Contracts Outline Fall 2014

Table of Contents:
1. FORMATION
A. MUTUAL ASSENT
B. OFFER
C. ACCEPTANCE
D. FORM CONTRACTS
E. PARTIAL AGREEMENTS
2. ENFORCEABILITY
A. CONSIDERATION
B. RELIANCE
C. UNJUST ENRICHMENT
D. STATUTE OF FRAUDS
3. TERMS
A. PAROL EVIDENCE RULE
B. INTERPRETATION
C. WARRANTIES
4. DEFENSES
A. MISCONDUCT
B. MISTAKE
C. CHANGED CIRCUMSTANCES
5. CONDITIONS
A. EXPRESS CONDITIONS
B. CONSTRUCTIVE CONDITIONS
6. REMEDIES
A. EXPECTATION INTEREST
B. RELIANCE INTEREST
C. RESTITUTION INTEREST

Important Terms:
Contract: promise or set of promises for breach of which law gives remedy, or performance of which the law
recognizes as a duty.
Promise: Manifestation of intent to act or refrain from acting in a way
Agreement: Manifestation of mutual assent
Bargain: Agreement to exchange promises for a performance or to exchange performances
Law protects three interests:
Expectation: interest after contract comes into existence
Reliance: expectation of performance or inaction that often leads a party to change position
Restitution: the benefits one party receives at the expense of another
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1. FORMATION
A. Mutual Assent meeting of the minds
-Necessary to protect liberal autonomy, freedom of contract
-Contract Law = protecting parties reliance interests (not imposing obligation like in Torts)
-Contract Law = protects people who dont have common practices (outliers)
1. Objective Theory: In determining whether the parties have reached mutual assent, what matters is
not what each party subjectively intended. Instead, a partys intentions are measured by what a
reasonable person in the position of the other party would have thought the first party intended,
based on the first partys outward manifestation.
i. Relatively new development from roughly around the industrial revolution; legal doctrine
shifted from subjective theory to objective theory. Rise of credit economy = objective
theory because subjective theory dampens ability to extend credit, for banks to collect, etc.
ii. Shift occurred because Objective theory=objective proof, subjective theory=ambiguity
iii. Objective theory protects reliance in contracts
iv. Objective theory allows for clear delineation of whether the contract is enforceable or not
v. Objective theory provides a way to protect those who maintain/change positions or rely
on something based on outward manifestations of intent
vi. By admitting evidence under the objective theory, are you upsetting one partys reliance?
1. If yes, exclude; if no, include.
vii. Objective theory allows for lawyers to argue their side.
viii. Lucy v. Zehmer: one consequence of applying the objective theory: even a contract entered
into subjectively jokingly is enforced.
ix. Embry v. Hargadine, McKittrick: Under the objective theory, if P had a reasonable basis for
believing that he was entering into a contract, then his reliance should be protected.
2. Modified Objective Theory: A party is bound by the other partys meaning if the first party either
knew or had reason to know of the second partys meaning while the second party did not know or
have reason to know of the first partys interpretation.
i. Oswald v. Allen: In this case over the purchase of Swiss Coins, court found there was no
subjective (or objective) mutual assent, no meeting of the minds as to what Swiss Coins
really meant.
1. MOT: when a term of a contract is ambivalent and understood differently, there
cannot be a contract unless one of the parties should have been aware of the other
partys understanding of the term. (R.2d 201).
B. Offer: A manifestation of intent of the parties to allow a contract to come into existence without any
additional action on the part of the offeror.
1. Offer must have:
i. Language of a promise
ii. Definiteness as to essential terms
iii. Be communicated to offeree
2. In determining whether an offer has been made, consider:
i. Language
ii. Circumstances
iii. Prior practice and relation of parties
iv. Industry custom
v. Method of communication (mailbox rule, etc.)
1. Nebraska Seed: consider the outside circumstances to make an argument that an
offer has or has not been made. Just because a letter says its an acceptance
doesnt preclude it from being an offer if it satisfies the requirements of being an
offer.
2. Leonard v PepsiCo
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3. Revocation: you can (consistent with the obj. theory) have the offeree acquire the knowledge that
the offeror no longer intends to be making the offer (revocation).
i. Dickinson v. Dodds: Rule is that promises to keep an offer open until a certain time will
be just a promise UNLESS made binding by consideration and acceptance necessary
to form a binding agreement (must be bargained for).
1. HOWEVER, had Dickinson been a sale of widgets, it would have been governed
by the UCC, and the certain time provision is enforceable even without
consideration because THE UCC SAYS SO. 2205.
2. 1103; 2102; 2104; 2105; 2205
ii. Different ways:
1. Revocation (by offeror)
2. Death or insanity of either party
3. Intervening illegality
4. Rejection / Counteroffer (by offeree)
5. Expiration of specific date / lapse of time
6. Impossibility / destruction of subject matter in contract
4. Preliminary Negotiations: Distinguished from offers because parties have no intent to be bound.
5. Advertisements
i. Generally, ads are not offers but considered to be solicitations to make offers. Stores dont
want to end up with multiple liability
ii. Advertisement: is an offer if it is clear, definite, explicit, and leaves nothing open for
negotiation; acceptance will complete the contract (no further action on the part of the
advertiser/offeror)see Lefkowitz.
1. Lefkowitz:
i.
Test: whether the facts show that some performance was promised in positive terms in
return for something requested.
ii.
Offer: where the offer is clear, definite, and explicit, and leaves nothing open for
negotiation; acceptance will complete the contract.
C. Acceptance: Once an offer is accepted, a contract is formed and mutual assent is established. Offeree
has four options after receiving an offer:
i. Accept, bringing contract into existence
ii. Reject, preventing contract, terminating offer
iii. Make counter-offer, rejection of original offer + new offer
iv. Do something else (e.g., make inquirylegally inconsequential)
Three Means of Acceptance Under the UCC 2-606:
1. After a reasonable opportunity to inspect, manifest to seller that goods conform, OR are
acceptable in spite of non-performance
2. Failure to Reject within reasonable time after reasonable opportunity to inspect.
3. Act inconsistently with sellers ownership (play with toys).
2. Mirror image rule:
i. The terms of an acceptance must mirror the terms of the offer.
ii. See below, 2-207 and Battle of the Forms.
3. Rule: Learning that intent to make an offer no longer exists, the offer (or counteroffer) also ceases
to exist (and vice versa)
i. Mailbox Rule (Restatement 63): Unless the offer provides otherwise, an acceptance
completes the manifestation of mutual assent as soon as it is put out of the offerees
possession.
Although an offer is effective upon receipt, an acceptance of a bilateral offer is effective
the moment its posted.
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It holds, even if the acceptance never actually reaches the offeror.

Must be correctly addressed and have right amount of postage to be enforceable when it
goes into the mailbox.
Only applies if the offeror authorizes the use of the mail as acceptance expressly or
by mailing the offer itself. Same rule applies to telegrams.
Mailbox rule doesnt apply to option contracts. (option contracts are accepted only
upon receipt)
UCC 1-201(38): an offer can be accepted by any reasonable means. If unreasonable
means are chosen, the acceptance is still valid when dispatched, as long as the offeror
receives it no later that he would have via reasonable means.
o E-mail is NOT an invited mode of acceptance for an offer that was sent by US
mail.
4. Unilateral contract:
i. Acceptance is based on the condition of performance. Occurs when the offeror expects
action instead of promise. Acceptance by performance, NOT a promise to perform)
ii. Generally, the only unilateral contract cases are when the offeror has no interest in a
promise but only in the performance (commission or reward contractsIll give you $100
if you find my cat)
iii. Completion: if the performance is not completed, then the offeror is not bound by the
unilateral contract
iv. Because the offeror is the MASTER of the contract, the offeror is the one whose intent
determines whether a contract is bilateral or unilateral.
v. Petterson v. Pattberg (D promised property at discount if P paid off mortgage)
1. Court finds that an offer to form a unilateral contract was revoked prior to
acceptance
5. Partial Performance Doctrine
i. Precludes offeror in unilateral contract from revoking offer within a reasonable amount of
time where offeree manifests assent by entering the contract upon performance.
ii. Restatement 45: When offeree begins performance, part performance creates an option
contract (irrevocable offer).
1. An option is an irrevocable offer. Offeror invites an offeree to accept by
rendering a performance (unilateral contract) and the offeree begins performance,
then it becomes an option (irrevocable).
2. Contract is not yet accepted, so offeror is not obligated until full performance is
rendered.
6. Acceptance by Silence
i. Silence can be an acceptance; in particular contexts, silence might be a manifestation
of intent to accept (under obj. theory). This is usually occurs only when there is
something unique about the facts/context.
ii. General rule: (Restatement 69) offeror cannot insist upon silence as a means of
acceptance UNLESS he manifests an intent to be bound, one of these 3 ways:
1. (a) Where offeree takes benefits of offered services or exercises dominion
(uses) over what the offeror offers, having had an opportunity to reject.
2. (b) Where offeror gave offeree reason to understand that silence would be an
acceptable means of acceptance, and the offeree, in remaining silent intends to
accept the offer. (ex: Book of the Month)
3. (c) Previous dealings between the parties indicate that silence will be acceptance
D. Form Contracts: UCC 2-204: General Contract Formation: if you intend to have a contract, you
have onevery forgiving provision)
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i. Contract for sale of goods can be made in any way that sufficiently shows agreement,
including conduct by both parties that recognizes its existence.
ii. Can still have a contract for sale, even if the moment of its making is undefined
iii. Even though one or more of its terms are left open, the contract doesnt fail for
indefiniteness if: PARTIES intended to make a contract, and THERES a reasonably certain
basis for giving an appropriate remedy.
3 ways of making a contract:
1. Offer and acceptance
2. Oral agreement followed by written confirmation
3. Behavior of the parties
2. Click-Wrap: hitting the button that says I agree to the license terms in order to get the software
in the first placeso clicking=manifestation of assent/intent
i. Specht v. Netscape: technically browse-wrap. Offerees not bound by inconspicuous
terms buried in a contract.
ii. Key here is to APPLY THE OBJECTIVE THEORY.
1. For Plaintiff: What matters objectively is not whether or not the P agreed to
the terms; its whether or not the D had notification that the P was accepting
the terms. If we let the D win when P did not KNOW about the terms, it will
frustrate the reliance of the P.
2. For Defendant: If we let the P win, when the plaintiff KNOWS about the
terms, we will be upsetting the reliance of the D.
3. The goal here is to MAXIMIZE RELIANCE. We would pick the interpretation
that would least frustrate reliance.
iii. Duty to Read Rule doesnt necessarily apply in these situations, because a
REASONABLE PERSON treats electronic screen differently from piece of paper.
3. Adhesion: Standard Form Contracts, i.e. Take it or Leave it.
i. Carnival Cruise v. Schute and Caspi v. Microsoft: Highlight common problem with form
contracts
ii. Why do we use them? Easier to understand, non-discrimination, prevents recontracting
iii. In order to solve this problem, apply objective theory. Both courts in CC and Caspi found
that the offerees WERE bound to the terms in the form contract.
iv. What should we do, since it seems that we are violating mutual assent/freedom of contract
by enforcing this?
1. Restatement 2d 211: Doctrine of Reasonable Expectation: we find that there is a
contract, despite the apparent absence of mutual assent, but that contract will
include only the terms that the contracting party would reasonably expect to be
there.
4. Shrink-Wrap: software boxed in shrink-wrap; by retaining this software, you agree to the terms in
the license: so keeping it = manifestation of assent/intent
i. Pro CD v. Zeidenberg (phone book on CD, shrink wrap license says you cant sell it)
5. Battle of the Forms: 2207
i. Mirror Image Rule: demands that an acceptance precisely match an offer in order for a
contract to be formed; otherwise, it is a counteroffer.
ii. Diluting the mirror image rule:
1. Last Shot Rule evolved to permit enforcement of contracts based on performance:
terms will be whatever terms are contained in the most recent piece of paper (Still
formalistic thoughUCC attempts to avoid an unfair advantage)
a. Form contracts placed strain on traditional rules of offer and acceptance
forced to use new methods
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b. Battle of the Forms: one company that used form contracts dealt with
another company that also used form contracts; result was often an
exchange of conflicting forms that just got stuffed into filing cabinets and
werent read until a dispute arose.
6. Fluid Acceptance 2204
E. Partial Agreements
1. Preliminary Agreements
i. Empro v. Ball-Co:
1. Letters of Intent are sometimes enforceable: R. 2nd 27 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.
2. EVERYTHING turns on the intent of the parties.
2. Agreements to Agree
i. UCC 2-305: Comment 1: this article rejects the formula that an agreement to agree is
unenforceableand rejects also defeating such agreements on the ground of
indefiniteness.
ii. Sun Printing: Cardozo writes opinion ruling for the seller because this is an incomplete
agreement. This is an agreement to agree. There are too many open terms and the legal
system does not enforce this type of agreement.
iii. If the parties dont specify terms in the contract (and there are no applicable gap-fillers),
the court cannot enforce it.
1. Major factual issue: the price term in this case. Parties specified cap and range
the max price is Canadian newspring market pricebut not a specific price.
a. Arguments FOR and AGAINST interpreting this as an open term
2. Cardozo says the price term is okay, but the duration provision is still too open.
a. No party has manifested mutual assent about the duration.
3. Spann disagrees: If the parties agree to reasonable price and unspecified
duration term, theyre willing to settle for any reasonable term. If P is willing to
go along with any reasonable duration set by the D, then there is mutual assent.
a. Counter: Court could say that, but then it would be giving the option to the
buyer to speculate against the interest of the seller, depending on market
price of paper at the time.
iv. TODAY, this case would be governed by the UCC, which has gap-filler provisions. Parties
minimally specify what they want, but UCC allows court to make insertion of reasonable
terms in the event of absence of these terms.
1. ~Tort Law?!~
3. Indefinite Agreements
i. R 2d 34 (P. 401)
1. Terms can be certain even if some things are left undecided.
2. Part performance may remove uncertainty/establish that the K is enforceable
3. Direct quote: Action in reliance on an agreement may make a contractual remedy
appropriate even though uncertainty is not removed.
ii. 204 (P. 401)
1. Court will supply omitted essential term which is reasonable in the circumstances.
4. Gap Fillers
i. 2204(3); important! (3) Even though 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.
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ii.
iii.
iv.
v.
vi.

2305; Open Price Terms

2306; Output, Requirements, and Exclusive dealings
2307; Delivery terms
2308; Place of delivery
2309; Time provisions
1. when the goods should be delivered: reasonable time
2. when the contract comes to an end: reasonable time
vii. 2310; Time of Payment Due: ON DELIVERY
viii. 2311; When contract requires selections or cooperation with the other party, MUST
proceed in GOOD FAITH.

2. Enforceability
A. CONSIDERATION
1. History
i.
The reason we have the theory of consideration is because of Economics/Adam Smith
a. We only enforce contracts with economic gain/exchange, not simply due to moral
obligation, etc.
2. Consideration: LEGAL BENEFIT FOR DETRIMENT part of a bargained-for exchange.
i.
Tests:
a. If you can put the promise in ifthen form, it MAY be supported by
consideration.
b. If you cant put the promise in ifthen form, it WILL NOT be supported by
consideration
ii.
Johnson v. Otterbein: No consideration because Ds agreement was a gift (a gift with a
condition, but a gift nonetheless).
a. DONATIVE intent, not BARGAINING intent. Its not part of a bargained for
exchange.
iii.
Hamer v. Sidway:
a. Even though consideration can be a benefit for the promisor, FOCUS
ANALYSIS ON DETRIMENT/SACRIFICE on the part of the PROMISEE.
i. Court rejects Ds argument that the detriment/sacrifice of the promisee
(abstaining from drinking/gambling) was really a benefit BECAUSE it
doesnt matter if something is beneficial or harmful to the promisee,
it only matters if there is a constraint on his/her liberal autonomy.
b. Detriment Analysis
i. Conflict (arguments either way) about whether there is consideration when:
1. You were planning on taking on the detriment anyway
2. You are promising to do something illegal
iv. Consideration Test:
a. Identify promise, promisor, and promisee.
b. Then, apply conjunctive test:
1. Promise must involve detriment to promisee, and
2. The detriment was bargained for; and
3. The promise was bargained for.
c. If yes to ALL THREE, the promise is supported by consideration.
v. Adequacy
a. R 2d 79:
i. If the requirement of consideration is met, there are no additional
requirements; we do not second-guess the adequacy of consideration
b. Peppercorn Theory, p. 646
i. We do not second-guess the adequacy of considerations in an exchange.
We let the parties decide what things are worth and we dont oversee
the values of the things that we exchanged.
c. Norman & Snells versus Dyer
i. Norman and Snells ends up not enforcing the contract, claiming that the
thing under considerationa promissory notewas valuelessthus no
consideration.
ii. Dyer ends up enforcing the contract, going the opposite way from Norman
because there is consideration even if you relinquish an invalid claim in
exchange for settlement.
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1. This must be the law because otherwise, you could never settle a
claim!
iii.
In both circumstances, the promisee is relinquishing something of no value,
yet we get different results.
vi.
Nominal Consideration
a. Very smallone penny
vii.
Recited Consideration
a. I hereby pay you one penny to do something.
viii.
Both nominal consideration and recited consideration usually do not work because they
are inconsistent with the notion of bargaining intent and more consistent with donative
intent
a. UNLESS we are dealing with an option, because in an option context we think that
mere formality is sufficient.
3. Modification
i.
Pre-Existing Duty Rule
a. PEDR: The contract was already made and the work that the promisor agreed to do
was work s/he had already agreed/had an obligation to perform.
b. PEDR exists so that the promisee cant abuse the agreement at the expense of the
promisor. Intended to prevent extorted modifications of contracts.
c. Stilk v. Myrick: is there extorted contract modification in this case?
i. Yes: sailors extorters, captain extorted
ii. No: they were voluntary terms. How to argue to enforce new contract?
1. This new contract should be enforced because PEDR doesnt apply here
2. PEDR does apply, but there is an ADDITIONAL duty (extra work), not
covered by the duty in the FIRST CONTRACT, that we should honor.
d. We MANIPULATE the PEDR in order to make the case come out how we want.
i. Dont enforce contract, duty was used up in first contract.
ii. Enforce contract, define PEDR so narrowly that it excludes the work that
the sailors will have to do.
e. Alaska Packers v. Domenico: court invokes PEDR to rule that the contract
modification is unenforceable (v. similar to Stilk)
i. District Court applied the detriment to the wrong partysaid it was
enforceable because D suffered a detriment.
ii. On appeal, this was corrected. No detriment to P, NO consideration.
1. Opposite Argument: New agreement is supported by consideration
because there is a new detriment to promisee: their right to refuse to
do work and be sued for breach of contract. Ps Position: you can sue
me for breach, or I will relinquish my right to make you sue me for
remedy, and Ill give you an alternate remedy.
2. The nets were strange/old. If they dont talk about the net in the original
agreement, the fact that they are strange indicates a NEW duty. A NEW
detrimentusing defective nets or fixing.
3. Another way around PEDR: mutual rescission (takes initial duty
away, brand new contract)
f. Extorted Modification vs. Legitimate Modification
i. Distinction based on promisees bargaining power: if promisee has more
leverage to extort a modification. Circumstances change: positions of
parties and their relative bargaining power change after an agreement is
signed.
1. In essence, contract law allows initial extortion (e.g., fishing
company) and doesnt allow second extortion (e.g., fishermen).
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ii.

iii.

2. If we dont do this, people wont make contracts. Capitalist economy.

Unanticipated Difficulties
a. Brian Construction v. Brighenti: Unanticipated excess work cropped up in a
contract in which P hired D to do construction work. P offered D more money to do
the extra work, and sued when D left before work was completed.
i. Restatement 89: See below@!!!!
Good Faith Modifications
a. R 2d 89
i. Promise modifying a duty not fully performed is binding if
1. Modification is fair/equitable in light of unanticipated difficulties
2. Falls under statute
3. To the extent that justice requires enforcement in view of material
change of position in reliance on the promise.
b. Under UCC 2209
i. YOU DONT NEED ANY OF THAT STUFF
ii. 2-209(1): An agreement modifying a contract w/in this article needs no
consideration to be binding.
iii.
None of the aforementioned stuff about PEDR matters under this provision.
iv. UNDER UCC, COMMENT 2GOOD FAITH IS SUBSTITUTE FOR
CONSIDERATION.

B. RELIANCE
1. Promissory Estoppel
i.
In the absence of consideration, we will sometimes enforce a promise if we think reliance
requires enforcement. Main Tenet: you cant deny a promise that was a valid promise.
This is an on-contract remedy.
ii.
Promissory Estoppel Applies when:
a. Reliance: promisee RELIES on promise.
b. Foreseeability: promisor FORESEES reliance by promisee.
c. AND where enforcement of the promise is necessary to avoid injustice, it will be
enforceable (R 2d 90)
iii.
Reliance
a. Feinberg v. Pfeiffer Co.: P retiring (promisee, act of reliance) was enough to invoke
promissory estoppel to make sure her former employer (promisor) keeps its promise
of giving money to her (promise).
b. Point of Contention: whether the reliance that counts has to be detrimental or not
(retiring, getting free money is not a detriment).
c. Differences between 1st and 2nd restatements:
i. What constitutes reliance?
ii. Language removed in 2nd: definite and substantial
iv. Foreseeability
a. Is it foreseeable that the legitimate reliance would occur?
v. Avoid Injustice
a. Fairly subjective. Spann doesnt like because equity=bad.
2. Reliance on an Offer
i.
Drennan v. Star Paving: Court invokes PE because it treats an offer like a contract/option.
ii.
FOR applying PE:
a. Reliance was foreseeable, and must be enforced to avoid injustice
b. A bid is a special promise: an offer that is relied upon
c. UCC 2-205: firm offers
d. R 2d 87: option contract
i. 87(1) Essentially adopts UCC
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1.
ii. 87(2) Goes even further
1. An offer which the OFFEROR should REASONABLY EXPECT to
induce action or forbearance of a substantial character on the part of the
offeree before acceptance, and which DOES INDUCE such action or
forebearance is binding as an option contract TO THE EXTENT
NECESSARY TO AVOID INJUSTICE.
iii.
Were distorting a lot of law to enable promissory estoppel/enforcement on
reliance
iii.
AGAINST applying PE:
a. You shouldnt apply PE doctrine to an offer. It did not ripen into a contract.
b. Reliance is there, but it is not foreseeable that someone would completely RELY on
the offer, since it was JUST AN OFFER.
i. The NATURE of an offer is such that it isnt foreseeable that someone
would rely on an offer prior to accepting it.
c. The court is acting as if this is an option. If you want an option, you have to MAKE
it an option. This was not made an option explicitly.
3. Reliance on Negotiations
i.
Hoffman v. Red Owl Stores: D never made an offer, only negotiations. P left negotiations
to buy/operate a grocery store and sues for damages he incurred in reliance.
a. P was able to recover for his reliance on Red Owls offer; thus, promissory estoppel
CAN be applied to negotiations.
b. Spann highlights this as an example of a court trying to do something equitable;
however it may be doing the opposite.
c. See Also: discussion on restitution damages, final section.
4. Charitable Contributions
i.
Allegheny v. Chautauqua Bank: PE doctrine not applied in this case because (Cardozo)
says banks actionsputting money in account for memorial fundis not detrimental
reliance.
a. Better argument: R 2d 90(2): promissory estoppel is applicable to gift
subscriptions, even though theres no reliance, even if theres no proof that the
promise induced the action or forbearance.
b. Cardozo stretches this further, from negotiations in last case to gifts in this case.
C. UNJUST ENRICHMENT
1. Past Consideration
i.
Past Consideration is not valid consideration sufficient to create an enforceable contract,
unless the parties agreed prior to performance that compensation would be given later.
a. Past Consideration doesnt work because the detriment to the promisee has to be
the detriment thats bargained for. If you arent bargaining for the detriment
(because it happened in the past), then theres no consideration.
ii.
BLL: WE DO NOT ENFORCE CONTRACTS BASED ON PAST CONSIDERATION.
2. Moral Obligation
i.
Mills v. Wyman: (sick son case) Court does not enforce promise of father of sick son to
pay for for his care from P. Ds promise occurred in the past so there is no consideration;
and since we dont enforce Ks based on moral obligation, there is no basis for
enforcement.
ii.
BLL: WE DO NOT ENFORCE CONTRACTS BASED ON MORAL
CONSIDERATION/OBLIGATION.
iii.
Exceptions: We will enforce the promise if, in the situation,
a. There is some kind of legal obligation to pay
b. That legal obligation now becomes discharged through operation of law
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i. Debts barred by statute of limitations

ii. Debts incurred by infants
iii.
Debts of bankrupts
c. AND the promisor reaffirms the promise.
3. Material Benefit
i.
Unjust enrichment exists where the defendant has received a benefit from the plaintiff and
it would be inequitable for defendant to retain the benefit without compensating
plaintiff for its value.
ii.
Cotnam v. Wisdom: court says who is receiving restitution doesn't matter;
a. SPANN says it does matter, because of the injustice prong of PE.
4. Restitution
i.
You have to restore a material benefit conferred on a promisee/promisor if the contract
was not performed, so as to prevent unjust enrichment.
ii.
OFF-CONTRACT REMEDY
a. NO interest in what would have happened IF the contract WAS enforced.
iii.
Instrumental goal: PREVENT. UNJUST. ENRICHMENT.
a. Qualitatively different from:
i. Consideration: based on gains of trade to protect expectation
ii. Reliance: which protects reliance
iv. Components of RESITUTION CLAIM:
a. ENRICHMENT: there must be some sort of enrichment conferred.
b. INJUSTICE: the enrichment must be unjust.
c. EFFECT OF CONTRACT: often there will be a contract in the vicinity.
5. Quasi-contract recovery
i.
Contract implied in law
ii.
Even though the parties did not agree, we impose this agreement to prevent unjust
enrichment.
iii.
Price term of the contract The reasonable value of the services rendered (Quantum
Meruit).
iv. Distinguish with contract implied in fact: An actual contract in which parties indicate by
conduct their intent to form a contract.
D. STATUTE OF FRAUDS
1. Scope
i.
Definition
a. A generic statute that requires a writing in order for a contract to be enforceable.
i. It does not require that a contract itself be in writing, just that there must be
a written memorandum/memorial of the contract.
1. The writing need not be signed by both parties, as long as the person
who is denying the contract (the party to be charged) has signed it.
b. However, satisfying the statute of frauds DOES NOT necessarily mean you have
a contract, and not satisfying SOF DOES NOT mean you dont have one.
ii.
Goals:
a. Evidentiary: to make sure parties had a contract; to prevent fraud and perjuries
b. Promote deliberation before entering into a contract
c. Is it a good idea? Bad Idea?
i. Good idea: We care more about type 1 fraud (pretending there is a contract
when there isnt) than type 2 (pretending there isnt a contract when there
is) because type 1 is easy to guard against by requiring some writing.
ii. Bad idea: it will produce fraud and perjuryall those contracts that WERE
legit contract but didnt have a writing will produce fraud because some
12

defendant will fraudulently/perjurously say that there was no contract when

there really was. Also, rule is unrealistic/impractical.
iii.

iv.

Modern Trend
a. Interpreting SOF narrowly so as to enlarge the scope of contracts that are
enforceable.
b. R 2d 110 (p. 484)forbidding enforcement UNLESS written memo exists.
c. There are so many loopholes that a good lawyer should always be able to get
around SOF.
SOF Analysis
a. Whether contract is within the SOF
i. Traditional SOF contracts include:
1. Contract of EXECUTOR answering for a duty of his decedent;
suretyship contracts (answer for debt of another);
2. Contracts in consideration of MARRIAGE (if the promise does not
INDUCE marriage, the contract is not bargained for exchange, and
therefore there is no consideration and not within the SOF; if you marry
my son, I will make you president of the companyconsideration is
part of the deal so it is NOT within the SOF);
3. Contracts conveying INTEREST OF LAND; Contracts NOT
PERFORMABLE WITHIN ONE YEAR from the making of the
contract (when complete performance is IMPOSSIBLE within one
year; performance/discharge depend on parties intent)
4. Contracts for Sale of Goods Under UCC 2201: APPLIES FOR
CONTRACTS OVER $500; between MERCHANTS; IF AND ONLY
IF WRITTEN CONFIRMATION IS SENT WITHIN A
REASONABLE TIME AND THE RECIPIENT HAS REASON TO
KNOW ITS CONTENTS AND FAILS TO GIVE A WRITTEN
NOTICE OF OBJECTION WITHIN 10 DAYS OF RECEIPT, this is
sufficient as writing (comment 3).
ii. Whether statute is satisfied (whether there is an adequate writing)
1. Restatement requires: contract parties involved in document; a
document showing that they made the contract; identifying the subject
matter of the contract; stating the essential terms; plus signature (esignature increasingly accepted). SIGNATURE ONLY NECESSARY
BY ONE PARTY DENYING THERE IS A CONTRACTTHEN
THAT SIGNATURE IS REQUIREDparty to be charged
2. 2201 requires: evidence of a contract for sale of goods; specific
quantity term (recovery is limited to the amount stated); signed or
authenticated by party to be charged. Need not include specific or
formal terms, or even be complete (these can be substituted with gap
fillers).
iii.
Whether there is an exception for your case.
1. Common law: part performance of any part of the contract would
allow enforcement of the entire contract.
2. UCC 2201: (3) Exceptions: specially manufactured goods; admission
from party to be charged that they made a contract (enforceable only up
to quantity of goods admitted); partial performance exception (must
be full performance, or full performance to a severable part, in which
case the contract is only enforceable to the severable partmany courts
allow part performance or payment of a single item to satisfy this;
13

comment 2: only for goods that have been accepted or for which
payment has been made and accepted).
b. Boone v. Coe: A party may not recover damages for breach of contract that is
voidable under the statute of frauds.
c. SOF precludes both reliance and expectation damages, because they are oncontract remedies (unless the case/court treats reliance as off-contract remedy).
Does not preclude restitution, because that is an off-contract remedy.
2. Exceptions (See Riley v. Capital Airlines)
i.
Part Performance Exception: contract is fully enforceable if its been partially
performed, even though its not in writing.
a. Helps prevent unjust enrichment. Also, its evidence of a real contract (just as
writing is).
b. UCC 2201(3)(c): enforcement only to extent payment has been made & accepted
OR goods have been delivered & accepted
c. MERE PREPARATIONS DO NOT COUNT AS PART PERFORMANCE.
ii.
Custom Goods Exception: custom goods are evidence that there really was a contract
a. Once the manufacturing process has begun or goods have been procured, theres a
reliance interest we want to protect.
b. UCC 2201(3)(a): applies to goods specially made
iii.
Admissions Provision Exception: deal is enforceable if the party against whom its
enforced admits to having made it (but not beyond quantity of goods admitted).
a. Example: Dec 2003 exam seller admits oral contract in e-mail to buyer.
iv. Promissory Estoppel: promisor makes promise that promisee reasonably relies on, he is
bound to contract
a. R 2d 139: reliance must be substantial (= reliance must lead to detriment that
cannot be avoided except by enforcement of the promise)
3. Writing
i.
Schwedes v. Romain: example of a wrong case
a. The writing must be signed by the party to be charged only (the D), not by the P.
b. Court is mistakenly thinking the contract itself has to be in writing, rather than
realizing all you need is a writing, a memorandum of the contract, to satisfy
SOF.
ii.
Court in Schwedes finds that the Part Performance Exception doesnt apply because the
part performance they were trying to claim was preparation, not actual performance.
4. Signature
i.
A MODIFIED contract that is within the SOF is enforced even if there is only a writing
for the original contract and not the modified contract. (Cloud Corp v. Hasbro)
a. Judge Posner: original quantities enforced, but not the large quantity in the modified
contract. An electronic signature is sufficient. (There are now e-sign statutes, etc.
that make it clear e-sigs work.)
b. REASONING HERE: Facts suggest that the mutual intent of the parties WAS TO
ENTER INTO A CONTRACT.
c. This contract would probably have been enforceable even without a signature:
exceptions.

14

3. TERMS
A. Parol Evidence Rule
1. Parol Evidence Rule: governs admissibility of extrinsic (not explicitly described in written
agreement) evidence of a prior or contemporaneous agreement THAT IS INTEGRATED.
i.
Admissibility is barred if it contradicts or varies the terms of a valid written instrument.
a. We have this rule because we dont want written contracts to be undermined by
oral testimonywe want the stability of knowing that what the piece of paper
says is true.
ii.
Difference between SOF and PER
a. SOF about enforceability; PER about terms
iii.
Exceptions to PER
a. When a contract doesnt have an integration clause and/or doesnt contain all
the terms of the contract.
b. We care about this because:
i. Intent of the partieswhether they intended the writing to be final or not.
c. If the writing is not a total integration, the PER does not apply!
2. Total integration/A totally integrated writing
i.
A writing that the parties intend to be the final and complete embodiment of their
agreement.
ii.
In order to figure this out, we LOOK at the piece of paper. If it LOOKS completehas a
merger/integration clause, if it looks like all the terms are closed/not open to
interpretation/negotiationthat is strong evidence that the parties intended it to be final.
iii.
Finality:
a. Crucial requirement is that the parties have regarded the writing as the final
embodiment of their agreement.
iv. Completeness:
a. The only criterion of the completeness of the written contract as a full expression
of the agreement of the parties is the writing itself. Thompson v. Libbey.
v. IF THE WRITING IS TOTALLY INTEGRATED, YOU CANNOT CONTRADICT OR
SUPPLEMENT THE WRITING.
3. Exceptions
i.
Even if the parties had a totally integrated writing, if the parol agreement is a collateral
agreement or outside the scope of the integrated writing, parol evidence of additional
consistent terms is admissible.
ii.
Partial Integration: The parol evidence rule does not apply to subject matter that does not
contradict and is not addressed in a complete writing representing a partial integration.
iii.
TO DETERMINE WHETHER PARTIES INTENDED THE WRITING TO BE A
PARTIAL OR TOTAL INTEGRATION:
a. LOOK at the parol evidence and decide if this is what the parties intended to put
inside the scope of the writing.
b. This intent must be sought in the conduct and language of the parties and the
surrounding circumstances. The document alone will not suffice. Brown v. Oliver
i. Contradicts the Four Corner Rule in Thompson v. Libbey.
ii. The court wants to see more parol evidence before deciding whether to
admit it because this is more consistent with the freedom of contract.
(Liberalization)
iv. Collateral Agreement (i.e., capable of being expressed in a separate agreement)
a. An agreement outside the SCOPE of the integrated writing, because one of the
parties did not intend the writing to include this other (collateral) term.
v. Tests for Partial Integration
a. R 2d 216 (p. 467):
15

i.

(1): Default seems like partial integration, unless the parties SHOW it is
total.
ii. (2)(a): Collateral agreemtn
iii.
(2)(b): Naturally test
1. If the parties would have naturally excluded the term from the
agreement, parol evidence is admissible. (Conversely, if they would
have naturally included it, and they did not put it in, clearly it was
intended to be kept out.)
b. UCC 2202 (+ comment 3): Certainly test
i. Exclude evidence if parties would have certainly put the term in writing.
1. Logic here: if it certainly shouldve been put in, and it wasnt, clearly it
was intended to be kept out.
4. Exceptions and Ambiguity
i.
Parol evidence is admissible if it is offered to support an interpretation or to resolve an
ambiguity to which the writing is reasonably susceptible.
a. The writing has to be reasonably susceptible to that interpretation.
b. The writing has an ambiguity that requires interpretation.
ii.
Plain Meaning Rule
a. If the court determines that the contract has a plain meaning, no extrinsic evidence
that would contradict its interpretation will be admitted.
b. Criticism:
i. Freedom of contract
ii. Overriding parties intent is not something to do lightly.
iii.
Even if there is an unambiguous integration, all relevant extrinsic evidence is admissible
on the issue of meaning, including evidence of subjective intention and what the parties
said to each other with respect to meaning. Pacific Gas and electric Co. v. G. W. Thomas
Drayage & Rigging Co. (indemnity clause, third party only)
iv. The parol evidence rule should have no effect on the question of interpretation (the
meaning of the language)
v. Reasonably Susceptibility Test
a. You can admit parol evidence, even in a contract that is fully integrated, in order to
clarify an ambiguous term that is reasonably susceptible to
ambiguity/misinterpretation. (Rejection of lower courts plain-meaning
interpretation in Pacific Gas v. G.W. Thomas)
vi.
Latent Ambiguity
a. Interpretation/Ambiguity exception is triggered by a latent ambiguity.
b. The language does not look ambiguous at first, but when parol evidence is
introduced, the ambiguity emerges.
vii.
Criticism:
a. Allowing parol evidence for interpretation/clarification of ambiguity purposes will
undermine the parol evidence rule. Trident Center v. Connecticut General Life
Insurance Co.
b. Loophole for restrictions of PER: people can use this practice to admit PE whenever
they want, claiming that anything is an ambiguity.
viii.
Issue: should you admit PE to interpret terms? Or should you apply plain meaning?
a. Clash between two different cases/judges
5. International Sale of Goods
i.
When dealing with contracts for the international sale of goods, the CISG applies
(casebook p. 477-80) which eliminates the parol evidence rule. All relevant evidence of
the parties intent must be considered to determine the contract terms.
B. Interpretation
16

1. Subjective Theory
i.
Raffles v. Wichelhaus: Peerless boat case where seller meant one boat, buyer said he
meant another. No K b/c there was no meeting of the mindssubjective intent of each
party was different.
a. Pros: indiv. autonomy and voluntary action.
b. Cons: Hard to enforce, unfair
2. Modified Objective Theory
i.
R 2d 201 (p. 383): If there is an ambiguity or misunderstandinga lack of
SUBJECTIVE MUTUAL ASSENTas per the contract, or something else that causes the
parties to have NO meeting of the minds, we will:
a. Enforce it if the misunderstanding is someones fault (e.g., someone knew or should
have known that there was a misunderstanding)
b. NOT enforce it if there is no one to blame for the misunderstanding
c. We only want to modify the objective theory when IT DOES NOT UNDERMINE
THE MAIN GOAL OF THE OBJECTIVE THEORY: reliance protection.
ii.
Oswald v. Allen:
a. If we blame the coin seller for the ambiguity in the term Swiss Coins, then we
enforce it.
b. If we find no one to blame, we dont enforce it.
i. This is contrary to the objective theory, but we enforce it anyway and
modify the object theory since we are not undermining the main goal of
reliance protection in modifying the theory.
iii.
This does not violate the Parol Evidence Rule because it invokes the exception to parol
evidence for clarifying ambiguity or interpretation as opposed to ADDING a term.
3. Context
i.
One Issue: between COUNTERING a term and CLARIFYING a term
a. Sneaking a COUNTER parol evidence into consideration by saying it is
CLARIFYING is clever, sneaky. Dress it up IN A WAY THAT CAUSES THE
JUDGE TO SOLVE THE DOCTRINAL AMBIGUITY IN YOUR FAVOR.
ii.
When the language is vague, we ought to rely on industry custom to figure out what the
parties intended the meaning to be. Weinberg v. Edelstein (meaning of dress)
iii.
Rev. UCC 1303/Old UCC 1205; 2208
a. Express terms > course of performance > course of dealing > usage of trade.
b. Business custom, going from the most specific > most general, can tell you what the
terms of the contract mean.
c. UCC PER (2-202) INVITES the above analysis of business custom:
i. Parol evidence may be explained or supplemented (a) by course of
performance, course of dealing, or usage of trade.
ii. UCC authorizes us to use business customs to interpret terms of the
contract.
iv. Weinberg v. Edelstein: Lack of mutual assent about dressesambiguous or vague term.
a. Under MOT: Where there are ambiguous terms, in order to determine whether/how
to enforce the contract, we must consider if it is anyone elses fault. If it is, we will
enforce it against the person whose fault it is.
4. Good faith
i.
Illusory Contracts and the Good Faith Obligation
a. Illusory contract: appears to be a contract at first, but in fact only one party is
obligated to do something. There is a lack of mutuality of obligation that makes
the contract void (same as doctrine of consideration).
b. Eastern Air Lines v. Gulf Oil: Gulf says contract is void because it is commercially
impracticable and there is lack of mutuality.
17

i.

ii.

Gulf Claims Lack of Mutuality of Obligation (consideration): this

contract is illusory, because it SEEMS like a real contract, but only ONE
PARTY is obligated to do anything (in this case, seller must sell as much
fuel as buyer needs; buyer not obligated to do anything).
1. Court disagrees, says that is not a reason to void the contract because
Eastern Air Lines is obligated to buy the amount they would normally
buy in good faith. For them to stop buying fuel would breach the good
faith obligation. Because there is a good faith obligation, there is no
lack of mutuality (consideration).
c. UCC 2306
i. Imposes the good faith obligation on contracts.
ii. UCC supplies the good faith requirement even though the parties did not
put it in the contract.
iii.
(1) Output and requirements should occur in good faith.
1. Solves consideration problem: Detriment to the promisee.
2. Solves indefiniteness problem: Able to assess the requirements or
outputs (reasonableness).
iv.
(2) Exclusive dealing contracts require the use of best efforts to supply
the goods and promote their sale.
1. Comment 2: When one party is speculating at the expense of the other
party, it not likely to be in good faith.
2. Shut down to curtail losses is not good faith reason to discontinue
orders, thereby putting buyer in breach
3. Cf. Here, the quantity term is all.
d. Wood v. Lucy: Imposing of good faith reasonable efforts is invented by Cardozo.
Meaning of Good Faith
a. EVERY CONTRACT has a good faith obligation under both R 2d and UCC
i. R 2d 205 (p. 812)
1. Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and enforcement.
ii. UCC 1203: every contract/duty in this Act imposes an obligation of
good faith in its performance or enforcement.
1. Supported by Revised UCC 1304 (rev); 1201(20) (rev)
2. Supported by Old UCC 1201(19); 2103(1)(b)
iii.
CANNOT DISCLAIM GOOD FAITH: 1302(b) (rev); 1102(3)
1. However, you CAN prescribe standards for the measurement of good
faith if not manifestly unreasonable.
b. Good Faith Obligation applies to performance, not negotiation.

C. Warranties
Warranty: a promise in a contract, potentially imposed by law.
1. Implied Warranties (Step-Saver v. Wyse)
i.
Implied Warranty of Title: UCC 2-312
a. There is, in a contract for sale, a warranty by the seller that THEY TITLE
CONVEYED SHALL BE GOOD, AND ITS TRANSFER RIGHTFUL; and that
THE GOODS SHALL BE DELIVERED FREE FROM ANY SECURITY
INTEREST OR OTHER LIEN OR EMCUMBERANCE OF WHICH THE BUYER
AT TIME OF CONTRACTING HAS NO KNOWLEDGE.
b. Applies to both merchants and non-merchants
c. General disclaimers are ineffective. Implied warranty of title can only be disclaimed
by an express provision.
18

ii.

Implied Warranty of Merchantability

a. UCC 2314: goods must pass without objection in the trade, be of fair and
average quality, etc.
b. Implied in every contract, imposed by the UCC.
iii.
Implied Warranty of Fitness for a Particular Purpose
a. UCC 2315: seller must have reason to know buyers purpose and that buyer is
relying on sellers skill/judgment to furnish appropriate goods; also, buyer must IN
FACT be relying on this (not just theoretically).
2. Express Warranties
i.
UCC 2313: In order for an express warranty to govern, it must be an affirmation of
fact/promise that relates to the goods and becomes a part of the basis of the bargain
between the parties. Express warranties can be created by:
a. An Affirmation of fact or promise
b. A Description of the goods, which is made a part of the basis of the bargain
c. A showing of a sample, which is made part of the basis of the bargain.
ii.
Only applies to facts/promises statements, NOT opinion/value statements
iii.
Applies to merchants AND non merchants.
a. GENERALLY, according to comment 1 of 2-313, express warranties are not
disclaimable.
iv. ONLY IF the assert of fact/promise is a part of the basis of the bargain (if the buyer is
RELYINGsee belowon the statement), does it become an express warranty.
v. Reliance
a. Opinion/Puffing versus Fact
i. Royal v. Lorraine: court distinguishes between two different express
warranties by finding that one was opinion and one was fact.
1. Statement of opinion concerned anothers products (paper, ink costs);
statement of fact concerned the printers themselves
2. Reasoning: protecting reliance. It is more reasonable to protect reliance
as per someones statements/warranties about their own products than
about something extraneous.
b. CBS v. Ziff-Davis: determining whether the financial information provided to CBS
from D was relied on, and whether CBSs own financial investigation disproves
reliance.
i. It did not disprove reliance. Believing a warranty relying on a warranty,
and vice versa.
ii. Dissent: objects because it says that doing own investigation meant they
relied on their own investigation, not Ziff-Daviss provided info.
vi.
After court determines whether there are candidates for express warranties in a contract,
they must decide whether they were indeed part of the contract (consideration), apply to
the present situation, and whether they can be enforced.
3. Disclaimers
i.
UCC 2316
a. (1) Disclaimer must be reasonable; (2) to exclude merchantability, you must
MENTION merchantability, and in case of writing, it must be conspicuous; to
exclude FITNESS, you must MENTION fitness, and it must be by
writing/conspicuous; 3(a): General language can be used to exclude implied
warranties (as is); 3(b): No implied warranties for defects that reasonable
inspection wouldve shown; 3(c): implied warranties can be excluded by course of
dealing, course of performance, or usage of trade; (4) limits warranties.
b. Schneider v. Miller: as is provision on a used car makes it plain there is no
warranty, implied or express.
19

4. DEFENSES
A. Misconduct: REQUIRES SCIENTER (bad state of mind).
1. Fraud: lying that is relied upon. (Do not confuse with promissory estoppel.) Usually applies to
misrepresentation of fact and does not apply to opinion statements.
i.
Elements of a fraud claim:
a. Misrepresentation
i. Applies to misrepresentations of fact, not opinion/prediction/estimate
(most of the time)
b. Scienter
i. Guilty knowledge/bad state of mind
ii. Example: If you make a promise and know you are not going to keep it.
c. Materiality
i. Proof theres been some sort of reliance that matters to the K.
ii.
Vokes v. Arthur Murray: Dance lessons case; court found that P could void the contract
because misrepresentations of Ps dancing ability were fact, not opinion.
a. R 2d 169: A statement of a party having superior knowledge (expert) may be
regarded as a statement of fact even though it would be considered an opinion if the
parties were dealing on equal terms.
b. We care about whats going on in the parties minds, even under the objective
theory, because we have to judge what a reasonable person under the
circumstances would do.
2. Nondisclosure
i.
Caveat Emptor (buyer beware)
a. Laidlaw v. Organ: Nondisclosure may not constitute fraud in some cases, and thus
nondisclosure may not be grounds for voiding a contract.
b. Based on belief that both parties have equal access to the same information, thus
nondisclosure is not fraudother party could have researched to find out the war
was over.
c. Creating incentives to self-protect, at the expense of mutual assent.
d. Will prevent remedy unless there is active concealment of defects or
misrepresentation.
ii.
Active Concealment
a. Taking active measures to hide information is fraud and therefore basis for
rescission.
iii.
Active Fraud of Nondisclosure
a. If you are asked something and do not respond, and the other party relies on your
nondisclosure under the circumstances, then that is fraud and therefore basis for
rescission.
b. Produces the same result as the modified objective theory: Swiss Coins
iv. Bargaining Sphere
a. Inside the bargaining sphere, there is no justification for relying on opinion/puffing,
but outside this sphere, the law will intervene.
i. Ex: In a house deal, seller not disclosing shoddy paint on house vs. buyer
not disclosing that the house sits on an oil field.
ii. Bargaining sphere distinguishes licit from illicit bargaining tactics (fraud).
3. Duress
i.
COMPULSION by threat, accompanied by scienter.
ii.
Duress Claim contains
a. Wrongful threat
b. No reasonable alternative to compliance
20

c. If a. and b. are satisfied, you can rescind on grounds of duress.

iii.
Austin Instrument v. Loral: Duress can be both personal and economicthe economic
duress here deprived the P of its free will to contract with other subcontractors.
a. Dissent: he could have just breached and contracted with other subcontractors, then
sued for damages.
iv. Free Will
a. Wrongful threat must take away the free will of the party.
4. Undue Influence
i.
Taking an unfair advantage of anothers weakness of mind, or taking a grossly
oppressive and unfair advantage of anothers necessities or distress.
a. Undue influence exercised over a contracting party is inconsistent with freedom of
contract, which is why it is grounds for rescission.
ii.
Test for Undue Influence
a. If there is a mismatch in power/influence between the negotiation parties in a way
that causes us to think that one party has used its power and influence in a way that
is inappropriate. OCCURS WHEN THE SERVIENT PERSONS FREE WILL
HAS BEEN SUPPLANTED BY THE DOMINANT PERSONS.
iii.
Factors (from Odorizzi v. Bloomfield School Dist.)
a. Discussion of the transaction at an unusual or inappropriate time;
b. Consummation of the transaction in an unusual place;
c. Insistent demand that the business be finished at once;
d. Extreme emphasis on untoward consequences of delay;
e. The use of multiple persuaders by the dominant side against a single servient party;
f. Absence of third-party advisers to the servient party;
g. Statements that there is no time to consult financial advisers or attorneys.
iv. Lemonade Hypo: Spann has lemonade. Youre dying of thirst in the desert. Spann offers
lemonade for $1,000,000. You accept.
a. Is this rescindable?
i. Yes, because there is a reduced capacity because you are dying of thirst,
weakened state. There is dominance on the part of Spann. He is exerting
excessive pressure by taking advantage of reduced capacitythe fact that
youre dying of thirst.
ii. No, because no one would build a lemonade stand because any contract
they enter into would involve undue influence.
b. What if the price is a dollar? Spann=mad because the price should not have
anything to do with it if it is actually undue influence.
5. Unconscionability: EXTREME or OPPRESSIVE unfairness.
i.
Not triggered by the mere inequality of bargaining power.
ii.
UCC 2-302
a. (1) Contract/any clause of contract that may be unconscionable can be so but it
must have been at the time it was made. Court may refuse to enforce the contract, or
just to not enforce the unconscionable clause, or it may so limit the clause as to
avoid an unconscionable result.
b. (2) When it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable, the parties shall be afforded a reasonable opportunity TO
PRESENT EVIDENCE as to its COMMERCIAL SETTING, PURPOSE AND
EFFECT to aid the court in making the determination.
iii.
Restatement 2d 208: TEST
a. Absence of meaningful choice on part of 1 of the parties (procedural prong) AND
b. Contract terms that are unreasonably favorable to the other party at the time the
contract was made (substantive prong)
21

iv.

c. Williams v. Walker-Thomas: At common law, unconscionable contracts are

unenforceable.
Arguments For and Against Unconscionability Doctrine
a. For: it protects freedom of contract by making sure that there is meaningful choice
b. Against: undermines freedom of contract by allowing anyone to come up and say
there was unconscionability if they have buyers remorse

B. Mistake
1. Mutual Mistake: SHARED erroneous assumption about a material fact, WITHOUT scienter.
a. Sherwood v. Walker: A mutual mistake regarding the substance of the subject mater
of a contract may render that contract unenforceable. In a mutual mistake case, it is
important that the mistake goes to the essence of the agreement.
i. If mistake relates to the WHOLE of the contract, rescission is allowed.
ii. If mistake relates to quality (value) of the thing bargained over, rescission
is not allowed.
ii.
Parties may RESCIND on basis of mutual mistake, UNLESS such a mistake is otherwise
allocated by the parties in their risk allocation.
iii.
Risk Allocation:
a. Current law tends to correspond to R 2d 152 and 154
i. 152: When mistake of both parties makes a contract voidable
1. When it has a material effect on agreed exchange of performance, K is
voidable unless affected party bears risk of mistake
2. To determine whether it has a material effect, take account of any relief
by way of reformation, restitution, or otherwise.
ii. 154: When one party bears the risk of a mistake
1. If risk is allocated to him by agreement
2. He is aware that he has limited knowledge but thinks its sufficient to
make a contract anyway
3. The risk is allocated by the court on grounds that its reasonable to do
so under the circumstances
iii.
Looking at how the parties allocated the risks rather than
substance/quality/value of the contract terms
b. This is a formation doctrine.
i. If we determine that parties did not allocate a risk in question (in Sherwood
v. Walker, the possibility of the cow being pregnant), then no mutual assent
exists; if we apply the Mutual Mistake doctrine, it is as if the parties did not
have a contract.
c. This doctrine is invoked rarely precisely because there is the danger that you are
upsetting the risk allocation of the parties.
2. Unilateral Mistake: UNSHARED erroneous assumption about a material fact.
i.
Unpalpable=no scienter; failure of mutual assent b/c two parties have diff. assumptions;
palpable=motivated by scienter, subset of fraud.
ii.
Elements of Unilateral Mistake (R 2d 153):
a. D makes a mistake about a basic assumption upon which D made the contract
b. The mistake has a MATERIAL effect upon the agreed exchange of performances
that is adverse to D
c. D does not bear the risk of the mistake (risk was not allocated to him in negotiation)
d. The effect of the mistake is such that enforcement of the contract would be
unconscionable (i.e. one party would suffer BIG loss)
iii.
Grounds for Rescission when:
a. Enforcing against mistaken party would be unfair
b. Avoidance would impose no substantial hardship on the other party
22

C. Changed Circumstances
1. Impossibility
i.
Permits rescission of a contract where the performance of the contract has become
OBJECTIVELY impossible (i.e. no one can perform it) and impossibility was NOT the
fault of one of the parties.
ii.
IMPOSSIBILITY under COMMON LAW:
a. A defense that excuses performance of a contract if the performance of a contract is
rendered IMPOSSIBLE.
b. Reason: mutual assent. There is an implied condition in the contract, agreed to by
mutual assent, that it will only be completed if it is POSSIBLE.
c. Must be objective impossibility, not subjective impossibility.
d. The impossibility MUST NOT be the breaching partys fault.
iii.
Features of Impossibility
a. MAIN FEATURE: Parties didnt intend to allocate the risk in the event that
performance became impossible.
i. If the risk of impossibility was allocated to a party, that party cant rescind.
b. Advances freedom of contract
c. Applies to subsequent eventsnot antecedent events (thats mistake, see above)
d. Requires mutual mindsets.
e. Event must be so unexpected that the parties didnt think of it at the time of
contracting, or if they did, that they did not consider it to be a realistic likelihood.
f. Requires an unforeseen event: one the parties themselves did not contemplate as a
real likelihood.
iv. Taylor v. Caldwell: when a music hall burned down, both parties assumed the existence of
the music hall as a condition on performance, therefore we must rescind.
v. Impossibility Under UCC: 2613; 2614
a. 2-613: Casualty to identified goods
i. If contract requires goods and the goods are destroyed/damaged without
fault of either party
ii. A) If total loss, the contract is avoided
iii.
B) If partial loss, buyer can avoid contract or buy goods at reduced agreedupon price (consistent with the risk allocation).
b. 2-614: Substituted performance:
i. If one of the means of delivery is impossible, you must accept a
commercially reasonable substitute.
2. Frustration
i.
Doctrine of frustration triggered by decrease in the value of performance to the promisee.
Performance is still possible, but the counter-performance has lost its value.
a. Outgrowth of mutual assent. The parties were not trying to allocate THAT risk
when they made the contract. It was not in the scope of what the parties were
contracting about.
b. Krell v. Henry: A partys purpose is frustrated when events occur which destroy this
purpose, even though performance of the contract is not possible. Frustration is
grounds for rescission.
ii.
Test for rescission under Frustration:
a. Risk of the frustrating event was not reasonably foreseeable (depends on how the
parties allocated the risk).
b. The value of counter-performance has now been totally or nearly totally destroyed.
3. Commercial Impracticability
i.
Three Step Test:
a. Something unexpected must have occurred
23

ii.
iii.

b. Risk must not have been allocated to a party by agreement or custom

c. Contingency must have rendered performance commercially impracticable.
R 2d 261, 263
Commercial Impracticability under the UCC: 2615; 2616
a. 2-615: Excuse by failure of presupposed conditions
i. (a): Delay or non-delivery is not breach if performance has been made
impracticable by occurrence/non-occurrence of basic assumption
ii. (b): If seller can partially perform, he must do so in a fair and reasonable
manner.
iii.
(c): Seller must notify buyer of delay or non-delivery.
b. 2-616: Procedure on notice claiming excuse
i. Drafters of code are making it easier to get out of a contract.
ii. This has not worked.
iii.
Courts havent bought this. You rarely win under 2-615.
iv. This only applies to sellers, but there is a common law doctrine of
impracticability so buyers arent prohibited from doing this.
v. We have to ask if drafters just didnt focus on buyers, or wanted to preempt
their rights.
vi. UCC 1-103 says that code is adopted against backdrop of common law,
unless code displaces the common law rule.

24

5. CONDITIONS
A. Express Conditions
Condition: A provision in the contract, or an event, that makes the duty under a contract
contingent rather than absolute. Means of allocating risks.
o Conditions precedent
A condition that must exist or occur before a duty to perform a promise arises.
o Conditions subsequent
A condition that discharges a duty of performance that has arisen.
o Concurrent conditions
Conditions that have to occur simultaneously.
o The type of condition affects the burden of proof.
P has the burden of proof for conditions precedent.
D has the burden of proof for conditions subsequent.
1. Strict Enforcement
i.
Express Condition: an event in contract that makes the duty of a party to perform
contingent rather than absolute; EXPRESS because it is something the contract
EXPRESSLY says is a condition.
ii.
Express conditions are STRICTLY ENFORCED in contract law.
a. Rationale: if you go to the trouble of putting a condition in a contract, we are going
to enforce itplain meaning. Even when it looks like doing so might produce silly
results. We care MORE about the enforcement of express conditions than such a
result.
iii.
Subsequent vs. Precedent vs. Both (Concurrent)
a. Subsequent: discharges a duty to perform that does in fact exist. Duty you
previously had to perform is discharged.
b. Precedent: duty never arises unless condition is fulfilled.
c. Concurrent (Both): each party must meet a condition.
2. Promise versus Condition
i.
Howard v. Federal Crop Insurance: A condition is mentioned in one section of the contract
and not another; court held that because it is not mentioned in the second section, it does
not apply to that section. Thus, in that context, instead of a condition, it is a promise; the
company can institute a counterclaim to recover for damages relating to the breach of the
promise, but it is not a breached condition, therefore they must still fulfill the insurance
contract.
a. If it is a close question, we should view it as a promise rather than a condition,
because if we view it as a promise we protect our goal to make people stay in
contracts/avoid forfeiture.
ii.
Chirichella v. Erwin: Dispute over whether the language in the contract imposed a
condition precedent (move into new house before Ill sell you old house) or merely
allowed them to delay settlement for a reasonable period of time (while new house is
completed). Court held that language was intended to delay settlement.
a. Reasoning: We want to avoid forfeiture. The obligor, house seller, didnt move into
his new house because he was displeased with the workmanship, so even if the risk
they were allocating was him being homeless, there was no risk of this happening.
b. Spann: we are erecting an edifice that seems designed to mitigate the harshness
of the strict enforcement of express conditions doctrine.
iii.
How to tell if language in contract is promise or condition:
a. RISK ALLOCATION!

25

b. Consider, under objective theory, the intent of the parties: how were they
allocating the risk? To whom, if anyone, did the contract allocate the risk of the
purported promise/condition?
i. Restatement 227:
1. An interpretation is preferred that will reduce the obligees risk of
forfeiture, unless the event is within the obligees control or the
circumstances indicate that he has assumed the risk.
2. If we are debating between whether a duty is imposed on an obligee
that an event occur, or that the event is made a condition of the
obligors duty, or that the even is made a condition of the obligors
duty and a duty is imposed on the oblige that the event occur, we
prefer the FIRST interpretation (duty imposed on oblige that event
occur) if it is within the obligees control.
3. In case of doubt, an interpretation under which an event is a condition
of an obligors duty is preferred over an interpretation under which the
non-occurrence of the event is a ground for discharge of that duty after
it has become a duty to perform.
3. Waiver & Estoppel
i.
Clark v. West: Court finds that D waived their condition (that P abstain from alcohol in
order to get higher compensation), holding that 1. A waiver is a voluntary abandonment or
relinquishment of some right or advantage and 2. A condition precedent (which this was)
can be waived.
a. Reasoning: D was bargaining for Plaintiffs writing and not for Ps abstention.
ii.
MODERN rule: Restatement 84
a. Waiver of a condition is binding unless 1. The occurrence of the condition was a
material part of the agreed exchange, and promisee was under no duty that it occur
and 2. Uncertainty of the occurrence of the condition was an element of the risk
assumed by the promisor.
b. If such a promise is made before the time for the occurrence of the condition has
expired, and the condition is within the control of the promisee or a beneficiary,
the promisor CAN make his duty against subject to the condition by notifying the
promisee or beneficiary of his intention to do so, IF
i. Notification is received while theres still reasonable time to cause the
condition to occur under K terms or extension; AND
ii. Reinstatement of the requirement of the condition is not unjust because of a
material change of position by the promisee or beneficiary (no reliance
upset)
iii.
The promise is not binding apart from the rule state above (a).
c. NOTE: this is DIFFERENT than what happens in the contract is MODIFIED.
Waiver modification.
iii.
UCC 2-209, 2-208
4. Excuse
i.
JNA Realty v. Cross Bay Chelsea: D forgot to renew lease and would have suffered
substantial loss (in comparison to P) if he were kicked out of property, because he made
substantial improvements to it. Court ruled that because the mistake was a good faith
mistake, he is entitled to equitable relief for his mere negligence, since his loss would be
out of proportion to the gravity of his oversight.
ii.
R 2d 229: Excuse of a Condition to Avoid Forfeiture
iii.
If it causes disproportionate forfeiture, a court may excuse non-occurrence of a condition,
unless its occurrence was a material part of the agreed exchange.
26

a. Rule: The non-occurrence of a condition should be EXCUSED to prevent

forfeiture, so long as its occurrence wasnt a material part of the agreed
exchange. (Also requires that such a loss be disproportionate to the harm that
would be suffered by the beneficiary if the condition were excused)
B. Constructive Conditions
Constructive Condition: a condition the law implies or constructs when a court finds that one
partys performance is a condition on another partys obligation to perform. (Also called dependent
covenants.) We find dependent covenants depending on the intent of the parties; if they intended a
performance to be contingent upon another partys duty to perform, it will be a constructive condition.
Court decides based on objective manifestation/evidence of intent.
1. Substantial Performance
i.
Unlike express conditions, which are strictly enforced, constructive conditions can be
satisfied by substantial performance.
ii.
Jacob & Youngs v. Kent: Reading Pipe case; although the wrong pipe was installed
(constructive condition required reading pipe), the court ruled that there was substantial
performance of the house construction contract, therefore D could not rescind.
a. Cardozo seems to justify it by saying that it prevents forfeiture, but be careful about
using this as just an equity argument.
i. LEGAL justification: it reflects the intent of the parties: the parties would
have been fine with substantial performance; this was their intentto get
the house built, not to get a particular type of pipe.
b. Justification for substantial performance: Even though you can try to argue that
substantial performance is inconsistent with freedom of contract (in that it relegates
the contracting party to receive something less than what it bargained for),
substantial performance only makes this particular condition satisfied; there is
STILL A BREACH that the nonbreaching party can collect damages for.
iii.
Substantial performance can only apply when you are dealing with a negligent breach, not
a willful breach.
iv. Bottom Line: conditions are harsh. They can produce forfeiture, and there are a number of
ways to mitigate that harshness; you can interpret it as not being a condition, or even if
it is a condition, you can use doctrines of waiver, estoppel, excuse, substantial
performance to prevent forfeiture.
2. Material Breach
i.
Material Breach: breaches of contract that also constitute the nonoccurrence of a
condition; stated differently, when the breach of contract is also the breach of a
condition/nonoccurrence of a condition.
a. Direct opposite of substantial performance. You cannot have both.
b. Effect of material breach: nonbreaching party gets the option to rescind OR sue for
damages; in other words, they can proceed ON contract (sue for damages) or OFF
contract (rescind).
ii.
B&B Equipment v. Bowen: P is trying to get out of employment contract with D without
having to hand over stock they bargained over. P claims that D, in not performing his job,
made a material breach, so they could rescind.
3. Partial versus Total Breach
i.
How can you tell who materially breached in a confusing case like Lane v. L.B. Foster?
a. Look at what risks the parties were allocating, then decide on that whether there
was a material breach
ii.
Total vs. Partial Breach
a. Corresponds to the way that the nonbreaching party elects to proceed oncontract.
27

i.

Option 1, Partial Breach: pretend its a breach (nonmaterial) and parties

continue dealing with each other. If P does a bad job, D can sue damages.
ii. Option 2, Total breach: D stops dealing with the P breaching party
terminates the relationship. Because they committed a material breach, they
will now proceed with someone else, will continue on-contract recovery
but NOW measure of damages will be determined by the extra money spent
contracting with someone else. You can ONLY do this if the breach is a
material breach.
iii.
BOTTOM LINE: AFTER A MATERIAL BREACH (THE NONOCCURENCE OF A
CONDITION), NONBREACHING PARTY HAS TWO OPTIONS
a. IF NONBREACHING PARTY RESCINDS AND PROCEEDS OFF CONTRACT,
THATS ONE OPTION.
b. IF THEY PROCEED ON CONTRACT, THEY CAN TREAT THE BREACH AS
PARTIAL OR TOTAL.
i. IF THE BREACH IS TREATED AS PARTIAL, THE NONBREACHING
PARTY CONTINUES WITH THE BREACHING PARTY AND JUST
RECOVERS DAMAGES
ii. IF IT IS TREATED AS TOTAL, RELATIONSHIP IS TERMINATED,
HIRES SUBSTITUTE, AND RECOVERS FOR EXPECTATION
DAMAGES
4. Perfect Tender Rule: UCC 2-201: The failure to make perfect tender is a breach that
constitutes rescission. Relevant Sections: 2601; 2602; 2605; 2606; 2607.
a. See Ramirez v. Autosport, 11/12/14.
ii.
Cure, 2508
a. Rejection rescission; right to REJECT is subject to 2-508, which gives the seller
the opportunity to cure its defective performance. Subjective though, with terms
like reasonable time and reasonable grounds
b. Would the Ramirez van seller have been able to cure?
i. If they can prove that even though they kept extending the delivery date, it
was a reasonable time; and that there were reasonable grounds to
believe that the van was acceptable when the van was delivered (it wasnt).
c. Acceptance: must be done by notice, failure to reject, using goods as your own.
iii.
Revocation of Acceptance, 2608
a. If the buyer accepts (by one of the methods above), they cannot REJECT the goods;
that can only occur if you dont accept them.
b. You CAN revoke your acceptance
i. UCC 2608: gives the power to revoke acceptance, which has the same
effect as rejecting the goods
ii. We have this distinction because the effect is the same but whether you can
do it is DRAMATICALLY different. You can reject goods for ANY defect
in tender; the buyer may revoke acceptance only when the non-conformity
substantially impairs its value to him.
iii.
2601=reject; 2608=revoke
iv. Determine substantial impairment by considering:
1. If the contract has not been substantially performed (UCCs way of
referencing the substantial performance doctrine)
2. UCC is sneaking substantial performance through a backdoor loophole.
c. Thus, PERFECT TENDER RULE IS UNDERMINED BY 2-508 AND 2-608.
iv. Anticipatory Repudiation, 2609; 2610; 2611
a. Hochster v. De La Tour Doctrine: we are going to treat anticipatory repudiations as
present breaches.
28

i.

v.

Arguments in favor: frees people to pursue other jobs, buy different goods,
etc.not wasting human capital
ii. Argument against: if the breach is still anticipatory, maybe it wont happen.
Circumstances can change
b. 2610; 2611: Gives provisions for anticipatory repudiation (2-610) and for
retraction of anticipatory repudiation (2-611)
c. Sea Colony: Dispute over whether P breached by cancelling, or D breached by reselling the apartment after Ps prior material breach.
i. Court of appeals holds that it was NOT an anticipatory repudiation on the
part of P, because it was not a clear repudiation; if we are even going to
call it a repudiation, it is conditional on whether D will give him his
deposit back. Thus, by selling the condo, D committed a material breach. P
can then proceed, either on- or off-contract, for damages.
d. Scott v. Crown and UCC 2609: If you dont know whether the other party is
going to perform their part of the contract, you are in a precarious position. YOU
DONT HAVE TO RISK committing a material breach yourself. IF you send out a
demand for adequate assurance, and you failed to receive adequate assurance, you
are free to make the breach and it wont be a material breach. The failure to provide
assurance IS A BREACH.
i. However, there must be REASONABLE GROUNDS for insecurity.
1. Ambiguity opportunity #1.
ii. Your demand cannot be excessive, and you cant ask for more than you
were entitled under the contract.
1. Isnt all demand going to be excessive/more than youre entitled under
the contract?
2. Ambiguity opportunity #2.
iii.
Then, you have to determine if the response to your request is
adequate/proves that they will perform.
1. Ambiguity opportunity #3.
e. RESULT: this well-intended doctrine in 2-609 doesnt really help.
Installment Contracts, 2612
a. CANT reject installment contracts under PTR, but you CAN reject under
substantial impairment
b. 2-612 broadens the category of installment contracts.
c. This doctrine is highly indeterminate; you can manipulate it in order to advance
your objective.

29

6. REMEDIES
A. Expectation Interest
1. Expectation Damages: protecting the expectation interest; put the nonbreaching party in the
position they would have been in had the contract been performed.
a. In construction (MAY be installment under UCCissue!) contracts, expectation
damages can be calculated using the cost of completion rule or diminished value
in the market price of the property caused by the breach (from Jacob & Youngs,
R 2d 348).
b. DIMINISHED VALUE doctrine: Groves: IF BREACH IS
WILLFUL/FRAUDULENT, you cannot sue for substantial performance. What this
diminished value rule is: JUST THE SUBSTANTIAL PERFORMANCE
DOCTRINE.
i. Groves Dissent: If your goal here is to prevent economic waste, why do
you care whether the breach is willful? If you want to avoid economic
waste, youre not going to award cost of completion, youre only going to
award diminished value.
c. COST OF COMPLETION doctrine: restore expectation damages for whatever it
would have cost to complete the work.
ii.
Cost of Completion vs. Diminished Value: which to award?
a. Determined by whether there is economic waste in awarding the damages.
b. Cost of completion is appropriate measure of damages for the same reason that we
do not second-guess the adequacy of consideration. When two parties make a deal,
theyre exchanging stuff for whatever subjective value it has to them. Peppercorn
theory, etc., has to do with how we dont substitute our impressions of value that the
parties have. Here, we know that the P wanted flat land, enough to pay $60,000 for
it, who are we to step in and say no, since the value you lost in the land by not regrading is only $12,000, were only giving you that?
c. Diminished value is the best measure of damages, because it doesnt make sense
its economically wastefulto pay $60,000 in order to improve the value of the
land by $12,000.
i. Counter: its not economic waste; it doesnt necessarily mean that the
plaintiff values it at $12,000; he values it at $60,000 because thats how
much he paid. The only way he can get what he bargained for is to pay him
back the $60,000.
d. THIS ALL TURNS ON THE RISKS THAT THE PARTIES WERE ALLOCATING:
was the plaintiff wanting to re-grade the land so he could sell it at a higher price? Or
re-grade the land for personal value (presumably, $60,000)?
iii.
Efficiency
a. Theory of efficient breach
i. Efficient breach is something that results in an increased overall
utility/welfare.
ii. Pareto Efficiency: If a party breaches, and is still better off after paying
damages to compensate the victim of the breach, the result is Pareto
superior, that is, considered as a unit, the parties are better off because of
the breach and the breach makes no party worse off.
1. Someone could be made better off w/o making someone else worse off.
2. Therefore, the party who will benefit from the breach should breach.
iii.
Kaldor-Hicks Efficiency: As long as an action generates enough surplus
(increased utility, enough money) that you could compensate the injured
party and youre better off, it is efficient whether or not you compensate the
injured party.
30

iv.

v.

1. We dont care about distributional consequences.

Consequential Damages
a. Foreseeability 2710; 2715:
i. Expectation Damages are available ONLY IF they are foreseeable.
ii. Hadley Rule: Expectation damages given for either damages that are
NATURALLY ARISING or were WITHIN THE CONTEMPLATION OF
THE PARTIES at the time of contracting. These are what are foreseeable
to the parties, in their heads, if the contract is not performed.
1. Restatement 351 codifies this.
iii.
If the damages are foreseeable, you can make the efficient breach
calculation. Hadley rule is necessary in order to do an efficiency
calculation.
1. 2-710: sellersONLY get incidental damages after buyers breach.
2. 2-715: buyersafter seller breach, they get CONSEQUENTIAL
damages too, if they were within your contemplation (somebody gave
you notice of them). Only buyers, not sellers, get this.
The court will only award consequential damages if the nonbreaching party gave notice to the breaching contract the
possibility of the consequences.
(a) Foreseeable consequential damage
(b) Injury to person or property proximately caused by
breach of warranty.
b. Certainty
i. Speculativeness Rule: P will ONLY get non-speculative expectation
damages. This means that the P may be undercompensated (see 2).
1. Chicago Coliseum Club v. Dempsey: Court denies lost profits that
Plaintiff claims he is entitled to; reasoning is that even if we assume
they were sufficiently contemplated, we were not certain how much
profit would have been generated. Too speculative, we arent going to
give it to you.
2. Certainty Rules is necessary in order to do the efficient breach
calculation for defendants. To the extent that the certainty rule now
means the P will be undercompensated, because he is only getting the
certain damages rather than the full (speculative + certain) damages,
that plaintiff is undercompensated.
Mitigation
a. Common Law
i. Rockingham Cty v. Luten Bridge Co.: Appeals Court reverses judgment for
the plaintiff, saying that P breached their duty to mitigate damages.
Because they had notice about the breach, they were obligated to mitigate
the damages (aka stop working on the bridge).
1. Duty to Mitigate: negative dutyyou have a duty to NOT pile up
unnecessary damages following breach.
2. Positive dutyyou should go out and make reasonable efforts to stop
damages.
3. Justification: we want to avoid economic waste.

31

ii.

Mitigation Duty allows us to minimize the cost of breach, but we do so

without undercompensating the P, BECAUSE P GETS FULL
EXPECTATION.
1. However, Duty to mitigate deprives people of nonmonetary/subtle or
intangible components of their expectation. In this sense, they ARE
undercompensated.
iii.
Positive Duty to Mitigate:
1. Parker v. 21st C. Fox: Conflict determining what qualifies as positive
mitigationshould you have to pursue inferior options?
2. Differing points of view; yes, you have to pursue inferior options,
because you can sue for damages of difference between the inferior
option and the original option. OR: no, you dont, because thats a
blatant affront to freedom of contract.
b. Lost Volume Sellers
i. Lost Volume Seller Duty to mitigate does not apply.
1. If both sales could have been made, i.e., the two sales are not mutually
exclusive lost volume seller.
2. If another sale would have occurred (may not be economically feasible
even if possible).
ii. 2718(2)
1. Buyers restitution
2. The buyer gets the deposit back, minus [what seller is allowed to keep
(either 20% of contract value or $500, whichever is less) and any other
damages the seller is allowed to recover under the UCC]
32

c. UCC [ 1305]
i. UCC provides: index/ preferred remedy / formula / special situations
d. Sellers [ 2703; 2706; 2708(1); 2708(2)]
i. UCC 2-703: Index Remedies available to sellers
ii. UCC 2-706: Preferred remedy Resale
1. If the buyer breaches the contract, the seller can resell the goods in a
commercially reasonable manner.
2. Where resale is made, the seller may recover the difference between the
resale price and the contract price.
3. Built-in duty to mitigate damages
iii.
UCC 2-708(1): Where the preferred remedy is not implemented
1. Where the seller does not resale, the measure of damages is the
difference between the market price at the time and place of delivery
(breach) and the contract price
iv. UCC 2-708(2): Special case about sellers Lost volume seller provision
1. In some circumstances, sellers would be lost volume sellers, who would
have been able to make both sales volume of sale is reduced to 1
because of breach.
2. If the resale was not mitigating, the seller can recover for the profit of
the second sale + incidental damages under 2-710.
e. Buyers [ 2711; 2712; 2713; 2714]
i. UCC 2-711: Index Remedies available to buyers
ii. UCC 2-712: Preferred remedy Cover (buying substitute goods)
1. Where the buyer (non-breaching party) covers, the buyer is awarded the
difference between the contract price and the cover price (purchasing
comparable performance).
iii.
UCC 2-713: Where the preferred remedy is not implemented
1. Where the buyer does not cover, the measure of damages is the
difference between the contract price and the market price at the time
and place of the sellers breach (time and place where the buyer would
have covered)
iv. UCC 2-714: Breach of warranty provision the buyer accepts nonconforming goods
1. Where the buyer accepts the goods even though they dont conform to
the contract, the buyer will be awarded damages for breach of warranty
(the difference between what was promised and what was received).
v. UCC 2-715: Buyers get incidental damages and consequential damages
2. Specific Performance
i.
Equity
a. Specific performance is an equitable remedy which you can only get if legal
remedies are inadequate; even then, court has discretion, these are not awarded as
a matter of course. Court balances equities in order to figure out whether it should
give specific performance.
i. This is due to the coercive nature of specific performance; we dont want to
violate autonomy unless we see good reason to.
ii.
Land
a. Loveless v. Diehl: Specific damages are appropriate here because this is a land
contract, and land is viewed as unique.
i. Supreme Court reverses because it finds the legal remedy is inadequate: the
P would end up losing $4,000; the other deal to sell the property wasnt
illegal
33

ii.

iii.

What about efficiency?

1. Coase theorem: It doesnt matter whether you award specific
performance or not, or who gets control over the resource; the market
will adjust and produce the efficient outcome. Whether we give P
$1,000 damage award and keep land with seller; or whether we award
SP, each one will end up with whats economically most efficient,
because the person that loves it the most will get the land.
2. Subject to one important qualification: transaction cost. If it turns out
the transaction costs are high enough to prevent parties to bargain their
way to an efficient outcome, or even if theyre able to, they wont
because its not important enough to them, then it DOES MATTER
whether you award SP or a legal remedy.
Coase kind of renders law useless, but if it is still useful, it can be used to
lower transaction costs.
Compare with Pareto, Kaldor-Hicks theories of efficiency.

iv.
Goods
a. [ 2709; 2716)]
iv. Personal Service
a. Specific performance is absolutely prohibited with personal service.
3. Liquidated Damages
i.
Wassenaar v. Towne Hotel: Court held that where a stipulated damage provision was a
valid liquidated damages provision, the doctrine of mitigation did not apply.
a. Reasonableness factors of whether the stipulated damages were a reasonable
forecast of just compensation for the breach, and whether the harm was difficult to
accurately estimate. The damages were reasonable, according to the court
ii.
2718(1);
iii.
2719Allows parties to impose limitations to remedies if they want to.
B. Reliance Interest
iii.

34

1. Reliance damages: Damages needed to put P (non-breaching party) back in the position he would
have been in had the contract never been made; restoring the status quo ante; standard remedy for
torts
i.
On-contract remedy: Reliance damages as a subset of expectation damages.
ii.
Off-contract remedy: Goal of reliance damages is to restore the status quo.
2. Reasons for reliance damages in the absence of expectation damages
i.
Expectation damage = profit (expectation) + reliance expenditures (reliance)
ii.
If you cant get the profit because it is too speculative, the court will give you reliance
expenditures, which is a non-speculative subset of your expectation.
3. Pre-contractual Reliance
i.
Where P has incurred expenditures before the contract was signed
a. Cannot recover. Chicago Coliseum Club v. Dempsey
i. Pre-contractual reliance cannot be said to have been made in reliance on
the contract because the contract was not in existence.
b. Can recover foreseeable reliance damages. Anglia Television Ltd. V. Reed
i. Once the contract came into existence and was breached, the non-breaching
partys reliance interest is frustrated.
4. Hadley Rule
i.
Essential reliance expenditures
a. Reliance expenditures made in preparing to perform the contract, or in actually
performing it (akin to general damages in expectation damages).
ii.
Incidental reliance expenditures
a. Reliance expenditures made on the anticipation that the contract would be
performed, but which do not relate directly to performance (akin to special damages
in expectation damages).
5. Rest. 2d 349 (p. 123)
i.
Rest. 2d 349. Damages Based on Reliance Interest
a. As an alternative to the [expectation interest measure of damages], the injured party
has a right to damages based on his reliance interest, including expenditures made
in preparation for performance or in performance, less any loss that the party in
breach can prove with reasonable certainty the injured party would have suffered
had the contract been performed.
b. Provable losses will be deducted from any on-contract reliance recovery if D can
prove those losses.
ii.
Reasons for deducting provable losses from reliance recovery
a. The goal is compensation (not to protect the non-breaching party from loss after
having a bad deal)
b. If performance of the contract would have resulted in loss, not deducting this loss
would put the non-breaching party in a better position.
iii.
Defendant has the burden of proving that the performance would result in loss.
a. We assume that the K would have produced enough gain to offset reliance (at least
good enough deal to break even). So usually we put the BOP on P to show that
there would have been a gain. BOP is on D to show that it would have been a bad
deal (that losses would have resulted)
6. Von Mises
i.
Expectation damages are often non-monetary subjective value.
a. There are subjective components in every expectation.
b. That your expectation is subjective doesnt mean there is no expectation interest.
7. Expectation damages as the standard measure of damages for breach of contract
i.
Reason: to protect reliance interest, properly understood as including opportunity cost.
ii.
Fuller and Purdue: Reliance interest in contract
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a. Expectation damages are for protecting your reliance interest

b. Reliance include opportunity costs: if we really want to compensate your reliance,
ought to compensate for the opportunity costs
c. Problem: hard to figure out what those costs are
d. BUT we know how much you value the category of future opportunity costs: the
expectation in the contract you choose to make is your liquidation of the class of
opportunity costs that you are forgoing by making this deal
e. Best estimate of opportunity costs=amount of money the non-breaching party was
willing to exchange his performance for (=expectation interest)
8. Reed versus Dempsey holdings: which is right?
i.
Reed, because reliance damages happened because of breach; it doesnt matter whether or
not they were made before the other party entered into the K.
ii.
Dempsey: if theres no contract at the time that the reliance expenditures happened, then
you ARENT relying on that contract, so you cant recover. Since the goal is to put the
nonbreaching party in the position they would have been in had the contract been
performed, it makes no sense to give reliance damages spent BEFORE the contract was
ever even made.
iii.
Risk allocation: D in Reed took on the risk of paying reliance damages when he entered
into the contract.
a. Youre only suing for reliance if a contract DOES come into existence. If it does,
and the other party breaches, your gamble paid off, and you can sue for reliance.
If it doesnt pay off, and no contract ever forms, you just lose those damages and
cant sue for them.
iv. You get hired by a law firm, who breaches on your first day at work.
a. YOU CANNOT COLLECT RELIANCE DAMAGES for your law school tuition:
those are consequential damages that are not available because of HADLEY.
BECAUSE RELIANCE IS AN ON-CONTRACT SUBSET OF DAMAGES, if
your reliance is foreseeable, well give you reliance damages; if your reliance is
NOT foreseeable, we will not give you reliance damages.
9. Mistletoe Express v. Locke: P does not seek expectation damages because her expectation
wouldve been negative (she was operating at a loss).
i.
BECAUSE OF THIS, we arent trying to put P in a better position; we are simply trying to
compensate P for LOSSES incurred FOR THE BREACH itself.
ii.
Why doesnt P have BOP?
a. We assume that the contract would have produced enough gain to offset the
reliance. We assume it was not a BAD deal (not necessarily good deal), BUT WE
PUT BOP ON D in order to prove that it would have been a bad deal, that there
would have been significant losses (that would make the completion of the contract
resulting in losses).
b. If you want damages for more than breaking even, P has to prove it

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C. Restitution Interest

1. Off-contract remedy
2. Restitution damages are a subset of reliance, those that are made to the defendant.
i.
Deposit is Ps reliance, but also enrichment to D.
3. Quantum meruit, quasi-contractual, implied contract, common count
i.
On-contract factors such as SOF do not apply.
ii.
Provable losses are not deducted from recovery.
4. Restitution for breaching party
i.
Whether restitution is available for a breaching party turns on whether the enrichment was
unjust or not.
a. If Ps performance looks like substantial performance, decide that the condition was
satisfied.
b. If its an express condition, strictly enforce it. Any enrichment is not unjust because
it is what D was entitled to because of Ps breach of contract.
c. If it would be unjust enrichment to let D keep the money, use the doctrine of
divisibility.
5. Doctrine of Divisibility
i.
Divide the contract into various component parts.
ii.
Another way to not enforce a condition: circumvent the condition by restitution through
divisibility.

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