Richmond (Virginia), which granted
defendant insurer's motion for summary judgment in a suit to recover the
amount of the insured's medical bills.
OVERVIEW: The health care facility first earned a default judgment against the
insured, then pursued its claim against the insurer on the theory that the insurer
was the insured's assignee. As proof of assignment, the health care facility relied
upon two documents drafted by the insurer and signed by the insured that
authorized the insurer to make payments on the insured's behalf. The reviewing
court upheld the grant of summary judgment. An assignment is a transfer,
but a transfer is not necessarily an assignment. If the transfer is less
than absolute, it is not an assignment; the obligee must have intended,
at the time of the transfer, to dispossess himself of an identified
interest, or some part thereof, and to vest indefeasible title in the
transferee. Here, the documents appointed the insurer as the agent and
granted it authority in the nature of a power of attorney to make such payments.
As such, each was revocable, so neither was an assignment. Therefore, the
health care facility could not bring the instant suit.
Contract Notes
Page 58 of 124
OUTCOME: The judgment was affirmed.
Notes:
• Need to look at Restatement 317 for this case.
• Spouse gets ill, needs health care from Kelly Health Care.
• Insurance Co refuses to pay.
• Kelly relies on standard forms that require the patient to pay anything that
their insurance company does not pay.
• They seem to rely on the second document, which designates Kelly to get
payments directly from the insurance company. This is a basic agency
agreement. I.e., Kelly acts as agent for patient to collect the insurance
payments.
• Prof asks if this is a failure of lawyering. It is a contract of adhesion that is
supposed to have worked for the benefit of both Kelly and Green.
• Could we have just called the form an assignment of benefits?
• The court held that it was an authorization rather then a assignment. A
transfer is not an assignment – it is something less. They were trying to
authorize the insur company to pay the healthcare provider directly – not to
assign all the rights of the insured to the healthcare company….
• Issue here is agency is revocable. They are concerned that they will have to
pay twice. If they pay Kelly, the patient could come back and also require
payment.
• Difference between an assignment and agency is that an agency is dealing
with people and an assignment is dealing with
• Could we simply assign the benefits to Kelly as a one-time transaction?
• We are dealing with a drafting problem – are their “magic” words that you
can use to resolve?
ß 317 Assignment of a Right
(1) An assignment of a right is a manifestation of the assignor's intention to

transfer it by virtue of which the assignor's right to performance by the
obligor is extinguished in whole or in part and the assignee acquires a right to
such performance.
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assignee for the right of the
assignor would materially change the duty of the obligor, or materially
increase the burden or risk imposed on him by his contract, or
materially impair his chance of obtaining return performance, or
materially reduce its value to him, or
(b) the assignment is forbidden by statute or is otherwise inoperative
on grounds of public policy, or
(c) assignment is validly precluded by contract.
In re Nance (p 544)
Contract Notes
Page 59 of 124
PROCEDURAL POSTURE: A bankruptcy judge determined that appellee
bankrupt had converted property of appellant bank and that the debt was
non-dischargeable under ß 17(a)(2) of the Bankruptcy Act, codified at 11
U.S.C.S. ß 35(a)(2). The United States District Court for the District of
Massachusetts held that the debt was dischargeable because the assignment
of deferred income was invalid under Mass. Gen. Laws Ann. ch. 154, ß 3. The
bank filed an appeal.
OVERVIEW: The bank argued that the district court erred in ruling that the
bankrupt's assignment of his claim to deferred income was invalid for failing
to comply with the conditions set forth in Mass. Gen. Laws Ann. ch. 154, ß 3.
The bankrupt alleged that the debt was dischargeable because the bank
never received an assignment from him, and that, even if it had, his actions
did not amount to a willful and malicious conversion. The court found that the
assignment of contract was plainly invalid as an assignment for future wages
and that the trust instrument, standing alone, could not be construed as an
assignment. However, the court held that the demand note, which
consolidated all prior indebtedness into one instrument, expressly listed the
trust instrument as collateral security. The court found that the exemption
from assignment in ß 3 of wages to be earned in the future did not apply to
income the bankrupt had already earned but the receipt of which has been
postponed past the usual payment cycle. The court also held that the
bankrupt's retention of the funds unreasonable and done deliberately and
intentionally in knowing disregard of the rights of the bank.
OUTCOME: The court reversed the district court's decision.
Notes:
• He could not have assigned future earnings under the statute. The bank got
an assignment but it was not a valid assignment – or at least this was the
arguent. It was found on appeal that the assignment was for wages already
earned and thus the back did have a valid assignment.
• At the end of the day – the bank wins.
• The banks lawyers find a way to circumvent the statute so that they could be
paid.
Another discussion of a contract. Our ordinary assumption is that we have

A and B and they have mutual responsibilities and obligations to one another.
Now… a 3rd party (C) enters the picture and one or the other wants to introduce
the 3rd party into the arrangement.
Question we are asking is: can this be done?

First thing we spoke about was assignment. We learned we pay
attention to form and language. An assignment is not accomplished except
under specific circumstances.
Assignment makes us think of property – contract rights = property rights.
Therefore the transfer of these rights is judged as a transfer of property
rights. You label something as property because you want to have control
and have rights to it.
Contract Notes
Page 60 of 124
If we think of K’s as relationships we might think the idea of assignment is not
a good one. If we think of K’s as long-term relationships, we might think
assignments are problematic. Prof calls assignment “pimping”. How do we
resolve the tension? You have to pay very close attention to how you do the
assignment. Must really look like property or a commodity. Perhaps we think
that it is the substance of the deal that matters? If this is how we feel, why
not assign rights. In other words, the substance of the deal may be more
relevant then the relationship between parties.
So… what about delegation? Does this make any difference in how we view?
ß 321 Assignment of Future Rights
(1) Except as otherwise provided by statute, an assignment of a right to

payment expected to arise out of an existing employment or other continuing
business relationship is effective in the same way as an assignment of an
existing right.
(2) Except as otherwise provided by statute and as stated in Subsection (1), a
purported assignment of a right expected to arise under a contract not in
existence operates only as a promise to assign the right when it arises and as
a power to enforce it.
1. Delegation of Contractual Duties
Now moving from assignment of rights to delegation of duties. Delegation

is treated differently. Basically they seem to be saying that even though
you can delegate a duty – it does not remove the original obligation from
the person who entered into it. They use this example:
Passing a football is like assignment of rights – you hand it off to

someone else.
Delegation of duty is more like passing a contagious disease – you
have passed it on but not gotten rid of it yourself.
So… even after a delegation is made, the person originally bound will
remain subject to that duty (a) unless that person is released by the other
party or (b) until the duty is discharged by rendering of performance.
Sally Beauty Co. v. Nexxus Products Co. (553) Delegation case.

Nexxus has K with Best Barber in which Best would be exclusive distributor.
Best is then bought out by Sally Beauty and Nexxus cancels the K. Nexxus
is claiming that the K was not assignable.
PROCEDURAL POSTURE: Plaintiff successor appealed the decision of the

United States District Court for the Northern District of Illinois, Eastern
Division, that granted summary judgment for defendant hair products
Contract Notes
Page 61 of 124
company in contract action, upon its ruling that an exclusive distributorship
contract between defendant and plaintiff's predecessor was one for personal
services and therefore not assignable.
OVERVIEW: Defendant hair products company cancelled the exclusive

contract it had with its regional distributor when the distributor was acquired
by and merged into plaintiff successor. Plaintiff was a wholly-owned
subsidiary of a major competitor of defendant in the hair products market.
Plaintiff sued defendant for breach of contract. On its motion, defendant was
granted summary judgment on the grounds that the distributorship contract
was one for personal services and therefore not assignable from the
distributor to plaintiff, even upon merger. Plaintiff appealed. In affirming, the
court relied upon different grounds, and ruled that the contract
should be treated as a sale of goods contract, governed by the
Uniform Commercial Code, Tex. Bus. & Com. Code Ann. ß 2-210(a)
(1968). Under that provision, the contract was not assignable
without defendant's consent, and the distributor could not delegate
its performance thereunder, because plaintiff was a subsidiary of
defendant's competitor and defendant could not be compelled to accept a
bargain it did not contract for, that is, performance by a party other than the
original distributor.
OUTCOME: Summary judgment for defendant was affirmed, but on a

different theory than that relied on by the district court. The distributorship
contract was to be treated like a contract for the sale of goods, which was not
assignable without defendant's consent, under the Uniform Commercial
Code, because plaintiff was a wholly-owned subsidiary of defendant's direct
competitor.
Notes:
• Nexxus has the deal with Best Barber, which is bought out by Sally Beauty.
Nexxus cancels the K saying it was not assignable or at least not assignable
to Sally Beauty, who is owned by a competitor.
• Nexxus is obviously concerned that the Sally Co won’t market Nexxus
products properly.
• If we think of K’s as property rights you can see in this case why this could be
a problem. Nexxus could be hurt.
• Judge in the case uses 2-210 which allows delegation except where the
delegated performance would be unsatisfactory to the obligee.
• Dissent (Posner) feels Nexxus should not be allowed out of the deal. Feels
like there is no evidence that Nexxus would hurt by the deal. Talks about the
Sherman Anti-Trust laws. The new owner would not hurt a product line that
he now owns. Posner feels that Nexxus should use the remedy of demanding
assurances of due performance and not to cancel the K.
• There is no term in the K that would allow them an out.
• If you think this is only about commodities, Posner makes a compelling
argument. However, if you see the K about relationships, you lost the
judgment of the person you trusted to look after your interests.
• If you apply the provision under UCC 2-210 (5), you can add to the
agreement with a expanded understanding which would allow you to identify
if there might be a future breach.
Contract Notes
Page 62 of 124
§ 2-210 DELEGATION OF PERFORMANCE; ASSIGNMENT OF

RIGHTS.
(1) A party may perform his duty through a delegate unless otherwise agreed
or unless the other party has a substantial interest in having his original
promisor perform or control the acts required by the contract. No
delegation of performance relieves the party delegating of any duty
to perform or any liability for breach.
(2) Unless otherwise agreed all rights of either seller or buyer can be
assigned except where the assignment would materially change the duty of
the other party, or increase materially the burden or risk imposed on him by
his contract, or impair materially his chance of obtaining return performance.
A right to damages for breach of the whole contract or a right
arising out of the assignor's due performance of his entire obligation
can be assigned despite agreement otherwise.
(3) Unless the circumstances indicate the contrary a prohibition of

assignment of ''the contract'' is to be construed as barring only the
delegation to the assignee of the assignor's performance.
(4) An assignment of ''the contract'' or of ''all my rights under the contract''

or an assignment in similar general terms is an assignment of rights and
unless the language or the circumstances (as in an assignment for security)
indicate the contrary, it is a delegation of performance of the duties of the
assignor and its acceptance by the assignee constitutes a promise by him to
perform those duties. This promise is enforceable by either the assignor or
the other party to the original contract.
(5) The other party may treat any assignment which delegates
performance as creating reasonable grounds for insecurity and may
without prejudice to his rights against the assignor demand
assurances from the assignee (Section 2-609).
A. MANIFESTING ASSENT THROUGH AN AGENT: TYPES OF

AUTHORITY
In the real world, most K’s are negotiated through agents. This
means you have to learn under which circumstances agents are
allowed to bind the “principle” (person the represent) to a K.
Complicated area of law.
Restatement Second of Agency defines:
Contract Notes
Page 63 of 124
§1 AGENCY; PRINCIPLE; AGENT
(1) Agency is the fiduciary relationship which results from the

manifestation of consent by one person to another that the other
shall act on his behalf and subject to his control, and consent by
the other so to act.
(2) The one for whom action is to be taken is the principal.
(3) The one who is to act is the agent.
In case below – implied vs. apparent authority is looked at….
New England Educational Training Service, Inc. v. Silver Street

(p 559) In this case, the D’s have an atty acting as an agent helping to
resolve the matter of the prior mortgage on the property. The atty has
general authority to negotiate but not to bind the D to a deal. The atty
winds up making an agreement on behalf of D, which the D’s claim was
not within his authority.
PROCEDURAL POSTURE: The Bennington Superior Court (Vermont) granted

plaintiff corporation's motion for summary judgment in its action to enforce a
settlement agreement with defendant partnership. The partnership appealed.
OVERVIEW: The partnership was the record owner of a parcel of real estate
encumbered by a mortgage in favor of the corporation. After the corporation
acquired the parcel, it notified the partnership about the outstanding
encumbrance. When the parties were unable to settle the dispute, the
corporation filed a foreclosure action against the partnership. The trial court
granted summary judgment to the corporation on the basis of a settlement
agreement the trial court found was made by the parties' attorneys and
enforceable against the partnership. On appeal, the court determined that the
partnership's counsel had permission or authority to enter into the disputed
settlement agreement. However, the court found no evidence that the
partnership's counsel was expressly authorized to agree to the amount of the
settlement. The court held that there was no implied authority to reach an
agreement binding on the partnership. Also, the court held that there was no
apparent authority to reach a binding settlement agreement. Therefore, the
court concluded that summary judgment was improper.
OUTCOME: The court reversed and remanded the trial court's decision granting
summary judgment to the corporation
Notes:
• Conflict over pre-existing mortgage. The D bought a property that had a
pre-existing mortgage on it that they were unaware of at the time. The P
owned mortgage.
• They try to work it out but fail. D retains an atty to help them negotiate.
• Key issue in this case is the fact that the atty winds up making a
settlement agreement but he has no authority to do so. The P is trying to
hold the D to the agreement and the D is taking the position (a position
Contract Notes
Page 64 of 124
also accepted by the court) that the atty had a general authority to
negotiate but could not bind the D to a specific amount / agreement w/o
their express consent.
• Atty had authority to make 10k offer but not 60k.
• P also relies on the idea of apparent authority. The court defines as
authority that does not come from the principal expressly but from the
apparent conduct of the principal that makes the 3rd party feel they can
reasonably rely on the agent’s authority. Court rejects this argument, as
well as there is no evidence to support that this happened in this case.
Next case again we consider diff between implied and apparent

authority. Here court finds apparent authority did exist. Why?
Sauber v. Northland Insurance Co. (p 563) Car insurance case. Guy

buys car and insures for 2 years – then sells to brother in law. Gives
brother in law insur info. Brother in law calls insurance co to make sure
all is fine and is told it is by anon woman who answers phone at insur
agency.
OVERVIEW: Owner sold his automobile to his brother-in-law, the plaintiff.

Plaintiff contacted defendant insurer to inquire about an assignment of insurance
coverage to plaintiff. Plaintiff assumed defendant had assigned the policy.
Owner, who had reserved the right to use the vehicle, was involved in an
automobile accident with the insured vehicle. Defendant insurer would not cover
the damages. After a jury returned a verdict for plaintiff, the court granted
defendant a new trial for errors of law. Reversing the grant of a new trial, the
court held that defendant's agent had authority to act and make the assignment
of the insurance policy. Plaintiff had called defendant to discuss the policy and
spoke with person who answered regarding the policy. The court held that
where defendant invited the public to call its telephone number to
transact business with it, and where defendant permitted an employee
to answer the telephone, that such person was acting for defendant
with authority. Defendant offered no proof to dispute that presumption. The
court held that the lower court erred in not admitting the testimony regarding
the phone call.
OUTCOME: Court reversed order granting new trial based on errors of law and
reinstated the jury verdict because plaintiff assumed the one who answered the
telephone was an agent of defendant's and had apparent authority to bind
defendant on the assignment of insurance.
Notes:
• At the end of the day, this case hinged on the idea of apparent authority.
Unlike the last case – here the court found that such apparent authority
was reasonable. They rely on the Restatement, Agency §8 that defines
apparent authority.
• Here the court says the apparent authority rested on a number of factors:
○ The business invited the public to use the phone to conduct
business with the company.
○ Business had an employee to answer the phone.
Contract Notes
Page 65 of 124
Such a person purported to act with authority for the company.
○
Person calling had a right to assume the person they were speaking
○
with had the authority to act.
• Such evidence is not conclusive but establishes a presumption that must
be rebutted by the D.
Another apparent authority case?
Jennings v. Pittsburgh Mercantile Co. (p 567) Case involved a real

estate deal. Realtor brought three offers, one of which was acceptable.
Week later realtor is told the deal is not accepted but sues for commission.
Issue hinges on the apparent authority of the agent to have agreed to the
deal.
PROCEDURAL POSTURE: Appellant company challenged the decision of the

Court of Common Pleas of Allegheny County (Pennsylvania), which entered a
verdict for appellees, realtor and investment consultant, and denied the
company's motions for new trial and judgment n.o.v. in an action of
assumpsit against the company to recover a real estate brokerage
commission on a sale and leaseback of all of the company's real property.
OVERVIEW: The company, represented by its vice-president, asked the

realtor to solicit offers for a sale and leaseback of the company's property
and promised a commission if an offer was accepted. The realtor presented
three offers to the company, the third of which came close to the original
terms. The realtor alleged that the vice-president's initial statement that the
executive committee had approved the third offer, which was communicated
to the realtor by the company's financial consultant, constituted acceptance
of the offer, although the realtor was told within a week by the vice-president
directly that the offer had been rejected. The company refused to pay the
realtor's bill for the commission. The lower court entered a verdict for the
realtor and the investment consultant and denied the company's motion for a
new trial or judgment n.o.v. The court reversed and held that the company
was entitled to judgment n.o.v. because the evidence was insufficient to
establish that the vice-president had apparent authority to accept an offer for
the sale and leaseback of the company's property, an extraordinary
transaction.
OUTCOME: The court reversed the verdict of the lower court, which entered
a judgment in favor of the realtor and the investment consultant in their
action to recover a commission from the company on the sale and leaseback
of the company's real property.
Notes:
• Court finds there was no apparent authority and no reasonable person would
have believe there to be. Key statement seems to be “authority emanates
from the actions of the principle, not the agent” in other words, it does not
matter what the agent says or does when considering apparent authority but
what the principle says or does.
Contract Notes
Page 66 of 124
• Prof asks the difference between implied authority and apparent authority.
Restatement 3rd says to not try to distinguish between apparent and implied
authority and just look at implied authority. Key word used is manifestation.
From the perspective of the agent, did it look like (based on what the
principle had done or said) that is was reasonable to assume the agent had
the authority? Prof likes this one!! (He generally is very skeptical of the
restatements)
THIRD PARTY BENEFICIARIES
Intended Beneficiaries
Seaver v. Ranson (p 571) Wife wants to leave house to niece but this is not in
the will. Husband states he will follow her wishes even though it was not
expressly in the will. He fails to do so and the niece sues and wins.
PROCEDURAL POSTURE: Appellants sought review from a judgment of the

Appellate Division of the Supreme Court in the third judicial department (New
York) affirming a judgment in favor of respondent in an action to enforce the
terms of a contract.
OVERVIEW: Respondent brought suit in contract to recover property that her

late aunt contracted with her late uncle to deliver. The trial court found for
respondent. On review, the trial court found that the right of a third party to
recover upon a contract made by other parties for the third party's benefit
was determined by the circumstances of the particular case. The court
determined that the facts of the case did show that as a matter of equity,
respondent was entitled to recover the property that the decedent uncle had
contracted with the decedent aunt to deliver to respondent. Therefore, the
judgment was affirmed.
OUTCOME: The judgment for respondent was affirmed because the

circumstances of the particular case demonstrated that as a matter of equity,
respondent, as a third party beneficiary to the contract, was entitled to
recover under the terms of the contract
Notes:
• Here the court is suggesting that she was a clear beneficiary.
• In general, rule has been that privity of contract is needed between a
plaintiff and defendant in order to bring an action on the contract.
Contract cannot be enforced against a 3rd party, thus it cannot be
enforced by him. The other side of this is that when the contract has
clearly been made to benefit a 3rd party, they can sue.
• Why is this not a statute of frauds case?
• In NY, four cases where a beneficiary has the right to sue on a
contract made for his benefit.
Contract Notes
Page 67 of 124
ß 302 Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee, a

beneficiary of a promise is an intended beneficiary if recognition of a
right to performance in the beneficiary is appropriate to effectuate
the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of
the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to
give the beneficiary the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended
beneficiary.
Distinguishing Intended from Incidental Beneficiaries
An incidental beneficiary is a beneficiary who is not an intended

beneficiary.
Sisters of St. Joseph of Peace, Health, and Hospital Services v. Russell (p

575) Employee is injured and breaks leg and back. Sacred Heart hospital
provides treatment and then seeks benefits from the WC insurance company as a
third party beneficiary.
PROCEDURAL POSTURE: Defendant insurer sought review of a decision

from the Lane County Circuit Court (Oregon), denying defendant's motion for
directed verdict as to plaintiff hospital's claim for payment of medical
services plaintiff provided to defendant injured worker. The jury found that
plaintiff was a third-party beneficiary to a worker's compensation disputed
claim agreement to which defendants were parties.
OVERVIEW: Defendant insurer challenged the trial court's refusal to grant its
motion for a directed verdict after a jury found defendant liable for
reimbursing plaintiff hospital for the cost of medical care provided to
defendant injured worker. Not long after defendant worker's accident, he and
defendant insurer had entered into a worker's compensation disputed claim
settlement agreement under Or. Rev. Stat. ß 656.289(4). The jury found that
defendant insurer was obligated to reimburse plaintiff because plaintiff was a
third-party beneficiary to that agreement. On appeal, the state's highest
court held that by the time defendants' settlement agreement was signed,
plaintiff had already provided something of value to defendant worker, i.e.,
medical treatment, making plaintiff a creditor beneficiary of the agreement
as long as defendants intended to benefit plaintiff. The court held that they
had. In the agreement, defendants split the financial responsibility for
defendant worker's care, defendant insurer being responsible for defendant
worker's past but not future medical bills. The court affirmed the trial court's
denial of defendant insurer's motion for directed verdict.
Contract Notes
Page 68 of 124
OUTCOME: The court affirmed the trial court's denial of a directed verdict in
favor of defendant insurer after a jury found defendant liable for paying
plaintiff hospital for defendant injured worker's past medical bills because
plaintiff was a third-party beneficiary of a worker's compensation disputed
claim settlement agreement signed by two defendants.
Notes:
• Aetna did not want it to go to court – moved for a directed verdict. Bad
p/r.
• Ultimately, the Sisters win at the Supreme Court level, they get their
jury trial and directed verdict is overturned.
• Hospital is trying to use settlement to get paid.
• Prof asks if the lawyers botched the job. If Etna was trying to protect
themselves from having to pay a third party, shouldn’t they (Aetna and
attorneys) have put something in the K?
• Discussion of what paragraph 2 really means. What is the actual
agreement? Do the Sisters have to sue Russell directly and then
Russell would have to sue Aetna? Says this is the wrong reading of the
agreement. Prof thinks this would be the best argument Aetna could
use. Why is that not a winning argument? The way the deal is put
together is that Aetna has inserted themselves into the deal with
Russell and the Sisters and so now, based on the agreement, Aetna is
far more then a spectator. Aetna is saying that they are responsible
for resolving the claim. They don’t want Russell to get a judgment
because then there is no longer anything to contest.
• If anything favors the hospital, it is the fact that Aetna had language
that stated that they would resolve the claims directly….this goes
against the idea that Aetna is uninvolved.
○ Incidental Beneficiary: not intended
○ Intended Beneficiary:
• Crucial learning here is that 3rd party beneficiary claims are defined by
reading the agreement to see how the 3rd party shows up and how it
appears it is intended to work. Must read the language together as a
whole to make a determination. The terms “intended” or “incidental”,
etc are conclusory labels you can attach if you want after your analysis
but do not start there – must read the agreement in its entirety.
Specht v. Netscape (again) (p 581) Court won’t compel arbitration with

someone who is, at best, an incidental party to the argangment.
ß 315 Effect of a Promise of Incidental Benefit
An incidental beneficiary acquires by virtue of the promise no right

against the promisor or the promisee.
Contract Notes
Page 69 of 124
CHAPTER 9 – THE DOCTRINE OF CONSIDERATION
A. The History
In modern contract law, consideration has become identified with the

bargain theory of consideration – i.e., what consideration was bargained
for. Historical version dealt more with moral considerations and pre-
existing duties.
• Because no debt was involved, there was a rise in assumpsit in common law
courts to enforce promises. The extension of promissory liability in the
common law required new boundary markers and this is how we discuss the
history of consideration. I.e., what promises should be enforced and which
should not?
• Until Statute of Frauds, formality of the promise was irrelevant.
• Some restrictions were imposed and some promises would not be enforced
by the court for a variety of reasons.
• Offer and acceptance, which is key in modern K law, did not really factor into
the historical view.
• Best synonym for the historical view of consideration is “motive”. What
factors the promisor considered when promising which motivated or moved
him to promise.
• They recognized the concept, which we still follow, that a promise (in order to
be enforceable) must be supported in some way (i.e. consideration) and that
an unsupported promise would not be enforceable.
○ May come under the idea of an already existing obligation (i.e. I owe
someone $10 and then make a promise to pay him the $10)
○ May come under the idea of a moral obligation – some pre-existing
moral duty and then the promise is made (i.e., example of father
needing a coat and if I am his son and I promise to get him one – would
have been enforceable under the idea of moral duty)
MORAL CONSIDERATION (p 640)
Discusses the idea that a pre-existing moral obligation to perform a

particular act was considered to be a good reason for enforcing a
commitment to do so….
Mills v. Wyman (p 640) In this case, the father is not found to have a duty to
pay the bills for the son’s medical care, even after promising to do so. No
consideration for the promise. This case seems at odds with this idea of moral
consideration? Perhaps because the son was an adult and there was no duty of $
support? This case limits the idea of moral consideration.
PRIOR HISTORY: This was an action of assumpsit brought to recover a

compensation for the board, nursing, &c., of Levi Wyman, son of the
defendant, from the 5th to the 20th of February, 1821. The plaintiff then lived
at Hartford, in Connecticut; the defendant, at Shrewsbury, in this county. Levi
Contract Notes
Page 70 of 124
Wyman, at the time when the services were rendered, was about 25 years of
age, and had long ceased to be a member of his father's family. He was on
his return from a voyage at sea, and being suddenly taken sick at Hartford,
and being poor and in distress, was relieved by the plaintiff in the manner
and to the extent above stated. On the 24th of February, after all the
expenses had been incurred, the defendant wrote a letter to the plaintiff,
promising to pay him such expenses. There was no consideration for this
promise, except what grew out of the relation which subsisted between Levi
Wyman and the defendant, and Howe J., before whom the cause was tried in
the Court of Common Pleas, thinking this not sufficient to support the action,
directed a nonsuit. To this direction the plaintiff filed exceptions.
DISPOSITION: Judgment entered for costs for the defendant.
PROCEDURAL POSTURE: Plaintiff good Samaritan appealed the decision of

a court of common pleas (Massachusetts) issuing a judgment in favor of
defendant parent in plaintiff's assumpsit action to cover compensation for the
board, nursing, and care of defendant's son.
OVERVIEW: Plaintiff provided board, nursing, and care to defendant's adult

son for a two week period after he returned from a voyage at sea poor, in
distress, and sick. After plaintiff had finished caring for defendant's son,
defendant wrote a letter promising to pay plaintiff for his expenses. When
defendant did not pay as he promised, plaintiff sued. Plaintiff's complaint was
dismissed for lack of consideration. Plaintiff appealed. The supreme court
affirmed because there was no consideration for defendant's promise to pay
plaintiff's expenses. The kindness and services provided for defendant's son
were not bestowed at defendant's request, and defendant was not legally
obligated to support his son in any way. Thus, because defendant's son was
an adult who was responsible for his own debts, any debt he incurred created
no obligation upon defendant. Without consideration, defendant's promise
founded upon such a debt had no legally binding force.
OUTCOME: The court affirmed the judgment because defendant's promise to

pay expenses incurred for the care of his adult son was not supported by
consideration because the services provided for defendant's son were not
bestowed at defendant's request and defendant was not legally obligated to
support his son in any way.
Notes:
• Here, the court limits the idea that moral consideration is enough to
make a promise enforceable. Here the son was an adult and there was
no obligation on the part of the father to pay the expenses. The fact
that he promised to do so in writing is found to not be enough by the
court. A moral consideration might be enough if it is backed by a legal
obligation such as a father to a minor child.
• Courts seem to feel that material benefit should be enforceable but
moral obligations are not. We (court) looks for bargaining.
Geoffrey R. Watson – Mills v. Wyman Reconsidered (644)
Contract Notes
Page 71 of 124
This is just further discussion on the background of the above case. A
number of interesting facts come out including that the court had stated
that the son had died, when he had not.
Webb v. McGowin Here these was sufficient legal consideration to enforce an

agreement, even after the death of the promisor.
PROCEDURAL POSTURE: Plaintiff appealed from a judgment of the Circuit

Court, Butler County (Alabama), which sustained the defendants' demurrers
to plaintiff's action for unpaid installments on an alleged contract made when
plaintiff was permanently injured while saving promisor's life.
OVERVIEW: The plaintiff was permanently injured while saving the

promisor's life. The promisor agreed to pay plaintiff a monetary amount every
two weeks during the remainder of plaintiff's life. The promisor complied with
this agreement up to the time of his death. Plaintiff brought a complaint
against defendants, the executors of the deceased promisor's estate, to
enforce the promise and to continue to receive payments. The court granted
defendants' demurrer to the complaint. On appeal, the court reversed,
holding that the contract was enforceable because the injury to the plaintiff
was sufficient legal consideration for the promisor's agreement to pay.
OUTCOME: The court reversed and remanded the case holding that the
contract was enforceable because the injury to the plaintiff in saving the
promisor's life was sufficient legal consideration to enforce the promise to
pay.
Notes:
• Court here says the promise was enforceable as it was more then just
a moral obligation. The promisee sustained loss and the promisor got
a significant benefit – that being his life and health were saved by the
actions of the promisee.
Webb v McGowin (again) (p 652)
Supreme Court of Alabama offers opinion (?) on the ruling on Webb –

wants to make a key distinction in the holding of the case: They
distinguish a case in which there is some moral obligation of the promisor
unsupported by any consideration or material benefit and one in which
such a benefit did occur. The latter is what happened in this case…. In
other words, the court does not want to be misunderstood as supporting a
contract on the basis of a moral obligation w/o some other legally
recognized idea of consideration…
ß 86 Promise for Benefit Received
Contract Notes
Page 72 of 124
(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) if the promisee 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.
A. CONTRACT MODIFICATION AND THE PREEXISTING DUTY RULE (P

656)
Issue here is – are promises to modify a pre-existing contract duty

enforceable?
• We are looking at changes to the deal in mid-stream. When
should we allow this (i.e. enforce it?)
Stilk v. Myrick (p 656) Was the seaman due additional wages? No. They were
promised the wages of the two missing seamen…they did the job they were
originally contracted to do.
Overview: This was an action for seaman's wages, on a voyage from

London to the Baltic and back. By the ship's articles, executed before the
commencement of the voyage, the plaintiff was to be paid at the rate of £5 a
month; and the principal question in the cause was, whether he was
entitled to a higher rate of wages? In the course of the voyage two of the
men deserted and the captain having in vain attempted to supply their places
at Cronstadt, there entered into an agreement with the rest of the crew, that
they should have the wages of the two who had deserted equally divided
among them, if he could not procure two other hands at Gottenburgh. This
was found impossible; and the ship was worked back to London by the
plaintiff and eight more of the original crew, with whom the agreement had
been made at Cronstadt. Garrow for the defendant insisted, that this
agreement was contrary to public policy, and utterly void. In West India
voyages, crews are often thinned greatly by death and desertion; and if a
promise of advanced wages were valid, exorbitant claims would be set up on
all such occasions. This ground was strongly taken by Lord Kenyon in Harris
v. Watson, Peak. Cas. 72, where that learned
Held: Judge held, that no action would lie at the suit of a sailor on a promise
of a captain to pay him extra wages, in consideration of his doing more than
Contract Notes
Page 73 of 124
the ordinary share of duty in navigating the ship; and his Lordship said, that if
such a promise could be enforced, sailors would in many cases suffer a ship
to sink unless the captain would accede to any extravagant demand they
might think proper to make. The Attorney-General, contra, distinguished this
case from Harris v. Watson, as the agreement here was made on shore, when
there was no danger or pressing emergency, and when the captain could not
be supposed to be under any constraint or apprehension. The mariners were
not to be permitted on any sudden danger to force concessions from the
captain; but why should they be deprived of the compensation he voluntarily
offers them in perfect security for their extra labour during the remainder of
the voyage? Lord Ellenborough: I think Harris v. Watson was rightly decided;
but I doubt whether the ground of public policy, upon which Lord Kenyon is
stated to have proceeded, be the true principle on which the decision is to be
supported. Here, I say, the agreement is void for want of consideration. There
was no consideration for the ulterior pay promised to the mariners who
remained with the ship. Before they sailed from London they had undertaken
to do all that they could under all the emergencies of the voyage. They had
sold all their services till the voyage should be completed. If they had been at
liberty to quit the vessel at Cronstadt, the case would have been quite
different; or if the captain had capriciously discharged the two men who were
wanting, the others might not have been compellable to take the whole duty
upon themselves, and their agreeing to do so might have been a sufficient
consideration for the promise of an advance of wages. But the desertion of a
part of the crew is to be considered an emergency of the voyage as much as
their death; and those who remain are bound by the terms of their original
contract to exert themselves to the utmost to bring the ship in safety to her
destined port. Therefore, without looking to the policy of this agreement, I
think it is void for want of consideration, and that the plaintiff can only
recover at the rate of £5 a month. Verdict accordingly.[1]
Notes:
• Deal was not honored, court says they were bound by their original
contract and there was a lack of consideration for the new bargain.
Alaska Packers Assn v. Domenico (p 658) Here again the court does not
allow the change.
PRIOR HISTORY: Appeal from the District Court of the United States for the
Northern District of California.
PROCEDURAL POSTURE: Appellant company challenged the judgment of

the District Court of the United States for the Northern District of California, in
a case where libelants, fishermen, brought suit against appellant, alleging
that appellant had contracted to pay them higher wages.
OVERVIEW: Libelants, fishermen, contracted with appellant company to sail

from San Francisco to Alaska and work for appellant during the fishing
season. When the ship arrived in Alaska, libelants demanded higher wages
than were provided for in the contract; libelants stated that they would not
work unless they were paid additional wages. A supervisor for appellant
Contract Notes
Page 74 of 124
agreed to the demand and executed an altered contract, compelled by the
remote location and difficulty of finding replacement workers. When libelants
returned to San Francisco, appellant denied the validity of the later contract.
The court held that the later contract was not supported by adequate
consideration because it was based solely on libelants' agreement to render
the exact services that they were already obligated to perform. The court
held that when parties did what they were already contractually
obligated to do, they could not demand additional compensation.
OUTCOME: The court held that the contract was not supported by adequate
consideration because it was based solely on libelants' agreement to render
the exact services that they were already obligated to perform.
Notes:
• Here the fisherman felt that due to the inadequacy of the nets, they
should be paid more. They had agreed to work for both a flat fee as
well as a “commission” on the amount of fish caught. Evidence did not
seems to support the net theory.
• Court found that the fisherman were holding the company hostage and
had unfairly used their bargaining position. Also, the agent did not
have the authority to renegotiate the original contract.
Brian Construction and Development Co. v. Brighenti (P 666) Here the

court does allow the enforcement of the midstream change.
PRIOR HISTORY: Action for damages for breach of contract, brought to the
Superior Court in Hartford County, where the defendant filed a counterclaim;
the case was tried to the court, Longo, J.; judgment for the defendant on the
complaint and for the plaintiff on the counterclaim, and appeal by the plaintiff
to this court.
PROCEDURAL POSTURE: Plaintiff general contractor filed suit against

defendant sub-contractor in the Superior Court of Hartford County
(Connecticut). The sub-contractor filed a counterclaim. Judgment was entered
in favor of the sub-contractor on the general contractor's claim and for the
general contractor on the sub-contractor's counterclaim. The general
contractor sought review of the judgment for the sub-contractor.
OVERVIEW: The general contractor agreed to construct a post office and the
sub-contractor agreed to do the excavation work. While doing the work, the
sub-contractor discovered substantial debris that was unanticipated by the
parties. All parties agreed that removal of the debris was necessary, but no
one gave the contractor the written authorization to spend the additional
money required for removing the debris. The general contractor entered into
another contract with the sub-contractor, which included debris removal. It
was an oral agreement that the sub-contractor did not confirm in writing. The
sub-contractor began to work for a few weeks, but then stopped and refused
to finish the job. As a result, the general contractor undertook the work
himself and incurred substantial damages. One of the general contractor's
Contract Notes
Page 75 of 124
claims on appeal was that the oral agreement was valid and obligated the
sub-contractor to remove the debris. The court held that, under the
circumstances, the subsequent oral agreement was binding as a
new, distinct contract, which was supported by valid consideration,
and the sub-contractor's actions constituted a breach of contract.
OUTCOME: The court overruled the trial court's entry of judgment in favor of
the sub-contractor on the complaint filed by the general contractor, and
remanded the matter with direction to enter judgment in favor of the general
contractor.
Notes:
• Here the court does allow a mid-stream change in the contract. What
is the difference here?
• Here, can we say that they renegotiated in good faith after new details
came out….
• Could we say that if the modification looks like a negotiated
compromise, you should enforce it?
• Posner (on page 672) says that consideration is not really the issue in
these cases – look at duress.
• What to take away from these cases:
○ Question of consideration shows up twice. Once when you enter
into the deal and again if we attempt to modify. We want to see
what the parties have at stake.
• More discussion of consideration. Court is asking, why did you make
this promise? What was your stake / interest? Comes up in the moral
promise issue we discussed. Also comes up in the idea of adequacy of
consideration – ie. Is the consideration enough? Courts don’t generally
look at this…
• Fraudulent TRANSFER ACT – Prof feels this is a very important issue.
(it is not really taught as a part of this course) If a business is insolvent
then the transfers must be equal. So… the idea that the court does
not look at the adequacy of consideration is not always true – it is not
true under the Fraudulent Transfer Act.
• One of the reasons consideration is important is that we are seeing the
issue in conflict (or we would not be involved) and in order to help see
the contract and analyze it, it helps to be able to see what each party
stood to gain and to lose.
• Prof says that K’s are an example of private law-making….
ß 89 Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on

either side is binding
(a) if the modification is fair and equitable in the view of the
circumstances not anticipated by the parties when the contract
was made; or
Contract Notes
Page 76 of 124
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of
material change of position in reliance on the promise.
§ 2-209 MODIFICATION, RESCISSION, AND WAIVER
(1) An agreement modifying a contract within this Article needs no

consideration to be binding… (still a good faith requirement
although no consideration needs to be present to modify a sales
contract – remember here we are just talking about sale of goods
under the UCC)
Contract Notes
Page 77 of 124
CHAPTER 10 – THE INTENTION TO BE LEGALLY BOUND
ENFORCEABILITY….
Federal Deposit Insurance Corp v. Barness (p 712) Issue here seems to be

what is called for in the Uniform Written Obligations Act and if an express
intention to be bound has to be stated very clearly… under the UWOA,
consideration is not needed in written agreement if the party states in writing that
he intents to be bound. Must be expressly stated – never inferred.
PROCEDURAL POSTURE: After the case was removed to the United States
District Court, defendant filed a motion to open the judgment entered against
him by confession in the Court of Common Pleas of Buck County
(Pennsylvania) contending he had a valid defense to plaintiff FDIC's action to
enforce a promissory note.
OVERVIEW: Defendant executed a non-negotiable promissory note to a

federally insured bank payable on demand. The state's department of
banking took over the bank and plaintiff received the promissory note via an
assignment from the state's receiver. The case was removed from state court
to federal district court on plaintiff's motion. Defendant then moved to open
the judgment alleging several defenses. Plaintiff contended that the grounds
asserted by defendant did not constitute defenses, but were counterclaims
for which the judgment could not be opened. Using the common law of
assignments, the court found plaintiff, as assignee, took the note subject to
any defenses that defendant had against the bank. The court concluded that
defendant's claim that the note was made as an accommodation and his
contentions that the assignment was invalid due to the illegality of the
takeover were both valid defenses to the note and required opening of the
judgment.
OUTCOME: Judgment opened because defendant's allegations in his verified

motion were sufficient to state a valid defense to plaintiff's enforcement of a
promissory note.
Notes:
• The D signed a promissory note, clearly thinking it was only a formality
and would not be enforced. The bank becomes insolvent and now the
issue of the promissory note comes up. The D is claiming that there
was no consideration for his promissory note. This may not be true if
you consider that his note would help the bank and he was a
shareholder in the bank.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF PITTSTON v.

REGGIE (p 713) This is another case on UWOA. Here the bank tries to say that no
consideration was needed because the mortgage fell under the UWOA but they
did not show what language would prove the express intent to be bound. Bank
loses. Also, court says that even if they had shown that it met UWOA and thus no
Contract Notes
Page 78 of 124
consideration needed, it still could be challenged under another area – fraud or
duress.
PROCEDURAL POSTURE: Appellant sureties sought review of an order of

the Court of Common Pleas of Luzerne County (Pennsylvania), which granted
summary judgment in favor of appellee bank in an action to determine
whether appellee had a duty to apply the proceeds of a related foreclosure in
such a way as to avoid foreclosing on appellants' home.
OVERVIEW: Appellant sureties claimed that a mortgage with appellee bank

was unenforceable because it was induced by fraud or misrepresentation and
was not supported by consideration. The mortgage was part of a refinancing
of an alleged deficiency which resulted from a foreclosure of a related
property. The trial court held that the parol evidence rule precluded
consideration of the issues of fraud and misrepresentation and granted
summary judgment in favor of appellee. On appeal, the court vacated the
order and remanded. The court held that factual issues remained to be
resolved and that parol evidence was admissible to establish suretyship. The
mortgage on which appellee sought to foreclose was unenforceable for lack
of consideration because appellee violated its duties toward appellants and
discharged them, as sureties, from liability on the mortgage when it applied
the proceeds of a foreclosure to an unrelated debt. Appellants owed no debt
to appellee after the sale of the property, and appellee could not have legally
foreclosed on appellants' home. Therefore, there was no consideration
underlying the mortgage, and appellants were induced to finance a non-
existent debt.
OUTCOME: The court vacated the order of the trial court granting summary
judgment in favor of appellee bank and remanded the case to the trial court
because factual issues in the claims of appellant sureties remained to be
resolved
Notes:
• If you are going to use the statute, it is very rigid rule and must be
explicit.
LACK OF INTENTION TO BE LEGALLY BOUND
In the prior section, the issue was when and how to enforce non-
bargained for commitments by using formalities to manifest an
intention to be legally bound (remember the UWOA above).
Now we look at the possibility of avoiding enforcement, even for

bargained for commitments, by disclaiming the intention to be
legally bound.
See Restatement of Contracts §21 which states “a manifestation of

intention that a promise shall not affect legal relations may prevent
the formation of a contract…”
Contract Notes
Page 79 of 124
Ferrera v. A.C. Nielsen (p 714) Here a terminated employee is making the
(unsuccessful) argument that an employee handbook equates to a contract with
the employee. Court rejects this notion because the handbook contained a
disclaimer.
PROCEDURAL POSTURE: Plaintiff employee appealed the order from the

District Court of Boulder County (Colorado), which entered summary
judgment in favor of defendant employer on the employee's claim that she
was wrongfully discharged from employment.
OVERVIEW: After almost seven years of employment, the employer fired an

employee after concluding that she had falsified her time card for a second
time. The employee brought an action for wrongful discharge from
employment under implied contract and promissory estoppel theories based
on the employee handbook. On the employer's motion, the trial court entered
summary judgment in favor of the employer. The court held that the
handbook could not constitute a contract because it contained a
disclaimer. In a motion to reconsider, the trial court reviewed a copy of an
earlier issued handbook but affirmed its entry of summary judgment. On
appeal, the court held that the error, if any, that resulted from the trial
court's earlier entry of judgment was harmless under Colo. R. Civ. P. 61
because the employee had an adequate opportunity to show why judgment
should not have been entered. The court further concluded that the
employer, by implication, reserved the right to modify its handbook,
a right that was exercised by later issuing a revised handbook and
that nothing in the later handbook constituted a contract that
limited the employer's right to discharge employees.
OUTCOME: The court affirmed the judgment of the trial court that held that
the record established as a matter of law that the employer made no promise
in its handbook upon which an employee could base an implied contract or
promissory estoppel claim.
Evenson v. Colorado Farm Bureau Mutual Insur… (p 715) Here, disclaimers

in the employee handbook do not insulate the employer for liability. Why?
Because the managers acted and believed that the termination requirements in
the handbook were mandatory AND the disclaimer was there but not overly
conspicuous.
PRIOR HISTORY: Appeal from the District Court of the City and County of
Denver. Honorable R. Michael Mullins, Judge. No. 90CV12698
DISPOSITION: JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND

CAUSE REMANDED WITH DIRECTIONS
PROCEDURAL POSTURE: Plaintiff employee appealed the judgment of the

District Court of the City and County of Denver (Colorado) which entered a
jury verdict in favor of defendant employer concluding that plaintiff did not
prove willful age discrimination as the basis for his constructive discharge
Contract Notes
Page 80 of 124
under the Age Discrimination in Employment Act, 29 U.S.C.S. ß 629 et seq.,
dismissed his breach of implied contract claim, and awarded costs to
defendant.
OVERVIEW: Plaintiff employee, filed suit against defendant employer,

claiming that defendant discriminated against him both generally and willfully
under the Age Discrimination in Employment Act (ADEA), 29 U.S.C.S. ß 629 et
seq. by constructively discharging him and that defendant breached an
implied contract of employment. The district court dismissed the implied
employment contract claim. It ruled that the general ADEA claim was barred
by the two-year limitations period. The jury found in favor of defendant. On
appeal, the court reversed the judgment against plaintiff on his claim of
willful violation of the ADEA, and reversed the dismissal of the breach of
implied contract claim, holding that the jury was improperly instructed, and
that plaintiff's jury instruction was correct as he was placed in a worse
position under either choice offered to him by defendant. The court reversed
the dismissal of the breach of contract claim, holding that a factual dispute
existed as to whether disciplinary procedures in the employee manual were
mandatory. The court affirmed that the general ADEA claim was barred by
the two-year statute of limitations, as plaintiff was not misled by defendant.
OUTCOME: The court reversed the judgment in favor of defendant employer

and against plaintiff employee on his claim of "willful" violation of the Age
Discrimination in Employment Act (ADEA), and reversed the dismissal of the
claim of breach of employment contract, holding that the jury was improperly
instructed, and the error was not harmless, but affirmed the judgment that
the "basic" ADEA claim was barred by the statute of limitati
Eiland v. Wolf (p 717) Here student challenges med school under the idea that
the school brochure constituted a contract. Court rejects as there was a clear and
express disclaimer.
PROCEDURAL POSTURE: Appellants, state medical college and its officials,

challenged the order of the 212th District Court of Galveston County (Texas),
directing appellants to award appellee student his medical degree and
declaring invalid appellant college's determination to dismiss student for poor
academic performance.
OVERVIEW: Trial court held that academic dismissal of appellee student by

appellants, state medical college and its officials, violated the student's
constitutional rights of procedural and substantive due process and equal
protection, as well as a contract between the student and appellant college
created by the college catalog. On appeal, the court reversed and held that,
in light of the limited role allowed to the trial court in reviewing academic
decisions of educational institutions, as well as a de novo review of trial
record, appellant college and its officials did not exceed their authority in
dismissing the student for academic reasons. The court also held that,
regarding the student's contract claim, appellants' defense of sovereign
immunity had been waived by appellants' failure to plead it as an affirmative
defense; however, the court held that no contract arose out of appellant
college's catalogue.
Contract Notes
Page 81 of 124
OUTCOME: The court dissolved the injunction against appellants, state
medical college and its officials, reversed the trial court's judgment, and
rendered judgment against appellee student in his action to compel
appellants to award him a medical degree. Appellants' academic dismissal of
student did not violate due process or equal protection, and no contract
existed between the parties preventing academic dismissal.
PROMISSORY ESTOPPEL AS AN ALTERNATIVE TO BREACH OF

CONTRACT
Hoffman v. Red Owl Stores, Inc. (p 752) The key issue here is that the parties
had an agreement and the D took many steps in reliance on this agreement.
When the P changed the agreement a number of times and thus made the
agreement fail, the D made a case for promissory estoppel, under the theory that
he changed his position in reliance of the promise and was harmed by this
financially. Court agrees on most of the damages.
PROCEDURAL POSTURE: Defendants appealed a judgment from the Circuit

Court for Outagamie County (Wisconsin) in favor of plaintiffs, who had been
induced to sell their grocery store, fixtures, and inventory based on an
agreement that defendants would establish them in a new store.
OVERVIEW: Defendants promised plaintiffs that for a sum of money, they

would establish a new grocery store for them. After plaintiffs sold their
present grocery store and paid for the new lot, defendants continuously
increased the price the parties had originally agreed upon. Consequently,
plaintiffs were induced to sell the store's fixtures and inventory on the
promise that they would be in their new store in a few months. The deal
never went through and plaintiffs sued defendants. Judgment was entered in
favor of plaintiffs, and defendants appealed. On appeal, the court had to
determine whether it should recognize causes of actions grounded on
promissory estoppel. The court endorsed and adopted the doctrine of
promissory estoppel and affirmed the judgment. The court concluded that
injustice would result if plaintiffs were not granted some relief where
defendants failed to keep their promises, which had induced plaintiffs to act
to their detriment.
OUTCOME: The court affirmed the lower court's decision, limiting plaintiffs to
taxing two-thirds of their costs, because the court concluded that injustice
would result if plaintiffs were not granted relief where defendants' failed to
keep their promises, which had induced plaintiffs to act to their detriment
Notes:
• Case is about an agreement / promise that caused the D to rely on the
promise and make a number of financial moves that he was harmed by
when the deal did not happen.
• The Court here does find that there is a cause of action grounded in
promissory estoppel and that there are damages to the D.
Contract Notes
Page 82 of 124
• D’s argument seems to be that there were terms of the agreement
that had not all been worked out and thus this should prevent the
doctrine of promissory estoppel from being applied. Court disagrees.
The Restatement sec 90 does not require that the promise giving rise
to the cause of action be so comprehensive.
• Court then discussed how damages are calculated in such an action:
○ Only as much as the court determines is required to prevent
injustice. Not mechanical or rile of thumb.
○ Does not mean specific performance or damages for breach.
Really only addresses how much the P changed his position in
reliance of the promise and seeks to put him back on even
footing.
• Prof asks if this case is wrongly decided and if so, how you would argue
the other side. How does it compare to Blatt?
• There could have been an agency issue here but it was not raised.
• Is this an agreement to agree?
• The agent was very sure the deal would go thru and represented it as
such… should they have warned him that the deal might not happen?
• Note that the third person is added in the new Restatement 90 below.
• Prof asks if this case is like Pepsico?
• Best argument for Hoffman might be the Restatement Fraud
provisions….
** O L D ** ** N E W **
Restatement of Contracts (One) Restatement (Second) of Contracts
Sec 90 on Promissory Estoppel Sec 90 on Promissory Estoppel
A promise which the promisor should A promise, which the promisor should
reasonably expect to induce action or reasonably expect to induce action or
forbearance of a definite and forbearance on the part of the
substantial character on the part of promisee or a third person and which
the promisee and which does induce does induce such action or
such action or forbearance is binding if forbearance, is binding if injustice can
injustice can be avoided only by be avoided only by enforcement of the
enforcement of the promise. promise. The remedy granted for
breach may be limited, as justice
requires.
A charitable subscription or a
marriage settlement is binding
under Subsection (1) without proof
that the promise induced action or
forbearance.
Contract Notes
Page 83 of 124
ß 90 Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a third person and which does
induce such action or forbearance is binding if injustice can be avoided only
by enforcement of the promise. The remedy granted for breach may be
limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under
Subsection (1) without proof that the promise induced action or forbearance.
Restatement (Second) of Torts
ß 526 Conditions Under Which Misrepresentation is Fraudulent

ort and contract is that it must be a lie in tort
(Scienter)
A misrepresentation is fraudulent if the maker

(a) Knows or believes that the matter is not as he represents it to be,
(b) Does not have the confidence in the accuracy of his representation
that he states or implies, or
(c) Knows that he does not have the basis for his representation that he
states or implies.
§ 530 Misrepresentation of Intention
(1) A representation of the maker's own intention to do or not to do a

particular thing is fraudulent if he does not have that intention.
(2) A representation of the intention of a third person is fraudulent under the
conditions stated in § 526.
ESTABLISHING THE ELEMENTS OF PROMISSORY ESTOPPEL (P 771)

(Note – the doctrine of promissory estoppel implies a contract in law when
none exists in fact….)
1. PROMISE
Blatt v. University of Southern California (p 772) Law school grad is not

admitted to Order of the Coif and sues for declarative and injunctive relief. Court
considers a promissory estoppel claim but finds that it is not appropriate in this
case. P cannot show that he was made clear promises that he relied upon to his
detriment.
PROCEDURAL POSTURE: Plaintiff law school graduate appealed from the

Superior Court of Los Angeles County (California) which dismissed plaintiff's
complaint for injunctive and declaratory relief and that sought to compel
plaintiff's admission to the Order of the Coif, a national honorary legal
society. Plaintiff argued that his compliant set forth a justiciable issue and
that it sufficiently alleged a breach of contract and promissory estoppel.
Contract Notes
Page 84 of 124
OVERVIEW: Plaintiff law school graduate challenged a trial court decision
that dismissed plaintiff's complaint that sought injunctive and declaratory
relief and to compel plaintiff's admission to the Order of the Coif (Order), a
national honorary legal society. Plaintiff contended that his compliant set
forth a justiciable issue and that it sufficiently alleged a breach of contract
and promissory estoppel. The court affirmed the trial court decision. Plaintiff
was not entitled to judicial review of the Order's membership selection
policies. Membership in the Order did not give a member the right to
practice, did not signify qualifications for any specialized field of practice, and
did not affect plaintiff's basic right to earn a living. Plaintiff did not establish
that the Order engaged in arbitrary or discriminatory actions. Although
plaintiff met the Order's admission requirements, there was no proof that
such promises or representations induced action on plaintiff's part. There was
no allegation that plaintiff was promised that he would in fact be admitted to
the Order if he graduated in the top 10 percent of his class.
OUTCOME: The court affirmed a trial court decision that dismissed plaintiff
law school graduate's complaint that sought injunctive relief and to compel
plaintiff's admission to the Order of the Coif, a national honorary legal
society. Plaintiff did not set forth a justiciable issue. Plaintiff's complaint did
not sufficiently allege a breach of contract or promissory estoppel.
Notes:
• He is passed over for membership and lower ranked students
admitted. Apparently there was some issue with his participation in
law review and if this were required for a night student.
• Prof asks if this is really an intellectual property case – the Order is
creating a reputation that has an economic value to the members. You
could say that both the Order and Blatt have an economic stake.
Spooner v. Reserve Life Insurance Co. (p 775) This case involved the
attempt by agents of an insurance Co to enforce a promise made to pay them
certain bonuses. The agents fail as the court finds that the promise was illusory.
Court cannot enforce an illusory promise…
PROCEDURAL POSTURE: Defendant, an insurance company, appealed a

judgment from the Superior Court for King County (Washington) in favor of
plaintiffs, agents employed by defendant, in an action for breach of contract
involving performance bonuses.
OVERVIEW: Defendant distributed a bulletin outlining a bonus program

subject to certain conditions and a provision that defendant could withhold
any bonuses with or without notice. The court reversed the judgment in favor
of plaintiffs in an action for breach of contract involving performance
bonuses. The court held that the bulletin did not create an enforceable
contract for the payment of bonuses because the limitation in the bulletin
created an illusory promise, which created no binding obligation on
defendant to pay bonuses. The promise to pay bonuses was illusory
because the limitation regarding withholding bonuses made
performance of the promise optional or discretionary on the part of
Contract Notes
Page 85 of 124
defendant. The court therefore reversed with instructions to enter a
judgment dismissing the case.
OUTCOME: The court reversed because a promise by defendant to pay its

agents performance bonuses was subject to a limitation that reserved the
right to withhold the bonuses, making the promise illusory and creating no
enforceable contract or obligation for the payment of bonuses.
Notes:
• There was a clear disclaimer with the promise. (bonus is voluntary
and may not occur)
• Court states that in order to enforce promissory estoppel, there must
be a real promise made. If there is action only on a supposed promise,
there is no claim.
• Court defines an illusory promise as:
○ So indefinite that it cannot be enforced or
○ Because of provisions in the promise, it is entirely discretionary
or optional (seems to be the case here)
Ypsilanti v. General Motors (p 779) General Motors got a tax break from the
township to run a factory but then plan to close and move the factory during the
period in which they are still getting the tax break. Town brings action against GM
as a result. Court sides with the town under the theory of promissory estoppel but
is overturned on appeal.
PROCEDURAL POSTURE: Defendant corporation challenged a judgment

from the Washtenaw Circuit Court (Michigan), which found that the
corporation was bound to plaintiff governments by promissory estoppel and
enjoined the corporation from transferring some of its production from a local
plant to another facility.
OVERVIEW: The corporation was given a tax abatement for a number of

years after establishing that it would create jobs. When the corporation
announced that it intended to move its production to another facility, the
governments filed an action against the corporation for breach of contract,
promissory estoppel, unjust enrichment, and misrepresentation. When the
trial court determined that the corporation was bound by promissory estoppel
and enjoined the corporation from moving its production, the corporation
sought review. On appeal, the court reversed and found that an
actual, clear, and definite promise was required to show promissory
estoppel. The court reasoned that the corporation's solicitation of a
tax abatement did not constitute a promise. The court further found
that the corporation was required to give representations regarding
employment in order to receive a tax abatement, pursuant to Mich. Comp.
Laws ß 207.559(2)(e) (Mich. Stat. Ann. ß 7.800(9)(2)(e)). Finally, the court
held that the corporation's use of hyperbole to gain an advantage did not
amount to a promise.
OUTCOME: The court reversed the decision of the trial court, which enjoined
the corporation from moving its production from a local plant to another
Contract Notes
Page 86 of 124
facility after finding that the corporation was bound to the governments
under the doctrine of promissory estoppel.
Notes:
• Court says Act 198 does not create an enforceable contract. This is
based on legislative intent.
• If there is to be a claim, it will have to be under promissory estoppel.
• D claims that the promise was conditional (favorable market
demand) and thus was illusory and not enforceable. Trial Court
rejects this argument.
• Economic necessity might be a defense but GM does not raise it here
– court says they are just moving the production from one plant to
another – not stopping it.
• On appeal, the injunction is overturned, court finds no promise had
been made.
• Prof says there are several arguments that can be made here:
○ Yipsilanti has lawyers, unlike in Red Owl, and could have pointed
out that this would not be an enforceable promise. Hoffman in
Red Owl did not have this benefit.
• Main question from this section is – does the idea of promissory
estoppel have any utility? I think it does – it is a fairness test
1. REASONABLE RELIANCE Case
Sometimes the reliance on the promise will be found to be

unreasonable as in the below case….
Alden v. Vernon Presley (p 792) Before Elvis dies, he promises to pay off the
mortgage of his girlfriends mother so that she could get a divorce. He then dies
and the estate denies liability for this promise.
PROCEDURAL POSTURE: Defendant promisor's estate challenged the Court

of Appeals (Tennessee) order, reversing a judgment in its favor in plaintiff
promisee's action to enforce a promise to pay mortgage indebtedness. It
alleged that plaintiff failed to establish detrimental reliance requisite to a
claim of promissory estoppel.
OVERVIEW: Plaintiff promisee filed an action against defendant promisor's

estate, seeking to enforce a promise to pay a home mortgage obligation in
connection with plaintiff's divorce settlement. The appellate court reversed a
judgment in favor of defendant on the grounds of promissory estoppel and
defendant sought review. The court reversed, ruling that plaintiff had
failed to prove the detrimental reliance and resultant loss, which
were necessary to promissory estoppel. Plaintiff showed that decedent's
promise had induced her to incur a $ 39,587 mortgage as part of a divorce
settlement agreement, but the agreement was not binding on her or her
husband until approved by the divorce court. Defendant denied liability for
decedent's gratuitous promise to pay the mortgage before the agreement
received court approval. This removed the element of detrimental reliance
from the case. Thus, plaintiff's reliance on the promise after defendant
Contract Notes
Page 87 of 124
denied liability was not reasonably justified and any loss incurred did not
result from her justifiable reliance.
OUTCOME: The court reversed the judgment of the appellate court and ruled
that plaintiff promisee had failed to establish the detrimental reliance and
resultant loss necessary for promissory estoppel in her action to enforce a
promise against defendant promisor's estate. After defendant denied liability
for the decedent's promise, plaintiff's continued reliance on the promise was
not reasonably justified and her loss was not due to justifiable reliance.
Notes:
• Court says this was not a gift because it was never delivered.
• Ultimately, the promissory estoppel claim fails since the estate denied
liability and the property settlement agreement was not binding until
approved by the court. She could not show detrimental reliance on the
promise.
• Offered Alden’s mother’s divorce – also said he would pay for the
mortgage of her house - but before he could Elvis died
• Mother tried to get the money from the estate and the estate said no –
the mother says “but he promised”
• Court says that they were not harmed by their relationship – they
benefitted. There was no detrimental reliance.
• The court asked if she “relied” – no final hearing on the divorce a the
time Elvis died – what you should have known was that settlement you
negotiated wasn’t good until the court adjudicated – because she re-
filed the law suit – not reasonable reliance, should have known that
this might not happen- she should have told the court what happened
and tried to see if they would change the settlement agreement. She
did not tell them thinking this would help her enforce the promise.
• The opinion is there to remind you that with respect to reliance
you have to show that you really did change position because
of the promise and not because of some independent judgment
on your own part
• Remember to be sensitive about reliance – did they change position
b/c of the promise?
3. INJUSTICE OF NON-ENFORCEMENT
Cohen v. Cowles Media Co. (p 796) At the end of the day – the reporter loses
until it goes the Supreme Court. No fraud claim as the reported had every
intention of keeping the promise at the time given and no promissory estoppel
claim due to unique circumstances in this case…. This is overturned and the
promissory estoppel verdict for damages is awarded….
PROCEDURAL POSTURE: Plaintiff individual news source appealed from a

judgment of the court of appeals (Minnesota), dismissing news source's
fraudulent misrepresentation action and allowing a breach of contract claim;
news source claimed that reporters broke promises of anonymity.
Contract Notes
Page 88 of 124
OVERVIEW: News source sued newspapers after a reporter broke his
promise to keep his name out of a political news story. News source had
given the reporter public court records that involved one of the candidates
based upon a promise of anonymity. News source was fired from his job right
after the story was published. The trial court found that the First Amendment
did not bar news source's breach of contract and fraudulent
misrepresentation claims. The appellate court affirmed as to the breach of
contract claim but dismissed the misrepresentation claim. On further
appeal, the court held newspapers' breach of reporter's promise of
anonymity to news source was not legally enforceable, neither under
a breach of contract claim or under the doctrine of promissory
estoppel. Contract law was ill fit for a promise of news source
confidentiality, and the use of a promissory estoppel theory violated
newspapers' First Amendment rights.
OUTCOME: The court affirmed the court of appeals' dismissal of the claim
based on fraudulent misrepresentation, and reversed the court of appeals'
allowance of the breach of contract claim.
Notes:
• Gov race in MN in the 1990’s – political operative got a hold of papers with
damaging info about candidate – gave to newspaper and asked newspaper to
promise that they would not use his name
• But newspaper find out his name independently from another source – so
they publish the story with Cohen’s name -he sues the newspaper under
promissory estoppel – “I relied on your promise, I put myself as risk, you
broke the promise, I lost my job – that’s unjust I want $200,000”
• Reporters didn’t tell Cohen that the newspaper had a policy about not
keeping sources secret
• Was his reliance unreasonable if he did not ask about whether the
newspaper would honor the promise made by the reporters? Why
didn’t he just deliver is anonymously to the newspaper?
○ If he wanted to be sure that the newspaper ran the story – better
chance if he met with them in person
• You would think that all these parties must know they are running some kind
of risk –
• MN Supreme Court ducked the had issues (promise and reliance) and decided
to talk about injustice – it was in the public interest to know about the
candidate’s back ground, but also interest of the public to know who leaked
the info
• USSC court says the first amendment does not allow lic to violate well
established state law of promissory estoppel as long as it is law you would
apply generally – then you can go ahead and enforce it
• So it goes back to the MN supreme court – so they rule for Cohen and he gets
his money
• Sometimes we can think of these cases as very close to fraud cases
• But want to ask when does this idea actually work? - seems to work
when you have a simple transaction
• So what happens if we have a genuinely complicated transaction where
parties know it is complicated – should promissory estoppel apply in those
cases (like in Hoffman)
Contract Notes
Page 89 of 124
• Does promissory estoppel work at all? – the court thinks it does, but are you
sure that it does? Or maybe injustice is the key issue? Maybe it would be
appalling if Red Owl gets away with this so we force it into promissory
estoppel
• Why wasn’t this a contracts case (Rather than a promissory estoppel case) so
that we could bring to bear our usual mechanisms to determine whether or
not to enforce the contract?
What we are doing is searching for norms – searching for prejudices,

values, that we can bring to bear in addressing what are otherwise
ambiguous or complicated cases
Consideration – has an important but also puzzling – restricts the ordinary range of
contract law to arrangements that have that structure – judges are happy to makes
sense of and legally enforcing
 Consideration case law doesn’t do very much to explain why – just tells you
what to start with –
 Efforts to fill that gap have largely focused on notions of intention or
promise
○ We’ve looked at cases where people were clearly making promises and
signify that they meant for the promises to be legally binding (in
different ways) and then we looked at other group where we weren’t
so focused on the intention but on the consequences of promises
making – relied to their detriment (Promissory estoppel)
 The difficulty is that promissory estoppel Restatement §90 and case law turn
out to raise difficult questions
 What constitutes a promise?
 Alternately we might say even if you don’t have consideration - but there is a
promise and reliance we will invoke the notion of estoppel and will enforce
(strong reading of Restatement §90)
 But then we have to ask the question what do we mean by a promise? What
do we mean by action and forbearance? Why do we have injustice as a third
element? (because if there is a promise and detrimental reliance on the
promise that causes harm – there is an idea of injustice that transcends the
formula of K law)
 Behind the puzzles there is a suspicion that promissory estoppel doesn’t work
when we are working with complicated transactions (Red Owl, Ypsilanti)
 Contract law is mostly interested in intricate deals, business deals –
promissory estoppel doesn’t look like it is very helpful – doesn’t give us a lot
to work
○ Might suggest dangerous thought – maybe the notion that promises
should be kept is not fundamental part of contract law?
 Contract law doesn’t start with notion that promise should be kept –
promise is too simple a notion, contracts may not look quite like
commitments – but bets, predictions, starting points (Raffles)
 Maybe we don’t want to generalize the fact that promises should be kept – if
so what do we have to work with – exchange structure
 So what about the idea of good faith and fair dealing? (Chapter 12)
Contract Notes
Page 90 of 124
Performance and Breach (Chapter 12)
Good Faith and Fair Dealing

 UCC 1-203 structure already insists that there is an obligation of good faith
 Restatement says the same thing
○ Restatement (Second) §205 Duty of Good Faith and Fair
Dealing - Every contract imposes upon each party a duty of good faith
and fair dealing in its performance and enforcement
 What do we mean by good faith?
 UCC defines good faith (1-201(19)) and 2-103)– honesty
○ In the case of merchants – honesty and fair trade practices
 The question is, can we say more and learn more? - the answer is yes
 The notion of good faith and fair dealing is important to master – it
is a basic working principle
 Common problem in cases (that start to address this) – someone owns a
building, suitable for retail space, enter in to a lease, problem is the tenants
not sure how much money they can make in their retail – so charge a trivial
rent plus % of gross sales
 Makes sense, but obviously creates a risk that the tenant, if the business is
successful, may not want to share the profits
 Ultimately business circumstances change – tenant may think of other uses
for the property or may want to relocate the business, open up stores near by
 The landlord will say you are cheating – take them to court and involve good
faith and fair dealing
Goldberg v. Levy (p 817) Tenant has lease and has to pay a percentage of his
profits as part of lease. P claims that the tenant deliberately or willfully
mismanaged and diverted business so that income would fall – then they get out
of the lease. Court finds that the tenant had an implied obligation of fair dealing.
PROCEDURAL POSTURE: In an original action defendant lessee filed a

motion to dismiss plaintiff assignee's complaint for a failure to state facts
sufficient to constitute a cause of action. The assignee had filed actions to
recover for the alleged breach of a leasehold agreement assigned to the
assignee by the original lessor and also charged the lessee and defendant
tenant with a conspiracy to reduce the gross income of a business
conducted on the leased premises.
OVERVIEW: The tenant promised to pay rental in part measured by a

percentage of gross receipts of the business. The assignee alleged that the
lessee and the tenant, although obligated to do so, had failed and refused to
act in a fair and proper manner with relation to their obligations under the
terms of the lease. The assignee claimed that the lessee and the tenant had
negligently or willfully permitted the business to become mismanaged and
negligently or willfully diverted the proper channels of trade from the
business to another store. The court held that: (1) although the parties'
promise was lacking, the whole writing was "instinct with an
obligation" imperfectly expressed (think Wood v Lady Duff); (2) by
the tenant's agreement he had promised to use reasonable efforts to
bring profits into existence; (3) the tenant could not avoid liability
Contract Notes
Page 91 of 124
under the lease by abandoning the premises or by the diversion of
business to another store that he operated in the same vicinity; and
(4) because the tenant occupied the premises with the knowledge
and consent of the landlord and the assignor there was a
presumption that the lease was assigned to the one in occupation.
Accordingly, the court denied the lessee's motion.
OUTCOME: The court denied the lessee's motion to dismiss the assignee's
complaint for the failure to state facts sufficient to constitute the cause of action,
except as to the first cause of action pleaded against the tenant, which was
dismissed for insufficiency.
Notes:
 Court says there is a promise to use reasonable efforts to bring in profit
 Levy opened up the other store to get out of having to pay the % to land lord
– if that was the only reason then in violation of the contract
 Δ would argue that they are not acting in bad faith – just acting in the own
interest – maybe other store was better location, better building, you could
have put this in the contract if you didn’t want us to open another store
 How do we resolve this, how do we figure out good faith? – the court says
“sole purpose” - they have taken a long step to marginalize the duty
of good faith
Mutual Life Insurance v. Tailored Woman p.818 Tenant moved fur sales to
another floor that had a flat rent rate instead of a percentage rate…Nothing in the
lease forbade what they did…
PROCEDURAL POSTURE: Plaintiff lessor brought an action against

defendant lessee for the payment of additional rent. The trial court found in
favor of the lessor. The Appellate Division of the Supreme Court in the First
Judicial District (New York) affirmed the judgment but lowered the amount of
damages awarded. Both parties appealed.
OVERVIEW: The lessee, which operated a woman's retail clothing store,

entered into an agreement to lease the first three floors of the lessor's
building for a flat rent plus a percentage of sales. The parties later agreed to
lease a portion of the fifth floor under a flat rate rent. The lessee
subsequently moved its fur department to the fifth floor and reconstructed
the interior elevators to operate on the first through third and fifth floors. The
lessor argued that it was owed additional rent in the form of the sales
percentage from the fur sales. The appellate court modified the judgment in
favor of the lessor to include the sales percentage only on sales that were
referred by sales persons on the first three floors. On appeal, the court held
that there was nothing in either lease to forbid the lessee from moving its fur
department to the fifth floor. The court held that sales referred from the
lower three floors were sales on, in, or from those floors and that those sales,
pursuant to the lease on the first three floors, should have been included in
the sales percentage rent for the first three floors.
OUTCOME: The court affirmed the judgment from the appellate court, which
modified the judgment from the trial court in favor of the lessor to require the
Contract Notes
Page 92 of 124
lessee to pay as rent a percentage of fur sales on an upper floor which were
referred by clerks on the lower three floors.
Notes:
 TW takes over another floor (5th floor) that becomes available – want a
different deal, just a flat rate (versus lease for other floors that includes a %
lease)
 Then more the furs to the 5th floor – so then the gross % drops on the lower
floors (but lease never said anything about furs, just women’s clothing)
 LL argues that to get to the 5th floor have to come through the first floor and
ask for the furs, so fur sales should count for the first floor
 Court split on the issue – majority says that the landlord didn’t put restriction
on moving any part of the business to the 5th floor
 So even if there is a duty of good faith – there are also express
terms of the contract
 Dissent – they just shouldn’t be able to do this
 Landlord’s lawyer blew it – this is what we should learn from the case –
lawyer should have caught the difference in the contracts and added a clause
that would have covered this (lawyerly malpractice)
 Case also raises the problem that if we can predict the moves, then what
about the duty of good faith? How can we makes sense of the duty of good
faith and TW’s goal to maximize profit
Stop and Shop v. Ganem p. 824 No implied covenant to keep the grocery
store open. They kept paying min rent. There did not appear to be bad faith.
PROCEDURAL POSTURE: Appellant landlords challenged the decision by the

superior court (Massachusetts) in favor of appellee tenant ruling that the parties'
lease did not expressly or impliedly require appellee to use the demised
premises for any particular purpose, keep the premises open, or engage in the
supermarket business on those premises. Appellants argued that the lease
included an implied covenant to continue the supermarket operations.
OVERVIEW: Appellant landlords sought review of the trial court's decision in

favor of appellee tenant determining that the parties' lease did not include an
implied covenant requiring appellee to continue to operate a supermarket
business on the demised premises. The court held that the parties' lease,
whereby appellee promised to pay a fixed annual rent together with a further
rent of 1.25 percent of all gross sales above a set amount, did not impliedly
incorporate a covenant that appellee would continue to operate a supermarket
business on the leased premises. There was nothing in the record which implied
a covenant to operate the supermarket business beyond that time when--based
upon the business judgment of appellee--the business should cease. Appellants
did not demonstrate that a reasonable person in their position could be justified
in understanding that an implied covenant was intended by the parties to the
lease. In addition, the court held that the terms of the lease did not prevent
appellee from opening competing stores adjacent to or near the demised
premises. Accordingly, the trial court's decision was affirmed.
OUTCOME: The trial court's decision in favor of appellee tenant was affirmed.
Appellant landlords did not produce evidence demonstrating that an implied
Contract Notes
Page 93 of 124
covenant, requiring appellee to continue to operate a supermarket on the
demised premises, was contained within the parties' lease agreement. In
addition, nothing in the lease prevented appellee from beginning competing
supermarkets adjacent to or near the leased premises.
Notes:
 Similar lease – Stop and Shop decides they would be better off if they opened
independent shops – but don’t want to break the lease – so they close up and
continue to pay the min rent (no extra profit going to the landlord)
 Have they breached a duty of good faith? - courts don’t think so –
say the min rent is enough, they are in the business of making
money, lease left open this possibility
 This looks like a case in which good faith might have done the work?
 Prof speaks of the idea that we want background rules that will influence how
business is done outside of the courtroom. This would be good essay
material. So… if there were great inequality over time, would you not want a
rule that would push the parties into renegotiating? Prof suggests that
perhaps this is the reason that the UCC provisions are so unclear – they
should just alert you to the idea of good faith.
 Idea seems to be that you could ague both sides of these cases – you could
also say that just because you can do something does not mean that you
should.
The Original Great American Chocolate Chip Company v. River Valley

Cookies p.811
PROCEDURAL POSTURE: Plaintiff franchiser appealed a judgment of a United

States district court, which denied its motion for a negative preliminary
injunction in its trademark infringement suit and granted an affirmative
preliminary injunction sought by defendant franchisees.
OVERVIEW: Plaintiff franchiser sued defendant franchisees for trademark

infringement after defendants, upon termination of franchise by plaintiff,
continued to market their product under plaintiff's label; defendants
counterclaimed, arguing that their franchise had been wrongly terminated. Both
sides sought, inter alia, preliminary injunctions. Plaintiffs sought to bar further
trademark use, and defendants sought to compel plaintiffs to provide needed
raw materials. The federal district court held for defendants, and plaintiff
appealed. The court reversed, holding that (1) it had jurisdiction,
notwithstanding defects in the injunction order because plaintiff could have been
held in contempt for violating the injunction. (2) Defendants failed to establish a
probability of irreparable harm if relief denied to them. Additionally, the
affirmative injunction required undue judicial supervision. (3) The likelihood of
success on the merits was low because defendants' proper course was to sue for
breach of contract and to seek to enjoin termination rather than to violate
trademark law and then seek such relief once they were caught.
OUTCOME: The court reversed the judgment for defendant franchisees. The
district court abused its discretion inasmuch as defendants failed to establish
probability of harm, the affirmative injunction required undue judicial
Contract Notes
Page 94 of 124
supervision, and proper analysis revealed that defendants were unlikely to
prevail on the merits
Notes:
 Posner opinion
 There is no blanket duty of good faith, contract law does not require parties
to behave altruistically toward each other; it does not proceed on the
philosophy that I am my brother’s keeper…Contract law imposes a duty, not
to be “reasonable,” but to avoid taking advantage of gaps in a contract in
order to exploit the vulnerabilities that arise when contractual performance is
sequential rather than simultaneous
 Contract law imposes a duty not to be reasonable but not to avoid taking
advantage of gaps
 Here Posner is outlining a standard approach to good faith – not bad faith
 We can id bad faith and the key term is “gaps in contracts” – moves, acts,
responses within the life of the contract that aren’t clear or addressed
 Suppose that I see the gaps and simply decide that I can extract some
advantage = bad faith
 Sometimes you are trying to profit because you have an
independent business transaction, but sometimes you are trying to
extract more money where there is no substantial other business
reasons and that is the only thing you are doing - that is bad faith
 But where we can explain your behavior as responding to some independent
opportunity not bad faith.
Final Discussion from Prof on Good Faith:
• At the end of the day, good faith is very hard to define.

• Says when we see a fact pattern in which one party is clearly benefitting and
one clearly losing, this may be the easy case for good faith. After all, they
would not have entered into the K unless each thought they would benefit.
• He suggests that most cases are not that clear.
• Posner said – no altruism is required – you don’t have to sacrifice to help the
other party, it just does not work that way.
• Prof says that one view of the UCC on good faith is that it is pretty useless.
Really does not tell you much. More likely view is that the UCC is intended to
be general because it is supposed to work indirectly – not as a clear rule.
Puts all parties on notice that this is a concept lurking in the background.
May be very helpful to courts from a regulatory fashion.
Contract Notes
Page 95 of 124
WARRANTIES – EXPRESSED AND IMPLIED (p 831)
Why did the editor of the book put the material of warranties and good
faith in separate sections?
• Idea of good faith cannot be eliminated – seems to apply here in warranty
also. But does it really?
• We know there are courts who will say that the expressed terms of the
contract make the duty of good faith and fair dealing besides the point .
• Does this mean that the parties have extricated good faith from the contract
or can they interpret the meaning of good faith and fair dealing within the
contract? – UCC allows for that
• We might think that warranty is nothing but a good faith and fair dealing
problem
• Might say in the absence of warranties is this good faith performance to give
someone a faulty product? - but instead of arguing about that we talk about
express and implied warranties
• Through express warranty can we restrict implied warranty and are there any
limits on all of this?
• What we are talking about is whether the contract works out to be “unfair”
from the perspective of one of the parties
• Two types of warranties supplied by the UCC by default:
 Implied Warranty of Merchantability
 Implied Warranty of Fitness for a Particular Purpose
Implied Warranties of Merchantability for a Particular Purpose
Step-Saver Data Systems, Inc. v. Wise (p 832) Here we see this case again,
now to explain the diff between a implied warranty of fitness for a particular
purpose (UCC 2-315) and implied warranty of merchantability (UCC 2-314(2))
They bought systems which worked but would not run particular software
program.
OVERVIEW: Plaintiff sold computer terminals comprised of defendant's

hardware and separate defendant's software. After problems developed,
plaintiff sought damages pursuant to Uniform Commercial Code ß 2-200 et
seq. The court granted summary judgment for defendant on a number of
claims and the remainder of the claims were denied by either a directed
verdict or a jury verdict. Plaintiff sought retrial. The court denied a retrial,
finding that there was no manifest error in law or fact in the first trial. The
court held that neither defendant could be liable for implied or express
warranties where plaintiff used goods for the purposes for which they were
not intended or where there were express warranty limitations. The court
determined that plaintiff failed to substantiate the misrepresentation. Plaintiff
argued that the court's granting of a directed verdict for one defendant
during the trial prejudiced the case against the remaining defendant. The
court found plaintiff's argument was unjustified as it could make a
determination at any point and properly limited the discussion regarding the
directed verdict to the jury so as not to prejudice the case.
Contract Notes
Page 96 of 124
OUTCOME: The court denied plaintiff's motion for a new trial, holding that
the verdict in the case did not result in a miscarriage of justice, as there was
neither a manifest error of law, nor a manifest error of fact.
Notes:
• Remember that the implied warranty for a particular purpose
(UCC 2-315) is a more narrow view and must meet certain specific
requirements: (Prof says this is an objective test – should they
have known)
○ Seller must have reason to know the buyers particular purpose
○ Seller must have reason to know that the buyer is relying on the
sellers skill or judgment to furnish appropriate goods
○ The buyer must, in fact, rely upon the seller’s skill or judgment.
• Implied warranty of merchantability is more broad (UCC 2-314)
and says the goods have to be fit for ordinary purposes, etc.
• Here the court says the goods were fit for regular use so there was no
vio of a warranty of merchantability and because the requirements for
implied warranty for a particular purpose were not met here, that does
not apply.
UCC SECTION 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 if 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;
(b) in the case of fungible goods, are of fair average quality
within the description;
(c) are fit for the ordinary purposes for which goods of that
description are used;
(d) run, within the variations permitted by the agreement, of even
kind, quality and quantity within each unit and among all units
involved;
(e) are adequately contained, packaged, and labeled as the
agreement may require; and
(f) conform to the promise 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.
UCC SECTION 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
Contract Notes
Page 97 of 124
seller's skill or judgment to select or furnish suitable goods, there is unless excluded
or modified under the next section an implied warranty that the goods shall be fit
for such purpose.
Contract Notes
Page 98 of 124
Express Warranties
• Very common
• Entail a promise to make good for losses within their scope, even if they were
not foreseen.
Royal Business Machines, Inc. v. Lorraine Corp. Deals with if any express
warranties were breached and if any express warranties were created – hinges on
the difference between “puffery” about the product and factual assertions about
the product that it would be reasonable to rely on.
PROCEDURAL POSTURE: Appellant seller challenged the order of the

United States District Court for the Southern District of Indiana, which
entered judgment in favor of appellee buyer in the buyer's action claiming
breach of express and implied warranties and fraud.
OVERVIEW: The case arose from commercial transactions over a period of

18 months between appellant seller and appellee buyer in which buyer
purchased paper copying machines from seller. The buyer filed suit claiming
breach of warranties and fraud, and the seller filed his own action to enforce
the financing agreements. The seller appealed the district court's order
entering judgment for the buyer, including the award of punitive damages
and attorney fees, and the court reversed. The court held that most of
the seller's statements did not create express warranties and were
mere statements of opinion or puffery. As to the seller's
representations that did qualify as express warranties, the court
found that the district court failed to make the further finding that
they became a part of the basis of the bargain. The court ruled that the
findings of fraud and implied warranties were not supported by substantial
evidence, and the district court erred in determining that the buyer made a
timely revocation of acceptance of some of the merchandise. As the court
reversed the judgment for the buyer, it negated the award of damages and
attorney fees.
OUTCOME: The court reversed the judgment for the buyer in his action
against the seller for breach of warranties and fraud.
Class Notes:
• Here court said the sellers comments were puffery.
UCC ß 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 affirmation or
promise.
Contract Notes
Page 99 of 124
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
creates an express warranty that the whole of the goods shall conform to
the sample or model.
1. It is not necessary to the creation of an express warranty that the seller use
formal words such as "warrant" or "guarantee" or that he have a specific
intention to make a warranty, but an affirmation merely of the value of the
goods or a statement purporting to be merely the seller's opinion or
commendation of the goods does not create a warranty.
EXAM CASE – Compare this case to the Rogath handout….

CBS, Inc. v. Ziff-Davis Publishing Co. (p 841) Central issue is in this case was
an alleged express warranty based on the seller giving estimates of profitability of
the business. Buyer expressed doubt over the accuracy of the estimates but
seller reassured. Question is if the doubts of the buyer show that there was not
the necessary reliance on the assertions by the seller to meet the requirements
for a warranty.
PROCEDURAL POSTURE: Plaintiff purchaser sought review of an order of

the Appellate Division of the Supreme Court, First Judicial District (New York)
that affirmed an order of the Supreme Court, New York County, dismissing its
claim for breach of an express warranty in plaintiff's contract action arising
from its purchase of defendant sellers' consumer magazine businesses.
OVERVIEW: Plaintiff purchaser challenged the dismissal of its claim for

breach of express warranty for failure to plead reliance in its contract action
arising from its purchase of defendant sellers' consumer magazine
businesses. The court modified the dismissal to eliminate the warranty claim
from the dismissal. The court concluding that the reliance element in
an express warranty action required plaintiff to plead that it relied
on the express warranty as being a part of the bargain between the
parties, not that it believed the truth of the warranted information.
The court ruled that the required reliance element was established
because plaintiff's purchase of the magazine businesses from
defendants was based on defendants' express warranty as to the
profitability of the businesses, even though plaintiff questioned the
accuracy of the financial information, which defendants warranted to
be true. The court affirmed the remainder of the dismissal.
OUTCOME: The court modified, with costs, the dismissal of plaintiff

purchaser's breach of express warranty claim in its contract action arising
from its purchase of defendant sellers' consumer magazine businesses, ruling
that plaintiff properly pleaded reliance on defendants' express warranty as to
the profitability of the businesses. Dismissal of the remainder of the action
was affirmed.
Class Notes:
Contract Notes
Page 100 of 124
• The key issue here was the CBS did not really believe the
representations made by Ziff and so this challenges the idea of
reliance on the promise that would be needed for an express warranty
to have been created. But, CBS still wins the case. Why?
• Court found that they did buy the magazines and they “purchased the
promise”.
• Dissent says no – there was not reliance on the promise and w/o
reliance there can not be an express promise.
• Prof asks – if ziff is right, does that mean Royal is wrong?
Express Disclaimers of Warranty
Remember that the law of contracts will often supply certain warranties
when the parties are silent but parties may also contract around these
“default” rules. In other words, they may expressly disclaim a warranty
for fitness for a particular use or merchantability.
Schneider v. Miller (p 849) Car is sold “as is” with writing to that specific effect.
Buyer finds out later frame is rusted and wants a refund, too bad, so sad. Court
finds no warranty as it was sold “as is” and nothing to support fraud or
misrepresentation.
PROCEDURAL POSTURE: Appellant buyer challenged the judgment,

entered in Findlay Municipal Court (Ohio), in favor of appellee seller in the
buyer's action for breach of warranty, fraud, and rescission of a contract for
the sale and purchase of a used automobile.
OVERVIEW: In response to the buyer's argument that he was entitled to

revocation of his acceptance of the car and to rescission of his contract to
buy the car, the court observed that the contract clearly included a
statement that the car was sold "as is" and that such a phrase was
understood to mean, in ordinary commercial usage, that the buyer
took the entire risk as to the quality of the car. Additionally, the court
noted that the contract's integration clause effectively waived any implied
warranties. The court found that the buyer produced no evidence on any
conduct on the part of the seller that was a violation of Ohio's Consumer
Practices Act, Ohio Rev. Code Ann. ß 1345.03. Finally, the court identified the
elements of common law fraud and misrepresentation and determined that
there was no evidence of any statements or conduct on the part of
the seller that could be construed as fraud or misrepresentation.
OUTCOME: The buyer's assignments of error were overruled and the

judgment of the municipal court was affirmed.
Class Notes:
• Would this case be about a warranty for merchantability or fitness for a
particular purpose? The plaintiff is claiming it should be fitness for a
particular purpose, as the dealer knew he was buying it for his son. I
would disagree – it is a car and would be used for a regular purpose no
matter who was driving it.
Contract Notes
Page 101 of 124
• If there were no disclaimer – would the general warranty of
merchantability help the plaintiff? Maybe or maybe not – dealer could
argue that this is a 22 year old car and for its age, it was fair average
condition. You could also argue that it would not be reasonable to
imply that a 22 year old car would be fit for driving, perhaps it is only
fit for parts.
• Perhaps some possible recovery in tort? Fraud?
UCC SECTION 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 Section 2-202,
negation or limitation is inoperative to the extent that such construction is
unreasonable. (might help where there are 2 documents and they have
to be interpreted in relation to one another)
(2) Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it in a consumer contract the language must be
in a record, be conspicuous, and state "The seller undertakes no
responsibility for the quality of the goods except as otherwise provided in this
contract," and in any other contract the language must mention merchantability
and in case of a record must be conspicuous. Subject to subsection (3), to
exclude or modify the implied warranty of fitness, the exclusion must be in a
record and be conspicuous. Language to exclude all implied warranties of
fitness in a consumer contract must state "The seller assumes no responsibility
that the goods will be fit for any particular purpose for which you may be buying
these goods, except as otherwise provided in the contract," and in any other
contract the language is sufficient if it states, for example, that "There are no
warranties that extend beyond the description on the face hereof." Language
that satisfies the requirements of this subsection for the exclusion or
modification of a warranty in a consumer contract also satisfies the
requirements for any other contract.
(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 that
in common understanding calls the buyer's attention to the exclusion of
warranties, makes plain that there is no implied warranty, and, in a
consumer contract evidenced by a record, is set forth conspicuously in the
record; and
(b) if the buyer before entering into the contract has examined the goods or
the sample or model as fully as desired or has refused to examine the
goods after a demand by the seller there is no implied warranty with
regard to defects that an examination in the circumstances should have
revealed to the buyer; and
(c) an implied warranty may also be excluded or modified by course of dealing
or course of performance or usage of trade.
(4) Remedies for breach of warranty may be limited in accordance with Sections 2-
718 and 2-719.
Prof speaks of warranties-

Contract Notes
Page 102 of 124
Three types –
• express – by parties themselves
• implied – from the UCC, operating in the background
• and disclaimers. –
When you encounter a warranty issue, ask-
• Is there an express warranty?

• Is there an implied warranty under the UCC?
• Is there is disclaimer and what counts as a disclaimer?
If none of these – are there any other remedies available?
Prof feels the Ziff case is perhaps the most important – shows you that warranty can
be thought of – how things really are. This case was about “things as they might
be” not things as they were. We might say that warranties can only handle how
things are.
Contract Notes
Page 103 of 124
Conditions (Chapter 13)
 Paragraphs from Arthur Corbin (grandfather of legal realism) at the beginning

of the chapter
○ Terminology of conditions
○ “In its proper sense the word “condition” means some operative fact
subsequent to acceptance and prior to discharge, a fact upon which
the rights and duties of the parties depend. Such a fact may be an act
of one of the two contracting parties, an act of a third party, or any
other fact of our physical world. It may be a performance that has
been promised or a fact as to which there is no promise…
 Basic exchange model, consideration - what makes courts enforce contracts
has to do with the exchange relationship (if/then is the simplest form)
○ Reason that is critical b/c we think of contracts as arrangements in
which people try to organize their behavior with respect to each other,
coordinating activities with an eye on each other – it is because we
can do this that we can do something that makes us both
better off
 When we set this up we are conditioning are behavior on what someone else
does – b/c our promises are conditional is how we get consideration
 Notion of condition is basic to our ideas about what legally enforceable
contracts are
 Inevitably we expect to find conditions in the contracts
 The problem – once we recognize that arrangements are conditional, why not
multiply the conditions?
 We may want each other to do lots of different things – but might be the case
that really only some of those things are actually important to us - the other
ones are just opportunities if we need to get out of the deal, the fact that
those other conditions are there even though they don’t matter to us, we
don’t have to comply with our promises if you don’t
 We might think of conditions as little bombs that we place in contracts that
we might or might not want to trigger – conditions = dangers, risks, hazards
to parties who think they have an arrangement
 The chapter is about showing the problem and to introduce some vocabulary
that judges use to treat a condition as pertinent or irrelevant
 Conditions invite opportunism, invites the chance of taking advantage of
someone else when you would rather not go thru your end of the deal
 As a lawyer it is your job to make it possible for people to coordinate their
behavior, but also your job to set the traps that might make it possible to get
your client out of a promise
 Perhaps the most important document in this chapter is
UCC §2.209 Modification, Recission, and Waiver (p. 855)
○ Basically says you don’t need lawyers to play games with conditions,
we will make it quite easy for both parties to makes changes if the
parties agree
○ If there is an easy way to adjust what is going on
○ Instead of blowing up the deal – UCC allows you to renegotiate
○ (e.g. an acceleration clause in a loan – condition is a way to keep the
debtor in line and paying what and when they said they would)
Contract Notes
Page 104 of 124
○ If we are trying to motivate and structure deals by use of
conditions – then maybe they are good
○ Have to remember that the conditions are relevant in the litigation
phase, but also they may be important to negotiations - we
bargain in the backdrop of what our legal options might be
 Conditions precedent – you’ve got to do this before I’m bound (fire insur
example – house must burn before insur company has to pay)
 Conditions subsequent – I’m bound, but I cease to be bound if you don’t do
something (fire insur example – I still have to file the claim or they don’t
have to pay)
 Explicit and Implied - Conditions don’t have to be explicit (if they are, they
are express) but can be implied
 Constructed condition - sometimes the court just say we are going to treat
this as a condition – (judicial reading)
 The main point – conditions need not be “obvious” or in the text
 Conditions are often distinguished from promises by judges – if a clause/term
in a contract is recognized as a condition precedent, you have to prove you
did what you were supposed to do first to enforce the obligation
What Events are Conditions?

Is the Event a Condition, a Promise, or Both?
Frequently you will say that particular condition didn’t really matter, other party
as a result is no worse off (e.g. Howard v. Federal Crop Insurance Corp. p.
862)
Howard v. Federal Crop Insurance Corp. p. 862 Famer makes claim for
lost crops but plows over field. Policy has a provision that the insurance
company gets to inspect before paying the claim – here they cant do that.
They try to get out of payment to farmer by claiming it is a condition
precedent. Court below ruled for insur company, on review court says that it
would not be enough to rule out payment to the farmer – may be more in line
with a promise then a condition.
○ Tobacco crop destroyed by rain – farmer claims under insurance

○ Problem – farmer cleared the dead crops and there was a condition in
the contract that you can’t make the claim until the insurance co
makes an inspection – so they say we don’t have to pay - argument in
the case is whether this was a promise or a condition
○ Breach of promise means the farmer gets nothing
○ Or might conclude that there were other ways for the ins. company to
figure out whether or not there was a tobacco crop destroyed,
interview neighbors, look at price of tobacco and incentive to collect on
a claim, etc…
○ Turns out that there is a state statute that requires farmers to clear out
crops quickly
○ Judges decide if it is a condition or promise
○ One of the games judges play (risk that lawyers run) is that the judges
will say that it is a promise not a condition
Contract Notes
Page 105 of 124
○ How do we distinguish – very case specific, ad hoc way – judge trying
to figure out how important the problem is
○ In this regime it’s sometimes okay to break promises, but to fail to
meet conditions is bad
Is the Event a Condition, a Promise, or Neither?

Sometimes circumstances are everything (e.g.Chirchella v. Erwin p.866)
Chirchella v. Erwin (p.866) Case about a sale of house. Seller puts in language
that the closing will happen “coincide with settlement of new home”. The new
home never happens and thus the seller tyies to say that the language above
counstituted a condition precedent. The court below and on appeal reject this
argument and rue that the buyers are entitled to specific performance. In no way
was the language clear enough to operated as a condition.
○ I’m selling my house, but I’m also constructing a new one – so put
some kind of clause in the contract to take into account when I have to
move out
○ Court reads the problem as a condition – what one party wants is an
opportunity to get out if thing aren’t going well with the new house
○ Real estate wouldn’t work if we made it so easy to put in conditions to
get out of selling – real estate people hostile to making one sell
contingent on another
○ Judges say don’t try to put in conditions, we’re not likely to recognize
them
○ Always remember that real estate plays by its own rules
 Another game you can play with conditions is to argue they are really a
promise, but then issue of breach of promise – another way to do it is to
argue that yes there was a condition but you waived it, it doesn’t
count
Contract Notes
Page 106 of 124
Duress (Chapter 16) (Obtaining Assent by Improper Means – Defenses)
In general, the defense of duress is available if the D can show that he

was unfairly coerced into entering into the K, or into modifying it. Duress
consists of any wrongful act which overcomes the free will of a party.
• Subjective standard is used to determine if free will was overcome.
Professor says the restatements in this area are “disappointing” and don’t
help much.
Hackley v. Headley (p 1000) Guy who cut lumber comes to collect the debt,
which was around $6k. The owner says no – will only give you $4k and if you
want, you can sue me. The plaintiff accepts the payment seemingly under duress
as he is in difficult financial straights and cannot do without the payment, even
though he disagrees with the mount. Court on appeal finds no duress. The
logger’s personal difficulties were not caused by the actions of the defendant.
PROCEDURAL POSTURE: Plaintiffs in error contracting parties appealed a

decision of a Michigan trial court, which ruled in favor of defendant in error
contracting party on his action to recover compensation under the logging
contract entered into by the parties.
OVERVIEW: The parties entered into a contract to cut, haul, and deliver logs.
A dispute arose over the terms of the contract, and defendant in error
claimed to have accepted a sum that plaintiffs in error offered to pay for the
disputed claim under duress. The trial court ruled in favor of defendant in
error based upon his claim of duress. However, the court reversed and
remanded for a new trial. Defendant in error accepted a payment offered by
plaintiffs in error because of his financial embarrassment at the time.
Defendant in error admitted that had it not been for his financial
embarrassment, no duress would have existed. The court ruled that the
dispute was between the parties to the contract and no monies were being
withheld from nor was a threat made to withhold monies from third parties
that would cause defendant in error much duress and financial
embarrassment. Thus, the court found no duress of goods existed.
OUTCOME: The court reversed and remanded the case for a new trial.
Notes:
• Long discussion of Coley – incredible mind, wrote book on con law and
other subjects. Major legal mind.
• Seems like duress to me – or at least bad faith. The man is owed one
amount and the company who owes it to him basically says they won’t
pay that amount and offer a lower amount, take it or leave it.
• Court seems to find no duress as the reason he took the lower
payment was due to his own $ difficulty and this was not the fault of
the defendant. Seemed concerned that they could set bad precedent
by allowing his personal situation to influence how duress is viewed.
Contract Notes
Page 107 of 124
Austin Instrument v. Loral Corp. (p 1004) Contractor gets govt contract and
subcontracts out for parts from Austin. The work out a deal. Contractor (Loral)
then gets second govt K. Austin bids but is told they must be the lowest bidder to
get the deal. In response, they threaten to stop delivering parts under the first K
unless they were given a substantial price increase on the parts from the first K
AND that they be given the second K as well. The Loral Co feels it has no choice
other then to accept as they are under a time commitment and have no other
available supplier.
PROCEDURAL POSTURE: Appeal from the Appellate Division of the

Supreme Court in the First Judicial Department (New York), which found for
appellee subcontractor in appellant contractor's claim for economic duress.
OVERVIEW: Appellant sought review of appellate court's decision for

appellee in appellant's suit to recover damages for economic duress.
Appellant subcontracted for parts with appellee. After the contract began,
appellee refused to deliver parts unless appellant agreed to price increases.
Appellant agreed after being unable to find substitute contractors and facing
stiff penalties if it failed to complete the contract requiring the parts. The
court reversed and held that appellant made out classic case of economic
duress. Appellant was clearly faced with an emergency situation and
deprived of free will. Appellant faced substantial penalties if it did not
complete its underlying contract and faced losing future business. Appellant
had no other suppliers who could definitely deliver the required parts and
thus met its burden to prove it could not obtain the parts elsewhere.
Appellant was reasonable in waiting until after appellee's last delivery to sue
given appellee's conduct.
OUTCOME: The court reversed the appellate court's decision, finding that
appellant made out a classic case of duress because appellant was deprived
of free will and had to accept appellee's price increases when it faced
substantial penalties and was left with no other supplier to obtain the parts it
needed.
Dissent; Thinks it was not duress, conflicts in testimony – says there were
other suppliers and suggests that Austin was not acting in bad faith.
Notes:
• So why is this case different then the above?
• You could say that in the first case, the duress was caused by the
personal problems of one of the contracting parties while here the
problem the contractor had was known and foreseeable to the
subcontractor – had nothing to do with personal issues.
• Another issue this seems to raise is that you had better be careful
renegotiating the terms of a K if you are a supplier and the other party
Contract Notes
Page 108 of 124
is under a time requirement. Could claim that they only assented
because of duress.
U.S. v. Progressive Enterprises (p 1008) Again, the issue arises if a

modification in price of the K was something agreed on by both parties or if it was
done under duress. Here the P (seller) tells the D (buyer) after agreeing on a price
for equipment, that due to rising material costs, they will have to charge more
then what was originally agreed. They send a new PO with the new price and the
buyer accepts this, seemingly without protest. When it comes time to pay, the
buyer refuses to pay the new increased price, claiming it was the product of
duress. They say duress is due to the fact that, like in the case above, that they
had a govt contract and there were no other available suppliers. Court rejects the
duress argument here as there was no protest about the price increase and it
does not appear that the company relied on the lower price in making its bid to
the govt.
Notes:
• Court distinguishes this case from Loral above. Here, there was no
protest about the increase and no evidence to show that it really
contained the elements of duress. Remember my observation from
above – if we are too liberal with the doctrine, any time a renegotiation
occurs in a supply contract, it could result in a claim of duress and
clearly this is in opposition to the UCC which allows for modification of
the contract see UCC 2-209.
Restatement (Second) ß 175 When Duress by Threat Makes a Contract

Voidable
(1) If a party's manifestation of assent is induced by an improper threat by the

other party that leaves the victim no reasonable alternative, the contract is voidable
by the victim.
(2) If a party's manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the duress either gives
value or relies materially on the transaction.
Restatement (Second) ß 176 When a Threat Is Improper
(1) A threat is improper if

(a) what is threatened is a crime or a tort, or the threat itself would be a
crime or a tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in
bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing
under a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would harm the recipient and would not significantly
benefit the party making the threat,
Contract Notes
Page 109 of 124
(b) the effectiveness of the threat in inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the threat,
or
(c) what is threatened is otherwise a use of power for illegitimate ends.
Undue Influence (Obtaining Assent by Improper Means – Defenses)
Odorizzi v. Bloomfield School District (p 1012) Teacher is arrested for

homosexual conduct and submits resignation. Charges are later dismissed and he
seeks to regain his job but school refuses to reinstate him. He claims that he was
forced to resign under duress. Court finds that there were elements of undue
influence.
PROCEDURAL POSTURE: Plaintiff teacher appealed the judgment of the

Superior Court of Los Angeles County (California), which dismissed the
teacher's complaint that sought declaratory relief and rescission of an
employment resignation allegedly submitted under undue influence.
OVERVIEW: The teacher contended that his resignation was invalid because
obtained through duress, fraud, mistake, and undue influence and was given
at a time when he lacked capacity to make a valid contract. The court held
that duress or menace was not pled because any damage to the teacher's
reputation through the initiation of suspension and dismissal proceedings was
incidental. The court also held that fraud was not pled because the teacher's
complaint failed to assert the elements of knowledge of falsity, intent to
induce reliance, and justifiable reliance. Furthermore, the court held that
mistake was not plead because the complaint failed to disclose any facts that
suggested consent was obtained through a mistake of fact or law. Finally, the
court held that the pleading did set out a claim that the teacher's consent to
the transaction had been obtained through the use of undue influence.
According to the court, it was possible that the teacher's exhaustion and
emotional turmoil wholly incapacitated him from exercising his judgment and
that he was overly persuaded into signing his resignation document.
OUTCOME: The court reversed the judgment of the trial court.
Notes:
• Court uses the idea of undue influence here. They say no fraud, no
duress, no mistake but undue influence. Says the following factors
tend to show undue influence, especially when multiple factors present
at once as was the case here:
○ Undue influence = persuasion which tends to be coercive
in nature – high pressure to such an extent that it
becomes coercive
○ Discussion of the transaction at an unusual or inappropriate time
○ Consummation of the transaction at an unusual place
○ Insistent demand that the deal be finished immediately
○ Extreme emphasis on the untoward consequences of delay
○ The use of multiple persuaders on one side and a single person
on the other
Contract Notes
Page 110 of 124
○ Absence of third-party advisors
○ Statements that there is no time for consultation with third
parties
• Foot notes to case say that despite all the above, undue influence
arguments are rarely winning and ultimately did not win this one.
• Duress = threat or implied threat. Undue influence is different.
• Here you have employer and employee – more influence.
• Here we are focusing on process.
Restatement (Second) ß 177 When Undue Influence Makes a Contract

Voidable
(1) Undue influence is unfair persuasion of a party who is under the domination of
the person exercising the persuasion or who by virtue of the relation between them
is justified in assuming that that person will not act in a manner inconsistent with
his welfare.
(2) If a party's manifestation of assent is induced by undue influence by the other
party, the contract is voidable by the victim.
(3) If a party's manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the undue influence either
gives value or relies materially on the transaction.
Contract Notes
Page 111 of 124
Unconscionability (Obtaining Assent by Improper Means – Defenses) (p
1024)
Professor speaks to the fact that good faith, duress, etc are all important
concepts but that they do not tell the whole story and are hard to define.
Again, perhaps one of the reasons the provisions in this area are vague is
because the court wants flexibility and just need to put the parties on
notice that these are issues THEY should be considering in their
negotiating.
We have come to the conclusion that we wont come up with certain terms
that we can clearly define. Idea underlying that the market will regulate
itself? Remember that K law provides default rules – parties can work out
what is most important in advance based on good advice and knowing the
general lay of the legal land of contracts. After all, the courts don’t want
to be involved in every contract.
BUT – the paradox is that in order to have rules – you have to know what
they are. If you don’t really know what it is, how can you consider it in
your contract dealings? Can you opt out of duress rules??
If a court finds that a K or clause is so unfair as to be “unconscionable” the court

may decline to enforce that K or clause – see UCC 2-302
• No real definition, just look to see if it is extremely one-sided.
• Usually only consumers can claim, court does not generally enforce if it
is a businessperson.
• Can be procedural or substantive
○ Procedural – induced to enter the K with no meaningful choice
– i.e. process of entering the K
○ Substantive – clause or K itself
• May involve excessive price, limiting remedies, arbitration agreements
in employment K’s, expensive arbitration.
• Remedies:
○ Refusal to enforce
○ Reformation
○ Refusal to enforce the entire K (rare)
Williams v. Walker-Thomas Furniture Co. (p 1025) Case dealt with a clause in

the K that basically kept all items able to be repossessed by the company despite
how much may have been paid. In other words, they lumped it all together. They
also sold her expensive items knowing she could not pay for them. The bottom-
line here, however, is that this case established that the court, if it chose, could
invalidate a K under the idea of unconscionability. Leading case on
unconscionability.
PROCEDURAL POSTURE: Appellant buyers contested a judgment from the

District of Columbia Court of Appeals, which affirmed a ruling from the court
of general sessions in favor of appellee furniture company in a contract case
involving the issue of unconscionability.
Contract Notes
Page 112 of 124
OVERVIEW: The buyers entered into installment contracts with the furniture
company for the sale of furniture. The buyers defaulted on payments that
were due to the company, and the district court granted judgment in favor of
the company. On appeal, the buyers contended that their contracts with the
company were unenforceable due to unconscionability. After noting both that
Congress had enacted D.C. Code Ann. ß 2-302 (Supp. 1965) of the Uniform
Commercial Code and that a court had authority to refuse to enforce a
contract found to be unconscionable at the time it was made, the court
reviewed the contract to consider the contract's terms in light of the general
commercial background and the commercial needs of the particular trade or
case. The court noted, however, that neither the trial court nor the appellate
court made findings on the possible unconscionability of the contracts, so,
because the record was insufficient for the court to decide the issue as a
matter of law, the cases were remanded to the trial court for further
proceedings.
OUTCOME: The court remanded the case, stating that the court could refuse
to enforce a contract that it found to be unconscionable at the time it was
made.
Notes:
• Skelly Wright case. How did he get here? Was threat of assignation
where he was (LA) because of his involvement in desegregation. They
want to get him out of LA. They appoint him to the DC circuit to get
him out of the area.
• DC circuit court played the role of the highest appeal court in the
district. Even though the Supreme Court is there, clearly they will not
accept routine cases.
• This case:
○ These were poor people buying furniture on credit.
○ Problem for the seller is that they run the risk of default and lack
of payment.
○ What if it turned out that the furniture was of poor quality and
fell apart. If there were a dispute – one of the buyer’s remedies
might be to stop paying. Here if they did that they would lose
everything.
○ One way the seller compensates for the risk is by charging a
higher price.
○ The sellers considered this to be more akin to a single lease for
all the items together – you could not pay off one thing until you
paid off everything,
○ Clearly we can see the business model here and understand why
they are doing things this way. Could say there are some
benefits on both sides.
○ Things to consider – lack of choice, communication of the terms,
gross inequality of bargaining power.
○ At the end of the day, Skelly Wright says that it is not
automatically unconscionable based on what we know but the
Contract Notes
Page 113 of 124
court should consider all of these things and should be further
reviewed by the court.
○ Seems to suggest that “extreme” is the key idea… maybe a hint
of constitutional law here? Court should not make itself a part of
enforcing it if it is extreme… seems to treat poor people more
harshly. Equal protection lurking in the background. Judges
have responsibilities to look out for these hidden issues. This is
outside of pure K law.
UCC SECTION 2-302. UNCONSCIONABLE CONTRACT OR TERM
(1) If the court as a matter of law finds the contract or any term 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 term, or it may so limit the application of any unconscionable term
as to avoid any unconscionable result.
(2) If it is claimed or appears to the court that the contract or any term thereof may
be unconscionable, the parties shall be afforded a reasonable opportunity to
present evidence as to its commercial setting, purpose, and effect to aid the court
in making the determination.
• Prof seems to think that this really does not tell us anything since they just keep repeating
the term unconscionable without making what it actually is more clear.
Restatement (Second) ß 208 Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a

court may refuse to enforce the contract, or may enforce the remainder of the
contract without the unconscionable term, or may so limit the application of any
unconscionable term as to avoid any unconscionable result.
Wille v. Southwestern Bell Telephone Co. (p 1033) Telephone company

screws up and does not list certain business numbers of the plaintiff. They have a
clause which limits their liability in case of errors to the cost of the advertising.
Plaintiff claims that the clause makes the K unconscionable and that there was
unequal bargaining power. Court rejects the arguments.
PROCEDURAL POSTURE: Appellant sought review of a decision by Division

No. 2 of the Sedgwick District Court, Kansas, which granted summary
judgment in favor of appellee in a breach of contract claim by appellant.
Appellant alleged that appellee negligently omitted appellant's business
phone number from appellee's phone book.
OVERVIEW: Appellant sought to recover damages from appellee after

appellee failed to print appellant's phone number in its published phone book
as agreed. Appellant asserted that the contract between the parties was
unconscionable because of the parties' unequal bargaining position and the
form of the contract, and because of the circumstances of its execution.
Contract Notes
Page 114 of 124
Under the contract, appellee's liability for errors was limited to the cost of the
advertisement. The court held that even if the bargaining power was unequal,
appellee did not use any deceptive practice to induce appellant to sign the
contract. The court also noted that appellee was not a part of the telephone
company by which public services were rendered, which would hinder its
ability to limit liability by contract. Furthermore, the clause limiting liability
was clear. Accordingly, the court held that the clause was not unconscionable
and affirmed the grant of summary judgment in favor of appellee.
OUTCOME: The court affirmed the grant of summary judgment in favor of

appellee, finding that the contract clause limiting its liability for errors was
not unconscionable.
Notes:
• The business owner was familiar with these types of contracts – he was
not a novice.
• The court could take out a provision that was clearly one-sided or
hidden, but that was not the case here. He was in the business, the
clause was not hidden.
• There is an interplay here between substance and process.
• You want to ask yourself how the anal in this case is different then
Carnival Cruise?
 Here, you have 2 business people, there it was a business and a
private person.
 You could say that there were benefits to a class of customers in
both cases.
• Different anal for contracts of adhesion v unconsionability? How is the
anal different?
In re Realnetworks (p 1036) Same case as before – claim that an arbitration

agreement contained in the contract was unconscionable. Court disagrees.
They did not bury it in small print and it did not appear deliberately hidden.
• Plaintiff is making a number of claims – all designed to prove that an

arbitration clause was unconscionable. Court rejects all of them. It is not
that an arbitration clause could not be unconscionable (it could) but here, in
this case, it was not found to be so.
• Easy to find, easy to read – the procedural side seems fine. You know what
you were getting into.
• Some cases seem to suggest that you have to show issues with both prongs,
others don’t
• Court here seems to be fine with the fact that there is no class action
remedy.
Gatton v. T-Mobile (p 1037) Here we have another arbitration clause but in

this case the court finds that is was unconscionable. P’s are challenging
practice of charging $200 early term fee and selling locked handsets. D’s are
seeking to enforce the arbitration agreement.
Contract Notes
Page 115 of 124
PROCEDURAL POSTURE: Plaintiffs, cellular telephone service subscribers,
challenged defendant provider's practices of charging a termination fee and
of selling locked handsets that a subscriber could not use when switching
carriers. The Superior Court of Alameda County, California, denied the
provider's motion to compel arbitration under the service agreements. The
provider brought consolidated appeals.
OVERVIEW: The provider argued that there was no surprise, and thus no
procedural unconscionability, in the arbitration agreement and class action
waiver contained in its service agreements. The reviewing court agreed that
there was no surprise but held that the adhesive nature of the service
agreement established a minimal degree of procedural unconscionability,
despite the availability of market alternatives. Courts were not obligated
to enforce highly unfair provisions that undermined important public
policies simply because there was some degree of consumer choice
in the market. Applying a sliding scale analysis, the court found that the
evidence of substantive unconscionability was strong enough to tip the scale
and render the arbitration provision unconscionable under Civ. Code, ß
1670.5. A class action waiver was unconscionable under California law when
the waiver was found in a consumer contract of adhesion in a setting in which
disputes predictably involved small amounts of damages and when it was
alleged that the party with the superior bargaining power had carried out a
scheme to deliberately cheat large numbers of consumers out of individually
small sums of money.
OUTCOME: The court affirmed the trial court's order denying the motion to
compel arbitration
Notes:
• Trial court said that the elements of unconscionablity were not
particularly strong but held that prior precedent made arbitration
clauses that forbade class actions or class arbitrations against public
policy. Why? Because Discover case – could cheat customers out of
many small sums of money and it would never be worth litigating
unless you could do it as a class action.
• “A constitution is not a code” from Marshall in McCullough v Maryland–
could apply this to restatement and UCC in some ways.
• A Code is an organized collection of general propositions.
• Court says that you must use a sliding scale. To be unenforceable, a K
must be both procedurally and substantively unconscionable but not to
the same degree and a a lot of oppression on one side can off-set a
little on the other side.
• D’s claim that there were other providers – so consumers had a choice
and could have signed with some other company. Court says that
degree of consumer choice in the market is one factor but not a
controlling one.
• This might be an easy case in California due to the Code. Perhaps that
is the difference between this and the Ill case.
• Bottom line – process and substance will overlap and unconsionabiity
cases will overlap with contract of adhesion cases.
Contract Notes
Page 116 of 124
Final Cases – Winding Down - DAMAGES
Remoteness or Forseeability of Harm
Hadley v. Baxendale (p 93) Key issue here is the forseeability of damages.

What damages are appropriate? Rule from this case becomes only the damages
that were reasonably foreseeable. Here the court finds that it was not reasonably
foreseeable that the mill would lose business based on delay of the carrier.
Facts: A miller needed a new crankshaft for his mill. Miller contracted with a
carrier to send the old shaft to a third party with whom the miller had
contracted to take a mold of the old shaft and make a new one. The carrier
was supposed to deliver the shaft to the third party within two days, but it
failed to do so (Miller told the carrier’s clerk to make a note to hasten
delivery). Miller did not receive a new shaft for several days, and the miller
lost profits and money from paying his workers.
This was an action by a miller against a common carrier for lost profits, based
on a breach of a promise to carry the crankshaft to the third party within two
days.
The carrier admitted to the breach, but claimed that the lost profits were not
part of the damage for which they could be held liable; the damages were too
remote.
Held: If special consequences resulting from a breach of contract are not

expressed when the parties enter into the contract at the time the contract
was made, there can be no liability for lost profit.
Rationale: The damages one party should receive in respect of a breach of

contract should be such as may fairly and reasonably considered arising
naturally from the breach or such as may reasonably be supposed to have
been in the contemplation of both parties
The principle to be deduced from the authorities on the subject is embodied
in the maxim: “In jure non remota causa sed proxima spectatur” (in law, the
proximate, and not the remote, cause is regarded)
-Must divide the loss
 Most important case in the chapter – Fundamental to K remedies

 Stands for basic propositions – what do you get (in damages) when there is a
breach?
 Court says that unless you brought the consequences to their attention, you
cannot collect – UNLESS they were reasonably foreseeable….
 Prof says this basic rule conflicts with another basic rule. You can contract in
advance for what the penalties for breach would be. In one way this is in line
with Hadley. What if the damage provision is very very high – will courts
enforce? Likely no – court does not enforce punitive damages. Liquidated
damages clauses are fine but not punitive damages.
Contract Notes
Page 117 of 124
 the court stated: "the loss of profits here cannot reasonably be considered
such a consequence of the breach of contract as could have been fairly and
reasonably contemplated by both the parties when they made this contract."
 The rule of the case stands for placing the risk of loss on the party in the best
position to handle it. In the business world, there is no reason to suspect that
courier companies would have superior knowledge of milling operations and
the likely losses, whereas the mill owner likely has a better chance to
estimate and hence avoid loss (say by having a spare or agreement with
other cooperating businesses that use cranks and shafts). Therefore, denying
compensation if the courier is not informed avoids shifting the costs of loss
reduction and prevention. (Wikep)
 The conventional wisdom is often just fine (see above) – but why does it
make sense? – people are operating under the assumption that you are going
to do what you say, why shouldn’t you be responsible for the provable
consequences for your breach?
 What should Hadley be able to get in damages? - the cost of shipping, but
the Δ offered 25 but the Π said not this cost me 300
 The puzzle – I would understand a rule that says b/c we can’t predict what
you are out, therefore all we owe you is your money back – but they offer 25
and jury awards 50
 Is this just a torts case for negligence? – aren’t damages supposed to be
foreseeable?
 In contract (where negligence isn’t the point), if there is a breach why don’t
you get lost profits if you can prove them?
 If that’s what you want then you should propose a warranty or additional
term – if that’s what we are saying that there are no background promises or
warranties, then we will judge the reasonableness of the obligation that the Π
wants to enforce – this sort of obligation is disproportionate
 Companies like this do a lot of business and able to charge relatively little b/c
the y have so many customers – can we say since they are making so much
money that when they do make a mistake they should have to pay the
damages (why is that a loser argument?)
 What is the nature of the arrangement in which the parties entered? - you
walk in and ask how much, when – transaction is not structured to get more
details like what happens if this is late, this is my only shaft
 What are the issues that we might reasonably expect the parties to address?
 In a big deal we expect that the deal will be pretty thoroughly lawyered
before the deal is done – this one is a spot transaction, that’s the way its
organized and that’s the way both parties treat it
 Not mandatory that it be treated that way – judge said Π could have come in
and said this is a special deal, explain why they needed it on time – to
negotiate
 Suppose that you insist to pay more to make a special deal – then you could
recover on that
 Coase theorem case – no lost profits unless you specifically negotiate the
proposition in detail, then you could collect
 But there is no reason for the law to impose lost profits every time
something goes wrong – lost profits may be a risk that the Π’s are
willing to take to ship items or Δ’s would have to increase prices
 Easy reading of the case - Its so easy for you to negotiate the separate deal –
you can’t get lost profits unless you do that
Contract Notes
Page 118 of 124
 What if the company says there are no special deals – and Π pays the price
because you have no alternative (would be a contract of adhesion) – should
the Π be able to recover?
 Turns into question of what are reasonable contract terms?
 For business what should be the legal obligation given what makes sense –
working backwards to what the judge thinks makes sense
 Therefore we ask – could you have negotiated special deal?, could you have
had a second shaft?, shouldn’t the risk lie with the Π who wants to get thinks
shipped
 All of these are what judges think are the sensible terms of the arrangement
– judges starting with the transaction/exchange to figure what is going on,
how complicated a transaction is it?
 Ultimately working towards what makes sense?
 The remedy question –get to what are the terms of the deal
 If the judges are supposed enforce the contract as the parties put it together,
then we might say the judges should say what they are thinking (so not a
remedies case, what are the obligations?)
 illustrative of the fact that questions about remedies frequently are
about what we understand the terms of the contract to be – judged
by notions of exchange, good faith and fair dealing, etc…
 Are all the remedies cases like this or are there propositions that we need to
know about remedies?
Damages for Breach of Contract
Lake River Corp. v. Carborundum Co. (p 173) This case addresses the idea
that the common law does not like penalty clauses in contracts. Posner gives
some pro’s and con’s of them. The main argument against them seem to be that
they might discourage efficient and well as inefficient breaches of contract. In
other words, sometimes a breach might be the best thing for all parties and with a
penalty clause, this may not allow this to happen.
PROCEDURAL POSTURE: Defendant appealed and plaintiff cross-appealed

from decision of the United States District Court for the Northern District of
Illinois, Eastern Division, which gave judgment for both parties in case
brought by plaintiff for liquidated damages, contending assertion of lien on
bagged product that it refused to ship to defendant's customers.
OVERVIEW: Plaintiff brought suit following demand of contract payment and

defendant's refusal, and claimed liquidated damages. Defendant
counterclaimed for value of bagged product, subject of contract, when
plaintiff impounded it and additional cost of serving customers affected by
impounding. On appeal, court held that it was apparent from face of contract
that damages provided for by "liquidated damages" clause were grossly
disproportionate to any probable loss and penalized some breaches much
more heavily that others regardless of relative cost. However, fact that
damage formula was invalid did not deprive plaintiff of remedy; the victim of
breach was entitled to common law damages, which, in this case, was unpaid
contract price minus costs that plaintiff saved by not having to complete
contract. The court held that damages on counterclaim had to be refigured as
well, as defendant made no effort to prove loss in form of reduced profits.
Contract Notes
Page 119 of 124
OUTCOME: Affirmed in part, reversed in part, and remanded, on grounds
that parties' damages were to be redetermined in accordance with opinion;
plaintiff was entitled to common law damages for breach of contract, and
defendant's damages had to be refigured, as defendant made no effort to
prove reduced profits.
Notes:
• Posner opinion
• Need to think about these cases in the background of the conditions material
○ Coase theorem – why don’t you put in what damages will be if you
breach the contract
○ Courts draw distinction between liquidated damages – say we will
enforce that – but if it looks like a penalty we won’t enforce it - need to
ask 2 questions
 1. How do we tell the difference?
• If the damages greatly exceed a reasonable estimate of
what the damages would normally be for breach – it is a
penalty.
 2. Why can’t we put in penalty clauses?
 If you breach the contract a pound of flesh – as a deterrence,
what’s wrong that?
 We want the parties to be able to bargain – this impacts
bargaining. The deal is a plan of performance so in some way,
to know the likely damages for breach could be very helpful. At
least may make them think more as they are negotiating the
deal.
 One answer – we know that most disputes that arise with
respect to arrangements are negotiated not litigated – we are
concerned at least in part about the bargaining dynamic –
penalty clause might skew the bargaining power – makes
bargaining a farce in this context
 Maybe the court wants to provoke negotiation by not clearly
defining what is a penalty and what is liquidated damages?
(relate it back to conditions and promises and back to
some of the exam cases like ALCOA or Peevyhouse –
might raise related issues) - think bargaining problem
• Figuring out if there was a breach might use notions of good faith – but once
there is a breach – you get expectation damages or reliance damages
• Sometimes if you act in bad faith – that is really a tort action
Lumley v Wagner (p 216)

Summary: Case about opera singer. Leading case on specific performance in
the area of personal service contracts.
• Discussion about specific performance. Order to make someone do

something or to stop doing something.
Contract Notes
Page 120 of 124
• Prof says she cannot be ordered to sing – why? Clearly you could not get
what you want from this approach – you cannot make her sing artistically if
she chooses not to.
• No specific performance orders for personal service contracts, as it is too
hard to know if they would be performed.
• We may not be able to make her sing, but the court can enforce making her
not sing elsewhere during this time.
• Tricky question is that if you order her not to perform elsewhere and she
decides, damn, I guess I will go ahead and perform – you still cant be sure
she will do a good job. One school of thought is that the persons own
reputation will make them perform well. But, if you think this is true – why
not order them to sing in the first place? Courts don’t want to be in the
middle of these types of cases.
• Parties cant negotiate the quality of personal service contracts – too hard to
judge and too hard to specify damages.
Performance and Breach
Peevyhouse v. garland Coal Mining Co. (p 934) Defendant agree that they
breached a provision of the contract requiring them to do restoration work to the
land of the P’s after coal mining. The argument is over the amount of
damages. The P wants the full value / cost of the work that was to have been
done and wasn’t, the D’s entered evidence of the worth of the land before and
after the work and want that to be considered as a measurement of damages…in
other words, they are claiming that because even if the work were to be done that
the land value would only be slightly greater – this is the better way to measure
the loss to the P. Court applies this rule here.
“Cost of performance rule” v the “value rule”.
PROCEDURAL POSTURE: In a petition for rehearing, plaintiffs challenged a

ruling of the trial court (Oklahoma), arguing that the court erred in excluding
evidence on a factual issue not raised by plaintiffs before appeal.
OVERVIEW: Plaintiffs brought suit against defendant mining company,

alleging breach of contract and property damage. Plaintiffs raised certain
questions not presented in the original briefs on appeal. Plaintiffs argued that
the trial court improperly excluded evidence as to the total value of the
premises concerned, therefore denying plaintiffs their "day in court."
Plaintiffs' argument arose by reason of the fact that plaintiffs' farm consisted
not merely of the acres covered by the coal mining lease, but included other
lands as well. The court found that the evidence was properly excluded
because such evidence was not within the scope of the pleadings. The court
also found that plaintiffs' appellate position came too late, because a party
could not change its theory of recovery on appeal.
OUTCOME: Petition for rehearing denied because plaintiffs were not entitled
to change their theory of recovery on appeal.
Notes:
Contract Notes
Page 121 of 124
• Prof asks if you think Walker Thomas is right, doesn’t this case have to
be right?
• Prof seems to think this is a quasi- contract of adhesion. He also
seems to felt that the coal company planned to breach all along – thus
they did not really have to calculate the cost into the deal if they were
planning to breach all along.
• Idea of relative economic benefit.
• Cost of performance rule vs the value rule. Which should be applied?
• P’s argue that the measure of damages is what it will cost them to
obtain performance of the work that was not done by the D’s. All are
agreed that the D’s defaulted and failed to live up to the agreement for
the restoration work.
• D’s argue the measure of damages is the cost of performance but
limited to the total difference in the market value before and after the
work was performed. (I agree this makes economic sense if you are
looking at the bigger picture but why should the P’s be barred from
recovering what they had legitimately had a right to under the K?
Seems unfair to absolve the breaching party of the responsibility just
because we are looking at the value of the land… what does Guddy
say about this?)
• Court here says that the main purpose of the K was the mining of the
coal and that the special provisions of the K pertaining to remedial
work were incidental to the main objective…. (says who?)
• Idea seems to be not to order damages that would involve
“unreasonable economic waste” but to me – they are not ordering
damages from the sky – they are enforcing a specific provision to do
specific work – again, whose place is it to say that this is inefficient.
Wouldn’t this allow for someone who wishes to avoid their legal
responsibility to get off the hook much cheaper if they could prove
what they contracted to do would not make economic sense in the big
picture??
• Court does say that if the main point of the K was the restoration work
then the value rule would not be appropriate.
• Dissent:
○ Breach was not in good faith – was willful.
○ The provisions were important as the landowners would not
have agreed to the deal without the restoration piece – seems to
argue the idea that the restoration was just incidental.
○ Defendant’s got all the benefits of the K and now screwed over
the P.
Restatement §348 Alternatives to Loss in value or Performance
(1) If a breach delays the use of property and the loss in value to the injured party is
not proved with reasonable certainty, he may recover damages based on the rental
value of the property or on interest on the value of the property.
(2) If a breach results in defective or unfinished construction and the loss in value to
the injured party is not proved with sufficient certainty, he may recover damages
based on
(a) the diminution in the market price of the property caused by the breach,
or
Contract Notes
Page 122 of 124
(b) the reasonable cost of completing performance or of remedying the
defects if that cost is not clearly disproportionate to the probable loss in
value to him.
(3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain
whether the event would have occurred had there been no breach, the injured party
may recover damages based on the value of the conditional right at the time of
breach.
Other Remedies and Causes of Action
Texaco v. Pennzoil (p 275)
PROCEDURAL POSTURE: Defendant oil company appealed a judgment

from the 151st District Court of Harris County (Texas), which awarded
compensatory and punitive damages to plaintiff oil company for defendant's
tortious interference with a contract between plaintiff and a third oil
company.
OVERVIEW: Defendant oil company brought 90 points of error in its appeal

of a judgment entered against it for tortious interference with a contract. The
court denied all but one point of error. The court held that the jury
assessment of 3 billion dollars was excessive in that it went beyond the
amount needed to punish and deter future conduct. Plaintiff oil company was
directed to file a remittitur of 2 billion dollars. Failure to file the remittitur
would lead to reversal and remand of the judgment. On the remaining points
of error the court held that the evidence supported the jury finding that a
binding agreement existed between plaintiff and a third oil company for the
purchase of the third company. Defendant knew of the agreement prior to its
own purchase offer and tortiously induced a breach of that agreement. The
jury charge correctly stated the law and explanatory instructions were proper
to enable the jury to render a verdict. A retired judge was properly appointed
to complete the trial when the original judge fell ill and defendant was not
denied a fair trial. Defendant received due process in the handling of its
motion for new trial. Further, there was no jury misconduct.
OUTCOME: The court issued an order to plaintiff oil company to file a

punitive damages remittitur of two billion dollars. The judgment would then
be reformed to show one billion dollars in punitive damages and would be
affirmed as reformed. If plaintiff failed to file the remittitur, the judgment
would be reversed and remanded. Punitive damages of three billion dollars
constituted a confiscation assets rather than punishment for past action.
Notes:
• Elements for this type of action: (tortious K interference)
○ That they know there is a K and they interfere anyway – must prove
they knew
Contract Notes
Page 123 of 124
○ They must take an active part in interfering with that K by persuading
breach by offering better terms or other incentives.
• Texaco is appealing a judgment that gave Pennzoil damages for Texaco’s

tortious interference with a contract between Pennzoil and Getty
businesses.
• Most famous tortious interference with business relations case of all time
• Need to know a little bit about restitution – tort law, not contracts
• There is one great idea – the notion of unjust enrichment – means you
benefited at my expense and therefore you ought to share the benefits
with me
• Intuitive, natural sense of justice
• Can imagine some complicated cases – have to figure out if Party A
incurred some expense, changed position that benefited Party B – if we
decide Party B should share, how much?
• Mary Poppins did a lot to help the family – should she sue? No, she was
just a volunteer – that’s what we call her in restitution
 People think they can do good by interfering then should not be
entitled to restitution – no one asks for help
 Some how there has to be some acquiesces or knowledge by the
beneficiaries to give rise
Contract Notes
Page 124 of 124

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Contracts

Professor Pat Gudridge

• One final exam – essay, open book, all materials allowed.

Prof asks – what is a contract?

Discussion of what makes a contract-

• Could include such formalities – signatures, seals, various requirements, in

Intro concept in Chapter 4 – Formation of a K requires 2 basic elements:

Next cases deal with the objective theory of assent.

Embry v. Hargadine, McKittrick Dry Goods (p 290) Yes K

Summary: Alleged verbal agreement between an employee and employer for a

Texaco v. Pennzoil (p 295)

Lucy v. Zehmer (p 296) Yes K

Restatement (Second) of Contracts

§17 Requirement of a Bargain

§ 18. Manifestation of Mutual Assent

§ 19. Conduct as Manifestation of Assent

Leonard v. PepsiCo (p 308) No K

Summary: In short, the plaintiff in the case was seeking to

Restatement (Second) of Contracts

§22 Mode of Assent: Offer and Acceptance

§24 Offer Defined: An offer is the manifestation of willingness to enter into

§26 Preliminary Negotiations: A manifestation of willingness to enter into

§29 To Whom An Offer is Addressed (1) The manifested intention of the

§33 Certainty: 1) Even though a manifestation of intention is intended to be

Sales Contracts: The UCC

§2-204. Formation in General:

Prof feels 2-204 is somewhat a radical notion…

§2-206. Offer and Acceptance in Formation of Contract

§2-305. Open Price Term

§2-308. Absence of Specified Place for Delivery

§2-309. Absence of Specific Time Provisions; Notice of Termination

§2-310. Open Time for Payment or Running of Credit; Authority to

Empro Manufacturing Co. v. Ball-Co Manufacturing, Inc. (p 319) No K

Restatement (Second) of Contracts

§27 Existence of Contract Where Written Memorial is Contemplated

Texaco v. Pennzoil (p 323) Yes K – Really a Torts Case

Revoking an Offer – once there is an offer, when or whether it may be

Dickinson v. Dodds (U.K. 1876) (p 328) No K

Class Notes Jan 20

Discussion of Uniform Commercial Code (UCC). What is it? Is it the same

For Thur – will discuss Dickinson and UCC.

Restatement (Second) of Contracts

§17 Requirement of a Bargain

§18 Manifestation of Mutual Assent

§24 Offer Defined: An offer is the manifestation of willingness to enter into

§25 Option Contracts

§35 The Offeree’s Power of Acceptance

§36 Methods of Termination of the Power of Acceptance

§37 Termination of Power of Acceptance Under Option Contract

§42 Revocation by Communication From Offeror Received by Offeree

§43 Indirect Communication of Revocation

Sales Contracts: The UCC

§2-205. Firm Offers

Leads Into What is Acceptance?

Mirror Image Rule

Ardente v. Horan (p 336) No K

Acceptance by Correspondence – The Mailbox Rule

Basically – acceptance is effective upon dispatch.

Acceptance by Performance or “Unilateral” Contracts.

This is an issue dealt with in Carbolic Smoke Ball case below.

Carlill v. Carbolic Smoke Ball Co. (p 343) YES K

White v. Corlies & Tifft (p 358) NO K (No real acceptance communicated)

OVERVIEW: The action was for an alleged breach of contract.