Contracts - Comprehensive (Case Holdings)

Contracts Outline
I. A Roadmap for Contract Law 7

II. The Bargain Theory of Contract 12
A. Consideration 12
B. Reliance 15
C. The Restitution Interest 17
III. Negotiation and the Contract 18
A. The Role of the Courts 18
B. Offer and Acceptance 18
C. Negotiation and Closure 22
D. Good Faith in Contract Formation 23
E. Problems with Standard Form Contracts 24
F. The Statute of Frauds 28
IV. The Content of a Contract 31
A. The Parol Evidence Rule and Reformation 31
B. Interpreting the Terms of the Contract 34
C. Implied Terms and the Implied Covenant of Good Faith 37
D. Express and Implied Warranties 40
E. Modifications 42
V. Legal Regulation of Contracts 44
A. Mistake of Fact 44
B. Public Policy and Illegality 45
C. Unconscionability 46
VI. Remedies 49
A. Expectation Damages 49
B. Mitigation 52
C. Reliance Damages 52
D. Restitution Damages 53
E. Specific Performance 53
F. Liquidated Damages and Agreed Remedies 54
VII. Conditions
58
A. Express Conditions 58
B. Implied or Constructive Conditions 59
C. Impossibility, Impracticability, and Frustration 61
VIII. Third Party Rights and Responsibilities
63
A. The Assignment of Rights and Delegation of Responsibilities 64
B. Suretyship and Guaranty Contracts 65
Cases
A.Z. v. B.Z., 431 Mass. 150 46
Alabama Football v. Wright, 452 F.Supp 182 62
Angel v. Murray, 322 A.2d 630 42
Ardente v. Horan, 117 R.I. 254 20
Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 22
Bailey v. West, 105 R.I. 61 17
Baker v. Bailey, 240 Mont. 139 32
Bank One v. Coates, 125 F.Supp.2d 819 48
Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183
14
Brookside Farms v. Mama Rizzo’s, Inc, 873 F.Supp 1029 43
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169 27
C.R. Klewin, Inc. v Flagshp Properties, Inc., 220 Conn. 569 29
Carnival Cruise Lines v. Shute, 499 U.S. 585 26
Carpenter v. Chrysler Corp., 853 S.W.2d 346 40
Centronics Corp. v. Genitron Corp., 132 N.H. 133 38
City of Kenai v. Ferguson, 732 P.2d 184 23
City Stores Co. v. Ammerman, 266 F.Supp. 766 54
Clouse v. Myers, 753 S.W.2d 316 45
Cohen v. Cowles Media Company, 479 N.W.2d 387 16
ConAgra, Inc. v. Nierenberg, 301 Mont. 55 29
Contemporary Mission v. Famous Music Corp., 557 F.2d 918 64
Davis v. Satrom, 383 N.W.2d 831 19
Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 7
Donahue v. Federal Express Corp., 753 A.2d 238 39
Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 39
ePlus Group, Inc. v. Panoramic Comm., 50 UCC 2d 213 (2003) 56
Fertico Belgium v. Phosphate Chemicals Export Ass’n, 501 N.Y.S.2d 867 51
Fiege v. Boehm, 210 Md. 352 13
Fisher v. Jackson, 142 Conn. 734 14
Ford Motor Credit Co. v. Russell, 519 N.W.2d 460 18
Freund v. Washington Square Press, 34 N.Y.2d 379 49
Gardner Zemke Co. v. Dunham Bush, Inc., 115 N.M. 260 25
Hadley v. Baxendale, 9 Exch 341 (1845) 51
Haines v. City of New York, 41 N.Y.2d 769 37
Hamer v. Sidway, 124 N.Y. 538 13
Hamilton Bancshares, Inc. v. Leroy, 131 Ill. App. 3d 907 21
Harrington v. Taylor, 225 N.C. 690 15
Hill v. Gateway 2000, 105 F.3d 1147 27
Hopper v. All Pet Animal Clinic, 861 P.2d 531 46
Howard v. Federal Crop Insurance Corp., 520 F.2d 695 58
Hunt Foods & Industries, Inc. v. Doliner, 26 A.D.2d 41 33
In re El Paso Refinery, 196 B.R. 58 50
In re Nedwick Steel Co., 289 B.R. 95 65
Insurance 16, 27, 35, 45, 58
K & G Construction Co. v. Harris & Brooks, 223 Md. 305 59
KGM Harvesting Co. v. Fresh Network, 42 Cal. Rptr. 2d 286 51
Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d 324 61
Lanci v. Metropolitan Ins. Co., 388 Pa. Super. 1 45
Langemeier v. National Oats Co., Inc, 775 F.2d 975 47
Lenawee Ct. Bd. Of Health v. Messerly, 331 N.W.2d 203 45
Lige Dickson Co. v. Union Oil Co. of California, 96 Wash.2d 291 30
Lucy v. Zehmer, 196 Va. 493 7
Martinez v. Socoma Companies, 11 Cal.3d 394 63
Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57 41
Masterson v. Sine, 68 Cal. 2d 222 32
Maxwell v. Fidelity Fin. Servs., Inc., 184 Ariz. 82 47
MCC_Marble Ceramic Ctr, Inc. v. Cermaic Nuova D’Agostino, 144 F.3d 1384 36
Midwest Energy, Inc. v. Orion Food Systems, Inc., 14 S.W.3d 154 17
Migerobe, Inc. v. Certina USA, Inc., 924 F.2d 1330 29
Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772 36
National Surety Corp. v. United States, 118 F.3d 1542 65
New England Insulation Co. v. General Dynamics Corp., 26 Mass. App. Ct. 28 24
Oswald v. Allen, 417 F.2d 43 20
Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging, 69 Cal. 2d 33 35
Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 342 Md. 143 21
Peevyhouse v. Garland Coal Mining Co., 382 P.2d 109 50
Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 13
Racine & Laramie, Ltd., Inc. v. Dep. Of Parks & Recreation, 11 Cal. App. 4th
1026 (1992) 23
Ricketts v. Scothorn, 57 Neb. 51 16
Sally Beauty, 801 F.2d 1001 65
Sherwood v. Walker, 66 Mich. 578 (1887) 45
Siemens Energy & Automation v. Coleman Elec. Supply Co, 46 F.Supp.2d 217
(1999) 52
Singer Co. v. E.I. Du Pont De Nemours & Co., 579 F.2d 433 41
Situation Management Systems, Inc. v. Malouf, Inc., 430 Mass. 875 22
Step-Saver Data Systems v. Wyse Technology, 939 F.2d 91 26
Sun Printing & Publishing Co. v. Remington Pulp & Paper Co., 235 N.Y. 338 18
Taylor v. Johnston,15 Cal. 3d 130 60
Thompson v. Estate of Coffield, 894 P.2d 1065 33
Vlases v. Montgomery Ward & Co., 377 F.2d 846 41
W.W.W. Associates, Inc. v Giancontieri, 77 N.Y.2d 157 35
Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315 47
Z.R.L. Corp. v. Great Cent. Ins. Co., 156 Ill. App. 3d 856 35
Statutes
Magnussen-Moss 63
Restatement §145 63
Restatement §261 59
Restatement §346 (1)(a)(ii) 50
Restatement §346(1)(a)(i) 50
Restatement §71(a) 20
Restatement §76 12
Restatement §76(b) 13
Restatement §79 12
Restatement 2d §1 12
Restatement 2d §205 23, 38
Restatement 2d §211(3) 27
Restatement 2d §26 comment (c) 19
Restatement 2d §63(a) 20
Restatement 2d §77 Comment (a) 12
Restatement 2d 175 13
UCC §1-201(19) 37
UCC §1-203 23
UCC §2-103(1)(b) 37
UCC §2-201 28, 65
UCC §2-202 31
UCC §2-204(3) 23
UCC §2-205 14, 21
UCC §2-206(1)(a) 21
UCC §2-206(1)(b) 21
UCC §2-206(2) 21
UCC §2-207 24, 25
UCC §2-209 42
UCC §2-210 64
UCC §2-302 47
UCC §2-305 23, 37, 39
UCC §2-306 13
UCC §2-313 40
UCC §2-314 40
UCC §2-315 40, 41
UCC §2-316 41
UCC §2-318 63
UCC §2-606 28
UCC §2-609 60
UCC §2-614 61
UCC §2-615 62
UCC §2-709 52
UCC §2-710 52, 53
UCC §2-712 49
UCC §2-713 49
UCC §2-714 49
UCC §2-715 49, 52, 53
UCC §2-716 54
UCC §2-717 49
UCC §2-718 55
UCC §2A-504 55, 56
UCC §2A-528 56
UCC §3-305 64
UCC §9-404 64
I.I. A Roadmap for Contract Law

1. Lucy v. Zehmer, 196 Va. 493 (1954)
a) Facts: Π allegedly enters a contract with Δ for the sale of land. Π
says they were serious, but Δ says he was clearly only joking
around. Π wants specific performance.
b) Issue: Was there a contract, and is it enforceable?
c) Held: The contract was in good faith and specific performance was
awarded. The private intentions of Δ are irrelevant, only the
manifested acts.
2. Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 (1995)

a) Facts: Π, an Italian company contracted for goods from Δ w/ a
letter of credit. The goods upon arrival were not to spec and Π
wasn’t able to use the goods. Π covered with extra expense.
b) Issue: Under the CISG is Π able to recover damages for
nonconforming goods?
c) Result: Π was entitled to lost profits, foreseeable consequential
damages. Π was not entitled to damages for modifications
necessary for cover.
Table 1 Topics, Rules, and Keywords
Issue Case Rule Key Terms
Bargain Hamer v. Sidway Forbearance from
a legal right
Unconscionabilit Williams v. 2-302
y Walker-Thomas
Mutuality Wood v Lucy 2-306 Illusory
Laclede Gas v No free way out
Amoco Output K
Requirement K
Implied good
faith effort
At will
employment
Expectation Goods: Freund v. Buyer: 2-712- 2- Mitigation
Damages Washington Sq. 716 Foreseeability
Press Seller: §703; (Hadley v.
Services: §704; §706; Baxendale)
Peevyhouse §708; §709
Buyer:
Cost to complete
Diminution in
value
Seller: ukp-cost
avoided
Specific Lucy v. Zehmer Injunction
Performance City Stores v. (money
Ammerman insufficient)
Unique good-
can’t be priced
LDC §356; 2-718
Penalty
Reliance Reasonable time
period
Put in position
before K
Restitution Break even
rationale
K Interpretation Lucy v Zehmer §20 Express terms
Frigaliment §201 Course of
§219,220,221,22 Performance
2,232 Course of
Dealing
Trade Usage
Offer §24
Acceptance Ardente v Horan §41, 39, 59, 37, Mail box rule
Pavel Enterprises 30 Auctions
2-207 Bid
chopping/shoppin
g
Counteroffer
Notice
Silence
Past dealings
Benefit
conferred
Parol Evidence Baker v. Bailey §209, 210, 213, Integration

Masterson v. Sine215, 216 Merger Clause
2-202
2-209
Mistake Sherwood v §152, 154, Warranty
Walker 2-313, 2-314, 2- Mutual Mistake
(barren cow) 315 Allocation of
Lenawee v Risk
Messerly (septic
tank)
Unilateral Lanci v. Met Ins. §153
Mistake Co.
Substantial Jacob &Young v. 2-601 (perfect Implied promise
Performance Kent (wrong tender); 2-508 to meet
pipes) (cure); 2-608 condition- good
(revocation of faith
acceptance); 2- Subjective and
612 (installment objective
K) standard
Express Howard v. Fed. §227 (condition Implied promise

Conditions Crop Ins. v. promise); to meet condition
(tobacco crop)
Breach and K&G §241; §242 Material breach
Response Construction co. Substantial
v. Harris performance
(workmanlike
manner);
Anticipatory Taylor v. §253; §236; 2- Mitigation, cover
Breach Johnston 610; 2-611
II. The Bargain Theory of Contract

A.Consideration
1. Definitions
a) A Contract is “a promise or a set of promises for the breach of
which the law gives a remedy, or the performance of which the law
in some way recognizes as a duty.” Restatement 2d §1.
b) Consideration is the inducement of a contract, something of value
given in return for a performance or a promise of performance by
another, for the purpose of forming a contract. This is a required
element in the formation of a contract.
c) Illusory Promise is a promise so indefinite that it cannot be
enforced or which, by virtue of provisions or conditions contained
in the promise itself, is one whose fulfillment is optional on the part
of the promisor. Not adequate for consideration.
2. Restatement
a) Restatement 2d §71(1) – to find consideration there must be a
performance or return promise which has been bargained for by the
parties.
b) Restatement §76 - Any consideration that is not a promise is
sufficient to satisfy the requirement of §19 (c), except the
following:
(1)(a) An act or forbearance required by a legal duty that is
neither doubtful nor the subject of honest and reasonable
dispute if the duty is owed either to the promisor or to the
public, or, if imposed by the law of torts or crimes, is owed to
any person;
(2)(b) The surrender of, or forbearance to assert an invalid claim
or defense by one who has not an honest and reasonable
belief in its possible validity;
(3)(c) The transfer of money or fungible goods as consideration
for a promise to transfer at the same time and place a larger
amount of money or goods of the same kind and quality.
c) Restatement §79 – A promise or apparent promise which reserves
by its terms to the promisor the privilege of alternative courses of
conduct is insufficient consideration if any of these courses of
conduct would be insufficient consideration if it alone were
bargained for.
(1)See Petroleum Refractionating Corp. v. Kendrick Oil Co.,
infra.
d) Restatement 2d §77 Comment (a) – Words of promise which by
their terms make performance entirely optional with the promisor
do not constitute a promise.
e) Restatement 2d §79 - If the requirement of consideration is met,
there is no additional requirement of
(1)(a) a gain, advantage, or benefit to the promisor or a loss,
disadvantage, or detriment to the promisee; or
(2)(b) equivalence in the values exchanged; or
(3)(c) "mutuality of obligation."
f) Restatement 2d §175 – a contract is voidable by the victim if that
party’s “manifestation of assent is induced by improper threat by
the other party that leaves the victim no reasonable alternative.”
g) UCC §2-306 – Output, Requirements, and Exclusive Dealings
(1)A term that measures the quantity by output or requirements
means actual output or requirements as may occur in good
faith, cannot be disproportionate to a stated or implied
estimate.
3. Refraining from a right is adequate consideration.

a) Hamer v. Sidway, 124 N.Y. 538 (1891)
(1)Facts: Uncle tells Nephew that if he refrains from certain
vices until he is 21, he will give him $5000. Π is the executor
of Uncle’s estate; Δ is the assignee of Nephew.
(2)Held: Nephew’s refraining from certain vices is a
forbearance that amounts to consideration necessary for
contract enforceability. The court “will not ask whether the
thing which forms the consideration does in fact benefit the
promisee or a third party.”
b) Fiege v. Boehm, 210 Md. 352 (1956)
(1)Facts: Π and Δ entered an agreement for which Δ will pay
support for her illegitimate child in return for Π not trying
him for bastardy. Δ later proves the child is not his and stops
paying.
(2)Held: Π’s promise not to sue for bastardy even though
impossible was adequate consideration for his promise to pay
support. There was no evidence of fraud. Giving up the right
to take legal action is adequate consideration.
(3)Uses Restatement §76(b). A current defense could have used
Restatement 2d 175.
c) Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997
(1933)
(1)Facts: Δ contracted to buy 1.5M G of oil from Π unless Π
should stop making that grade of oil. Δ states that the grade of
oil is not correct and will not accept further deliveries. (This
is during the depression when the price of oil is falling fast.)
Π then sells the remaining contract for much less than
originally contracted and is suing for the difference.
(2)Issue: Δ argues there was no consideration.
(3)Held: A benefit to the promisor (Δ) or a detriment to the
promisee (Π) is a sufficient consideration for a contract.
Under Restatement 79, both need to be sufficient when
promisor has alternative courses of conduct. Δ got oil, and Π
gave up the right to discontinue producing that grade of oil.
Giving up a right is adequate consideration.
4. Options Contracts
a) Firm Offers under UCC §2-205
(1)An offer by a merchant which by its terms gives assurance
that it will be held open is not revocable, for lack of
consideration, during the stated time (or reasonable time if
not stated, no more than 3 months). Must be signed.
b) Restatement 2d §87(a)
(1)An offer is binding as an option contract if it
(a)is in writing and signed by the offeror, recites a
purported consideration for the making of the offer, and
proposes an exchange on fair terms within a reasonable
time; or
(b)is made irrevocable by statute.
(2)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 forbearance is binding as an option contract to
the extent necessary to avoid injustice.
c) Board of Control of Eastern Michigan University v. Burgess, 45
Mich. App. 183 (1973)
(1)Facts: Π entered a contract with Δ for a nominal fee for the
option to purchase Δ’s land. Π never actually tendered Δ the
money. When Π tried to execute the option, Δ refused.
(2)Issue: Is there consideration for the option?
(3)Held: a dollar is valid consideration for options for the
purchase of land. However, no consideration was received, so
there was no option, but simply an offer by Δ to sell, which is
revocable.
5. Employment at Will
a) Permanent Employment is terminable at the will of either party
without liability to the other.
b) Fisher v. Jackson, 142 Conn. 734 (1955)
(1)Facts: Δ told Π to give up his job and work for Δ (for less
money) under an oral contract for life or until he was
physically unable to work. Π complied and then was
discharged. Π acts to recover damages. Δ says the
employment was not “for life”, but a permanent position as
was advertised.
(2)Result: giving up a job is not adequate consideration, but an
incident necessary to accept the offer.
(3)JJ suggests that the plaintiff’s lawyer could have made more
of the fact that he was giving up some salary. That could be
consideration.
6. Moral Consideration and Past Consideration

a) Although not bargained for, there are two circumstances where a
promise might seem worthy of enforcement
(1)Promisor acts from a strong sense of duty (moral
consideration)
(2)Promisor is seeking to recompense the promisee for a
previously conferred benefit (past consideration)
b) Harrington v. Taylor, 225 N.C. 690 (1945)
(1)Facts: Δ assaults his wife who hid in Π’s house. The wife
then tried to kill Δ, and Π saved him, injuring herself in the
process. Δ promises to pay damages, but fails to.
(2)Held: A voluntary humanitarian act is not consideration;
implies that Δ should pay up anyways.
B. Reliance
1. Definitions
a) Equitable Estoppel is strictly, an estoppel which arises out of a
person’s statement of fact, or out of his silence, acts, or omissions,
rather than from a deed or record or written contract. Equitable
estoppel is available when one party knowingly misrepresents
material facts that are then predictably relied upon by the other. The
misrepresenting party is “estopped” from asserting facts that
contradict its misrepresentations.
b) Promissory Estoppel – an equitable doctrine declaring that “a
promise which the promisor should reasonably expect [will] induce
action or forbearance on the part of the promisee or a third person
and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.
Restatement 2d §90.
2. Holmes on Reliance
a) “It would cut up the doctrine of consideration by the roots, if a
promisee could make a gratuitous promise binding by subsequently
acting in reliance on it.”
b) Some have argued that this prophecy has come true.
3. Equitable Estoppel and the emergence of Promissory Estoppel

a) Promissory Estoppel requires all of:
(1)A Promise
(2)Foreseeable reliance
(3)Actual reliance
(4)Injustice absent enforcement
b) Possible Applications
(1)Promise to make a gift: The P.E. doctrine is most often
applied to enforce promises to make gifts, where the
promisee relies on the gift to his detriment.
(a)Intra-family promises: The doctrine may be applied
where the promise is made by one member of a family
to another. (Example: Mother promises to pay for Son's
college education, and Son quits his job. Probably the
court will award just the damages Son suffers from
losing the job, not the full cost of a college education.)
(2)Charitable subscriptions: A written promise to make a
charitable contribution will generally be binding without
consideration, under the P.E. doctrine. Here, the doctrine is
watered down: usually the charity does not need to show
detrimental reliance. (But oral promises to make charitable
contributions usually will not be enforceable unless the
charity relies on the promise to its detriment.)
(3)Gratuitous bailments and agencies: If a person promises to
take care of another's property (a "gratuitous bailment") or
promises to carry out an act as another person's agent
(gratuitous agency), the promisor may be held liable under
P.E. if he does not perform at all. (However, courts are
hesitant to apply P.E. to promises to procure insurance for
another.)
c) Quasi-contract - One party has something they were not entitled to
in the first place, and in good conscience he should either return it
or pay its value (doctor charging for reviving a person who passes
out on the floor). The law implies a contract where no contract
existed previously and dispenses relief according to that implied
contract. The contract implied-in-law is a legal fiction imposed by
the court to remedy injustice.
d) Ricketts v. Scothorn, 57 Neb. 51 (1898)
(1)Facts: Δ is the executor. Testator promised to pay Π $2000
on demand so she wouldn’t have to work.
(2)Issue: There was no consideration, but Π relied on the money
and quit her job.
(3)Result: Because it would be grossly inequitable to permit Δ
to resist payment, Π should receive the payment.
(4)JJ notes that while the court tries to fit this case to Equitable
Estoppel, they actually created Promissory Estoppel because
Δ had misrepresented no facts.
(5)Restatement §90 was borne in part from this case.
e) Cohen v. Cowles Media Company, 479 N.W.2d 387 (1992)
(1)Facts: Π gave facts pertinent to a story to Δ when assured
that Δ would not share Π’s identity. Δ then printed Π’s name
in the paper, and Π was fired from his office.
(2)Held: Although there was no contract, promissory estoppel
barred Δ from using Π’s name, so damages are due.
4. Promissory Estoppel in Franchise Negotiations

a) A party to unsuccessful negotiations may recover for losses
reasonably and foreseeably sustained by him as a result of the other
party’s negligence or lack of good faith during the bargaining
process.
b) Alternate: recovery may be based on the duty to bargain in good
faith.
c) Typical context is an unsuccessful contract negotiation involving
franchises or government contracts. Both have a great inequality in
bargaining power.
d) Midwest Energy, Inc. v. Orion Food Systems, Inc., 14 S.W.3d 154
(2000)
(1)Facts: Π was building a gas station/convenience store with
hopes to provide Δ’s product. Δ required that certain mods be
done to the design before they could provide their product. Π
redesigned and constructed as Δ required. Δ then never
agreed to the deal. Trial court granted summary judgment for
Δ.
(2)Result: While the contract was not enforceable, there was a
promise, foreseeable reliance, reliance in fact, and injustice
absent enforcement, so the judgment was overturned.
C. The Restitution Interest

1. Definition
a) Restitution Interest – The interest in getting back to the point the
parties would have been at had there been no contract created. If a
person A gave $5 to another B in creation of the contract, the
restitution interest is the $5 that would have to be returned from B
to A.
2. Bailey v. West, 105 R.I. 61 (1969)

a) Facts: Δ purchased a horse then discovered it was lame. Δ took the
horse to Π’s farm. Π fed and housed the horse and sent Δ a bill
which was not paid. Π is suing for restitution.
b) Issue: Was there a contract, and what is the damage for breach?
c) Held: no contract, and since there was no request for payment prior
to caring for the horse, no restitution can be paid. (Π volunteered
for the job.)
III. Negotiation and the Contract

A.The Role of the Courts
1. Cardozo and Crane duke it out in Sun Printing.
a) Should the courts hold strict the content of the contract? (Cardozo)
b) Should the courts hold strict that parties should be bound by their
contracts when parts are missing? (Crane)
2. Sun Printing & Publishing Co. v. Remington Pulp & Paper Co., 235
N.Y. 338 (1923)
a) Facts: Π agreed to buy paper from Δ for a period of months with
the price for some months and the term of that price to be
determined in the future. The price would not be higher than the
current price listed by a particular third party.
b) Held: Δ was not bound because the fallback on the price term in
the absence of agreement did not make up for the absence of a time
limit. The contract was too indefinite. (Cardozo)
c) Dissent (Strongly worded): The price was indeed definable. If on
the deadline to determine a new price, Π could offer the 3rd party
price, and Δ is bound. The term issue could be resolved month-to-
month and be within the contract’s specs. (Crane)
B. Offer and Acceptance

1. Definitions
a) An Offer is a “manifestation of willingness to enter into a bargain,
so as to justify another person in understanding that his assent to
that bargain is invited an will conclude it,” Restatement 2d §24.
b) An Acceptance is consent to the terms of an offer, creating a
contract.
c) A Promise is a declaration of one’s intention to do or to refrain
from doing something. It can bind the person making the
declaration to the thing declared.
2. Offers
a) An offer creates, in the offeree, a legal power of acceptance.
b) Advertisements
(1)An advertisement constitutes an offer when it is clear,
definite, explicit, and leaves nothing open for negotiation.
(2)Ford Motor Credit Co. v. Russell, 519 N.W.2d 460 (1994)
(a) Facts: Π sold Δ a car with a higher APR than was
advertised. Δ defaulted on the payments and sued for
breach when Π gave them the higher APR. This is Π’s
countersuit.
(b) Issue: Is an advertisement an offer?
(c) Held: An advertisement is not an offer. Because not
everyone qualifies for financing, and Π did not have an
unlimited number of the car in question to sell, it was
unreasonable for Δ to believe that the advertisement was an
offer binding the advertiser.
c) Quotes
(1)Restatement 2d §26 comment (c): A “quotation” of a price is
usually a statement of price per unit of quantity; it may omit
the quantity to be sold, time and place of delivery, and other
terms… The word quote is commonly understood as inviting
an offer rather than making one, even when directed to a
particular customer… In determining whether an offer is
made, relevant factors include the terms of previous inquiries,
completeness of the terms of the suggested bargain, and the
number of people to whom the communication is addressed.
3. Counteroffers and Mirror Image Rule

a) A counteroffer destroys the original offer and replaces it for the
original offeror to accept if he chooses.
b) Restatement 2d §36 lists five possibilities under which an offer is
terminated
(1)The offeree rejects the offer or makes a counteroffer
(2)At the time specified in the contract, or, failing that, at the
end of a reasonable time
(3)If the offeror revokes the offer
(4)If the offeror dies or becomes incapacitated
(5)If the terms of the offer include a condition for acceptance
that has not yet occurred.
c) Mirror Image Rules
(1)Restatement 2d §59 states: “A reply to an offer which
purports to accept it but is conditional on the offeror’s assent
to terms additional to or different fromthose offered is not an
acceptance but is a counteroffer.”
(2)Restatement 2d §61 states an “acceptance request[ing] a
change or addition to the terms of the offer” is not invalid
“unless the acceptance is made to depend on an assent” to the
new terms.
(3)Both the UCC and the CISG are more liberal.
d) Davis v. Satrom, 383 N.W.2d 831 (1986)
(1)Facts: Π and Δ were negotiating the sale of a mobile home
park. Π sent an offer to Δ who made mods and returned it to
Π. Π and Δ went back and forth again, and Δ’s final letter
included a clause accepting the offer conditioned on his
attorney’s recommendation. Π sends a check to begin
performance, but Δ returns the check. Π wants specific
performance.
(2)Result: Δ’s mods resulted in a counteroffer, not an
acceptance. Π’s final response to Δ’s final response
constituted the only acceptance, and those became the terms
of the contract, including the attorney provision which was
enforceable. Specific performance denied.
4. Meeting of the Minds

a) When any of the terms used to express an agreement is ambivalent,
and the parties understand it in different ways, there cannot be a
contract unless one of them should have been aware of the other’s
understanding. Restatement §71(a)
b) Restatement 2d §20 states
(1)there is no manifestation of mutual assent to an exchange if
the parties attach materially different meanings to their
manifestations and
(a)neither party knows or has reason to know the meaning
attached by the other
(b)each party knows or each party has reason to know the
meaning attached by the other
c) Oswald v. Allen, 417 F.2d 43 (1969)
(1)Facts: Π tried to buy some of Δ’s coins. Π thought he was
buying all the Swiss coins in her collection. Δ thought she
was selling the collection she calls Swiss Coin Collection, but
not the Swiss coins that are parts of other collections. Π and
Δ entered a contract, but Δ reneged when it was discovered
that Π tried to collect more coins than she was selling. Π
wants specific performance.
(2)Held: There was no meeting of the minds, and thus no
contract.
5. Contracts Concluded by Exchange of letters

a) The Offeror is the Master of the Offer.
b) An offer may invite or require acceptance to be made by
affirmative answer in words, or by performing or refraining from
performing a specified act, or may empower the offeree to make a
selection of terms in his acceptance. Restatement 2d §30(1).
c) Revisit counteroffers and the mirror image rule, supra.
d) Mailbox rule: the offer is effective upon proper dispatch.
(1)An acceptance made in a manner and by a medium invited by
an offer is operative and completes the manifestation of
mutual assent as soon as put out of the offeree’s possession,
without regard to wheter it ever reaches the offeror…
Restatement 2d §63(a).
e) Ardente v. Horan, 117 R.I. 254 (1976)
(1)Facts: Π bid on Δ’s house for sale. After Δ stated the offer
was acceptable, Π prepared a sale agreement and sent it to Δ
along with a check. Π also sent a letter asking if certain
furnishings were included. Δ then refused to sell, returning
the check. Π wants specific performance
(2)Issue: was the letter a counteroffer, or an acceptance?
(3)Held: Π’s “letter of acceptance” was conditional, and
therefore a counteroffer rejecting Δ’s offer. No contractual
obligation was created.
6. Revocability of Offers
a) Restatement 2d §42 says an offeree’s power of acceptance is
terminated when the offeree receives form the offeror a
manifestation of an intention not to enter into the proposed
contract.
b) Look out for Firm Offer issues in UCC §2-205 however.
c) Hamilton Bancshares, Inc. v. Leroy, 131 Ill. App. 3d 907 (1985)
(1)Facts: Π and Δ entered into two option contracts for stock for
$1. While the $1 was never received, Π paid “earnest money”
as a deposit towards purchasing the shares. Δ claimed to
withdraw the options, but Π moved to exercise them. Π wants
specific performance for two stock options.
(2)Issue: since $1 wasn’t received, was this an offer (revocable)
or a contract?
(3)Held: The earnest money put as a deposit was consideration
supporting the contract because it was detrimental to Π to do
so. Π gave up the right to use that money elsewhere.
7. Contracts Accepted by the Offeree’s Performance

a) Restatement 2d §45 and Restatement 2d §62 handle this situation.
(1)Where an offer invites an offeree to accept by rendering a
performance and does not invite a promissory acceptance, an
option contract is created when the offeree tenders or begins
the invited performance or tenders a beginning of it.
Restatement 2d §45(1).
(2)The offeror’s duty of performance under any option contract
so created is conditional on completion or tender of the
invited performance in accordance with the terms of the offer.
(3)The consequence of this is that the offeror is bound to the
offer while the offeree is not.
b) Offers Ambiguous as to Manner of Acceptance
(1)An offer to make a contract shall be construed to invite
acceptance in any reasonable manner. UCC §2-206(1)(a).
(2)An offer to buy goods if ambiguous can be accepted “either
by a prompt promise to ship or by the prompt or current
shipment of goods. UCC §2-206(1)(b).
(3)Where the beginning of a requested performance is a
reasonable mode of acceptance, an offeror who is not notified
of acceptance within a reasonable time may treat the offer as
having lapsed before acceptance. UCC §2-206(2).
(4)When an offer is ambiguous as to whether a promise or a
performance constitutes acceptance, not only does the
beginning or tender of performance
c) Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 342 Md. 143
(1996)
(1)Facts: C solicited subcontractor bids to enter its own bid for a
contract. S gave them a bid which C relied on in the creation
of its bid. C initially lost the bid, but was awarded it when the
winner couldn’t perform. S then notified C that its bid was
erroneous and too low and did not feel compelled to correct
the error because C had not won the contract when the error
was discovered. C sued to cover damages between the
contract price and the price of a substitute subcontractor.
(2)Issue: Is S’s bid revocable?
(3)Result: Neither traditional K theory nor detrimental reliance
theory upheld C’s request for damages.
(4)Many states adopted Traynor’s view that a sub’s bid is
irrevocable under R2d §90 (Promissory Estoppel) although
the rule was criticized for its lack of symmetry, allowing the
general contractor to bid shop.
(5)CISG Art. 16(2)(b) holds an offer irrevocable if “it was
reasonable for the offeree to rely on the offer as being
irrevocable and the offeree has acted in reliance on the offer.”
(No time limit!)
C. Negotiation and Closure

1. Situation Management Systems, Inc. v. Malouf, Inc., 430 Mass. 875
(2000)
a) Facts: Π and Δ had longstanding business agreements for Δ to
purchase services from Π. Π’s business became less profitable and
Π agreed with Δ that Δ should purchase a Π’s competitor for sale.
In order for Δ to make the purchase, they requested a longer term
for the renewal on Π and Δ’s longstanding contract. Π assured Δ of
the commitment and Δ bought the competitor. Π then added terms
to the renewal contract that had not been present in previous
dealings. When Δ did not abide by the new terms, Π sued for
breach.
b) Held: Δ and Π’s minds had met because of the longstanding
contract. The contract was enforceable when Π offered assurances
(without the new terms).
2. Agreements to Agree
a) Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584
(1976)
(1)Facts: Π solicited Δ to merge. Π and Δ negotiated and
drafted a memorandum to be distributed by the press stating
in part that counsel for Π and Δ will proceed to make a
definitive agreement containing details, and conditions
obligation on completing such a definitive agreement. Δ then
declined to go forward with the deal. Π complains of breach
of contract.
(2)Issue: Is it a breach when there is simply an “agreement to
agree?”
(3)Result: The agreement to agree is upheld, obligating the two
parties to make the detailed agreement. (Remanded for trial to
see if the intentions were to be bound.)
3. Open Terms
a) 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. UCC §2-204(3)
b) A contract can be valid even though the price term is left open, or is
sbject to determination by one party or by a third party. UCC §2-
305.
c) City of Kenai v. Ferguson, 732 P.2d 184 (1987)
(1)Facts: Δ leased a plot of land from the city, Π for a term of
55 years where the rent was set by an escalation clause. The
clause allowed for renegotiation every 5 years. For 10 years,
the rent remained constant, and then the city demanded a
500+% increase (the highest use value) without negotiation.
When Δ didn’t pay, Π sued for breach.
(2)Held: Good faith is implied in every contract with open
terms, and Π did not act in good faith. Π had the duty to
negotiate, and the highest use value was inappropriate.
D.Good Faith in Contract Formation

1. Definition
a) Good Faith is a total absence of any intention to seek an unfair
advantage or to defraud another party; an honest and sincere
intention to fulfill one’s obligations.
b) Good faith in the case of a merchant means honesty in fact and the
observance of reasonable commercial standards of fair dealing in
the trade. (UCC §2-103(b))
c) Also called BFP: Bona Fide Purchaser
d) Every contract or duty within this Act imposes an obligation of
good faith in its performance or enforcement. UCC §1-203,
2. Negotiating a new contract

a) There is no requirement in America that parties negotiating must
come to a contract. As seen below in Racine & Laramie, this is true
too of contract extensions/expansions.
b) The implied covenant of good faith and fair dealing rests upon the
existence of some specific contractual obligation.
c) Some Civil Law jurisdictions take a different approach in that
damages may be awarded to an injured party from negotiations in
bad faith. This is the doctrine of culpa in contrahendo.
d) Racine & Laramie, Ltd., Inc. v. Dep. Of Parks & Recreation, 11
Cal. App. 4th 1026 (1992)
(1)Facts: Π entered a long term K with Δ for leasing an area of
a park for concessions. Midway through the lease, Π wanted
to negotiate an addition to the contract to allow them to
expand the operation.
(2)Held: There can be no breach of the covenant of good faith
by a refusal to enter into a new contract.
3. New England Insulation Co. v. General Dynamics Corp., 26 Mass.

App. Ct. 28 (1988)
a) Facts: Π was invited by Δ to bid on a contract. Π designed a
solution to fit the needs that included confidential engineering
ideas. Δ then made Π’s bid available to a 3rd company that Δ got
kickbacks from.
b) Result: remanded for trial reversing the dismissal. The court held
that the implied contract to perform in good faith meant that Δ did
not have the right to give the contents of the bid to third parties, and
that they had the obligation to judge the bids fairly.
E. Problems with Standard Form Contracts

1. UCC §2-207 – Battle of the Forms
a) §2-207 takes a much different position than the common law
precedents do. In common law, any response that didn’t look
exactly like the offer was not an acceptance, but a counter offer.
This doesn’t work well with the nature of current businesses using
standardized forms. §2-207 comes in to help this.
b) This section’s goal is to deal with written confirmations of either
oral or informal correspondence or the exchange of a purchase
order and acceptance/acknowledgement form where the second
form may offer slight differences.
c) Additional Terms in Acceptance or Confirmation
(1)A definite and seasonable expression of acceptance or a
written confirmation which is sent within a reasonable time
operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon,
unless acceptance is expressly made conditional on assent to
the additional or different terms.
(2)The additional terms are to be construed as proposals for
addition to the contract. Between merchants such terms
become part of the contract unless:
(a)the offer expressly limits acceptance to the terms of the
offer;
(b)they materially alter it; or
(c)notification of objection to them has already been given
or is given within a reasonable time after notice of them
is received.
(3)Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although
the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties
agree, together with any supplementary terms incorporated
under any other provisions of this Act.
d) There seems to be general agreement that §2-207 has not been a
success.
e) Important pieces:
(1)Definite acceptance, or written confirmation
(2)Does not expressly limit acceptance to the terms proposed
(no conditional acceptance)
(3)Does not materially alter the offer
(4)Objection not received in a reasonable time
(5)Conduct by both parties suggests a contract was intended
(6)No unwillingness to proceed absent the terms
f) Prototypical case: Gardner Zemke Co. v. Dunham Bush, Inc., 115
N.M. 260 (1993)
(1)Facts: Π entered a K with Δ to provide chillers for Π’s
DOEnergy contract. Π provided an offer on standard form,
and Δ responded with another standard form. Δ’s chillers
were not to spec, Π sues for damages, but Δ claims that their
version of the K is controlling.
(2)Issue: in using two different forms, was Δ’s
acknowledgement of the K a counteroffer or an acceptance?
(3)Result: Remanded to address questions that
(a) Π could reasonably believe that a K had been formed
(b) When the offeree’s acceptance lists a term in conflict with
the offer, neither is part of the contract, and general rules of
fairness prevail.
2. Seven scenarios for UCC §2-207

a) The Acceptance is expressly made conditional on the offeror’s
assent to the terms additional or different
(1)Any expression of acceptance or written confirmation acts as
an acceptance. (General Rule)
(2)The acceptance does not form a contract if it is “expressly
made conditional on assent to the additional or different
terms.”
(3)Courts will general only accept the exception if it is shown
that the Acceptor is unwilling to proceed absent the changes.
b) Acceptance discusses an issue on which the offer is silent
(additional term)
(1)The additional term does not prevent the offeree’s response
from giving rise to a contract.
(2)If both parties are merchants, the change automatically
becomes part of the K unless the offeror rejects in a
reasonable time.
(3)If one party is not a merchant, the offeror has to explicitly
assent to the change for the term to be part of the K.
c) Offer discusses an issue on which the acceptance is silent
d) Acceptance and Offer deal with a particular issue in conflicting
(different) ways
(1)Majority view: KNOCKOUT RULE – conflicting clauses
knock each other out. Neither gets into the K. A UCC gap-
filler is used in its place if available. Criticism: the knockout
theory strips the offeror of writing the terms to which he will
do business.
(2)Minority view – second form’s term fails to have any effect.
e) Acceptance recites terms that diverge so much from those
contained in the offer
(1)No contract is formed
(2)In the usual purchase order-acknowledgement context the
forms do not fail to give rise to a contract if they do not
diverge as to price, quality, quantity, or delivery terms, but
only as to the usually unbargained terms on the reverse side
concerning remedies, arbitration and the like.
f) Oral agreement, then one or both sends a confirmation which adds
to or conflicts with the oral agreement
(1)Additional terms in confirmation are treated just the same as
if the offer was written.
(2)Different terms – the court will almost certainly say that the
different term in the confirmation does not enter the contract.
The Knockout rule will not be applied.
g) The parties don’t use forms, but exchange custom-drafted
documents that differ.
(1)No contract is formed
3. Confirmation of Oral Contracts via Forms

a) Step-Saver Data Systems v. Wyse Technology, 939 F.2d 91 (1991)
(1)Facts: Π entered a K with Δ by calling Δ on the phone to
order goods. Δ would then ship them the goods with a
warrantee disclaimer applied on the packaging, containing an
integration clause. When Δ’s product failed, Π sued for
breach.
(2)Issue: Do the additional terms on the received goods override
the terms of the oral agreement on the phone? Do they
materially alter the parties’ contract?
(3)Result: Because K was sufficiently definite without the Δ
added terms, and Π never assented to the terms, and there
was no conditional acceptance because the terms did not
specify Δ’s unwillingness to proceed, K without the added
terms is controlling. Warranty terms materially altered the
contract, so were not controlling.
4. Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991)

a) Facts: Δ bought a ticket on Π’s cruise line. When the ticket arrived,
it contained many terms and conditions on the reverse side,
including the forum clause. Δ was injured on board, and is trying to
sue in the court near their residence. Π wants to enforce its forum
selection clause to get the case to be tried in Π’s home district.
b) Issue: Is the forum clause controlling?
c) Result: Because Δ had notice of the clause, and because Π had no
bad faith motive for including the clause, and because the court felt
the clause did not limit Δ in any way (JJW disagrees), the clause is
controlling.
d) I think JJW put this case in the book to show a bad decision. He
quotes the lower court ruling that even if Δ had notice of the clause,
Δ clearly had not bargained for the term.
5. Rolling Contracts
a) A Rolling Contract is one where a consumer orders and pays for
goods before seeing most of the terms, which are contained on or in
the packaging of goods.
b) Hill v. Gateway 2000, 105 F.3d 1147 (1997)
(1)Facts: Π orders and purchases a computer from Δ by phone.
Upon its arrival, the computer has a list of terms limiting
liability that the customer must assent to or return the
computer. When the computer doesn’t work, Π complains of
breach of warranty, and Δ notes the arbitration clause. (Π
does not want to arbitrate.)
(2)Issue: Since the terms were not read prior to purchase, are the
terms controlling?
(3)Result: By keeping the computer for more than 30 days, Π
accepted the additional terms, and must go through
arbitration.
(4)This is a policy ruling and is very flawed. It uses ProCD as
precedent (written by the same judge) and will not distinguish
its facts from the instant case. Murray observes: “The [7th
Circuit] has provided particularly valuable insights in the
interpretation of various provisions of UCC Article 2, many
of which are cited elsewhere in this volume. The most
charitable statement that can be made concerning the
ProCD/Hill analysis, however, is that, even Homer nods.”
(Ouch.)
6. Reasonable Expectations
a) Largely confined to insurance cases.
b) Where the other party has reason to believe that the party
manifesting such assent would not do so if he knew that the writing
contained a particular term, the term is not part of the agreement.
c) C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d
169 (1975)
(1)Facts: Π’s business was burglarized and Π tries to recover
their loss from Δ, their insurer. Π and Δ intended to exclude
liability for inside jobs. The door was found to not be locked
after the burglary. In small type, burglary was defined such
that this loss was not covered.
(2)Held: That Π had reasonable expectation to believe this was
covered when he purchased the policy. Also, it was
unconscionable that the fine print would overrule the
reasonable meaning of the dickered terms.
(3)Dissent: Π didn’t read the contract, and thus Δ shouldn’t be
liable for Π’s lack of understanding.
F. The Statute of Frauds

1. Definition:
a) This statute requires that certain contracts must be in writing to be
enforceable. Restatement 2d §110. These include in common law:
(1)Contracts to answer to a creditor for the debt of another
(2)Contracts made in consideration of marriage
(3)Contracts for the sale of land or affecting any interest in land
(except short term leases)
(4)Contracts not to be performed within one year from their
making
b) The UCC handles the Statute slightly differently.
c) The CISG has no statute of frauds. Article 11: A contract of sale
need not be concluded in or evidenced by writing and is not subject
to any other requirement as to form. It may be proved by any
means, including witnesses.
2. UCC §2-201
a) Codifies the common law Statute, but adds that a contract for the
sale of goods for the price of over $500 is not enforceable unless in
writing and signed by the party against whom the enforcement is
sought. (The new version set the limit at $5000.)
b) §2-201(1) adds that a writing is not insufficient because it omits or
incorrectly states a term agreed upon but the quantity of goods
transferred cannot be enforced beyond what is actually written in
the contract.
c) §2-201(2) adds that between merchants, a confirmation in writing
received in a reasonable amount of time when the party receiving it
has reason to know its contents will satisfy the statute unless notice
of objection is remitted within 10 days.
(1)Illustration: Two parties, S and B, agree over the telephone
the purchase of goods. S sends B a memo confirming the
order. That memo is good against S for breach. That memo is
also good against B if he is a merchant. The reason is that it
would be unfair to S that he be bound to his word, but not B.
B would be able to play the market otherwise with impunity.
d) §2-201(3) adds exceptions where the contract is enforceable even if
it violates §2-201(1)
(1)if the goods are specially manufactured for the buyer that
aren’t suitable for another buyer
(2)if the party against whom enforcement is sought admits that a
contract for sale was made (limited to the actual quantity in
the writing)
(3)if the payment has been made and accepted or received and
accepted. (UCC §2-606)
3. The One Year Limit Rule

a) The Restatement and UCC both declare that a contract must be in
writing if it is not to be performed within one year from its making.
The case below adds that the performance must be COMPLETED
in a year, and that if there’s any chance that it won’t be completed
in a year, it is bound by the Statute.
b) C.R. Klewin, Inc. v Flagship Properties, Inc., 220 Conn. 569
(1991)
(1)Facts: Π subcontracted for Δ to build at a site. The agreement
was over dinner and unwritten. The agreement was
publicized and videotaped. Also, Π and Δ ceremoniously
signed a standard form without filling in any blanks.
Construction began a year later. Δ became dissatisfied with
Π’s work and replaced Π, breaking the contract.
(2)Held: that “an oral contract that does not say, in express
terms that performance is to have a specific duration beyond
one year is, as a matter of law, the functional equivalent of a
contract of indefinite duration for the purposes of the statute
of frauds.”
4. Multiple Writings to Comply with the Statute

a) A writing must be sufficient to indicate that a contract for sale has
been made between the parties.
b) The writing must be signed by the party against whom enforcement
is sought
c) The writing must specify a quantity.
d) The writing must “state with reasonable certainty the essential
terms of the unperformed promises in the contract.” Restatement 2d
§131.
e) Migerobe, Inc. v. Certina USA, Inc., 924 F.2d 1330 (1991)
(1)Facts: Π contracted to buy watches from Δ for an after-
Thanksgiving sale. Δ later backed out, and Π sued for breach
of the oral contract and won. On appeal, Δ argues that the
Statute was violated.
(2)Result: Court found that the integration of three documents,
including two signed by Δ were adequate to prove a contract
had been formed and the Statute was not violated.
5. Exceptions to the Written Requirement

a) If a party admits that an oral contract for sale was made by way of
his pleadings, testimony, or otherwise in court, then he can no
longer assert a Statute of Frauds defense.
b) If both parties are “merchants,” one party may send written
confirmation of an oral contract to the other which, if received
within a “reasonable time,” provides that the receiving party has 10
days to object in writing. Should the receiving party subsequently
fail to object as required, he too can no longer assert a Statute of
Frauds defense.
c) ConAgra, Inc. v. Nierenberg, 301 Mont. 55 (2000)
(1)Facts: Δ agreed by phone to sell Π grain at a certain price to
be delivered at a certain time. Π drafted a K to which Δ
promised to sign, but Δ never signed the contract. Oral K’s
make up the vast majority of Π’s K’s. When Δ sold the grain
to another buyer (at a much higher price), Π had to cover, and
sued for damages.
(2)Result: Because Π’s confirmation was received in a
reasonable time, and Δ did not object, the Statute defense is
not available.
6. Promissory Estoppel does not Trump the Statute of Frauds.

a) A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person
and which does induce the action or forbearance is enforceable
notwithstanding the Statute of Frauds if injustice can be avoided
only by enforcement of the promise. The remedy granted for breach
is to be limited as justice requires. Restatement 2d §139. This
means that the Statute of Frauds is a higher authority than
Promissory Estoppel. Courts are generally reluctant to add ways to
circumvent the Statute of Frauds.
b) Lige Dickson Co. v. Union Oil Co. of California, 96 Wash.2d 291
(1981)
(1)Facts: Π had a longstanding relationship with Δ to provide
oil based products. Δ encouraged and assisted Π’s entering
the asphalt business and Π purchased all its asphalt from Δ.
When prices for asphalt went up during the oil crisis, Δ
promised that they would only raise prices on new K’s with
Π. Δ then raised prices anyway for existing K’s.
(2)Result: Since the promise was not in writing, and the court
will not allow promissory estoppel to trump the Statute, the
court ruled for Δ.
IV. The Content of a Contract

A.The Parol Evidence Rule and Reformation
1. Definitions
a) The Parol Evidence Rule renders any evidence of a prior or
contemporaneous understanding of the parties inadmissible if
offered to contradict or modif the terms of a written agreement. It is
best understood as a rule of substantive law concerning the legal
effect of the expression of an agreement in a final, fully integrated
contract; it declares that when the terms of a contract have been
embodied in a writing [called the integration of the agreement] to
which both parties have assented as the final expression of their
agreement, parol evidence of contemporaneous or prior oral
agreement is not admissible for the purpose of varying or
contradicting the written contract.
b) Reformation is an equitable remedy consisting of a “rewriting” of
a contract or other document in cases where the written terms of the
contract do not express what was actually agreed upon.
c) Integration is the process by which the parties to an agreement
adopt a writing or writings as the full and final expression of their
agreement. Also called merger.
2. UCC §2-202
a) Final Written Expression: Parol or Extrinsic Evidence
(1)Terms with respect to which the confirmatory memoranda of
the parties agree or which are otherwise set forth in a writing
intended by the parties as a final expression of their
agreement with respect to such terms as are included therein
may not be contradicted by evidence of any prior agreement
or of a contemporaneous oral agreement but may be
explained or supplemented
(a)By course of dealing or usage of trade or by course of
performance (see UCC §2-208) and
(b)By evidence of consistent additional terms unless the
court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the
agreement.
b) Don’t be fooled! The Parol Evidence Rule does not keep out terms
that are added after the agreement is written.
3. Integration
a) Restatement 2d §210 says
(1)A Completely Integrated Agreement is adopted by the parties
as a complete and exclusive statement of the terms of the
agreement.
(2)A Partially Integrated Agreement is an integrated agreement
other than a completely integrated agreement
(3)Whether an agreement is completely or partially integrated is
to be determined by the court as a question preliminary to
determination of question of interpretation or to application
of the parol evidence rule.
b) Williston’s view
(1)Merger clause – will conclusively establish that the document
is a total integration, unless the doc is obviously incomplete.
(2)Rest of Writing – without a merger clause, if the doc is
obviously incomplete, it is a partial integration, allowing
consistent terms to be submitted from oral evidence.
(3)Four Corners – reasonable person standard looking just at the
document. Would a reasonable person have put the terms of
the alleged oral agreement in the document?
c) Corbin’s view
(1)The actual intention of the parties should be looked to in
answering if it is a partial or total integration.
(2)Corbin places less importance on the actual writing and more
on the intent. The Corbin view comes close to eviscerating
the parol evidence rule.
4. Prototypical case: Baker v. Bailey, 240 Mont. 139 (1989)
a) Facts: The value of Π’s land plummeted when Δ enforced a rule in
their contract stating that if Π sold their land, Δ had the right to
disallow the subsequent buyer the use of Δ’s well. Π argues that the
original purpose of the clause was to keep undesirables from using
the well, not to prevent Π’s buyer from using the well.
b) Result: Parol evidence rule prevents extrinsic evidence of the Π’s
reason for including the clause allowing them to deny the well
usage to subsequent landowners. Ruled for Δ.
5. Parol Evidence is allowed in interpreting terms that are not clear

a) The fact that an essential term is omitted may indicate that the
agreement is not integrated or that there is partial rather than
complete integration. Restatement 2d §204.
b) Where the parties to a written agreement agree orally that
performance of the agreement is subject to the occurrence of a
stated condition, the agreement is not integrated with respect to the
oral condition. Restatement 2d §217.
c) The term must not be contradictory to a term in the written
document. A test in the §2-201 official comment is “if the
additional terms are such that, if agreed upon, they would certainly
have been included in the document tin the view of the court, then
evidence of their alleged making must be kept from the trier of
fact.”
d) Masterson v. Sine, 68 Cal. 2d 222 (1968)
(1)Facts: Π sells his interest in a TIC to a relative with the
option to repurchase it later for the same price as given. Π
then goes into bankruptcy. Π’s trustee sues his relative to
enforce the option.
(2)Result: Parol evidence was allowed to determine what was
meant by the unclear terms in the written contract.
(3)IN CALIFORNIA, the parol evidence rule was greatly
limited by this ruling.
e) Hunt Foods & Industries, Inc. v. Doliner, 26 A.D.2d 41 (1966)
(1)Facts: Π entered negotiations to purchase Δ and agreed on all
but a few points. When negotiations were recessed, Π and Δ
agreed to grant Π the option to purchase all of Δ’s stock to
prevent Δ from shopping for a higher bid. While not part of
the contract, Π assured Δ that the option was only to be used
in the event Δ solicited another bid, but then Π executed the
option anyways.
(2)Held: Additional terms, while oral, were not contradictory,
but explanatory. Therefore, the parol evidence was allowed
and Π’s summary judgment denied.
6. Reformation
a) In an action for reformation of a contract, “parol evidence is
admissible to show the parties’ intent and a mutual mistake.” …
The parol evidence rule is not applicable in suits for rescission or
reformation of contracts. (Williston)
b) “Reformation of a written instrument will be decreed when the
words that it contains do not correctly express the meaning that the
parties agreed upon, as the court finds to be convincingly proved.”
(Corbin)
c) Thompson v. Estate of Coffield, 894 P.2d 1065 (1995)
(1)Facts: Δ sold his land to Π retaining royalties for coal found
under current “valid, recorded leases.” However, none of the
current leases had been recorded. Δ urges that reformation of
the deed is required because the deed did not conform to the
negotiations, intent, and knowledge of the parties.
(2)Result: the case was remanded to determine what the true
intent of the parties was. Parol evidence will be allowed.
d) See also Mistake, below
7. In sum
Is there an integrated agreement?
NO Then Jury can hear the evidence
YES
Does the oral term directly contradict the written agreement?
YES Then Jury can NOT hear the evidence
NO
Would the oral term naturally be omitted from (or is it in
reasonable harmony with) the written agreement?
YES Then Jury can hear the evidence
NO Then Jury can NOT hear the evidence
B. Interpreting the Terms of the Contract

1. Definitions
a) Four Corners – the doctrine that requires that the meaning of a
document be derived from its entire contents as they relate to one
another, and not from its individual parts.
2. Restatements
a) The restatements offer a lot of insight in interpretation.
b) Restatement 2d §202 – Rules in Aid of Interpretation
(1)Words and other conduct are interpreted in the light of all the
circumstances, and if the principal purpose of the parties is
ascertainable it is given great weight.
(2)A writing is interpreted as a whole, and all writings that are
part of the same transaction are interpreted together.
(3)Unless a different intention is manifested,
(a) Where language has a generally prevailing meaning,
it is interpreted in accordance with that meaning
(b)Technical terms and words of art are given their
technical meaning when used in a transaction within
their technical field
(4)Where an agreement involves repeated occasions for
performance by either party with knowledge of the nature of
the performance and opportunity for objection to it by the
other, any course of performance accepted to acquiesced in
without objection is given great weight in the interpretation
of the agreement.
(5)Wherever reasonable, the manifestations of intention of the
parties to a promise or agreement are interpreted as
consistent with each other and with any relevant course of
performance, course of dealing, or usage of trade.
c) Restatement 2d §203(a) – an interpretation which gives a
reasonable, lawful, and effective meaning to all the terms is
preferred to an interpretation which leaves a part unreasonable,
unlawful, or of no effect.
3. Principles of Construction – 5 principles

a) The entire contract should be read as a whole and every part is a
piece of the whole
b) The contract itself must be read in light of the circumstances under
which it was made.
c) Where a public interest is affected, an interpretation that favors the
public is preferred
d) Specific provisions ordinarily will be regarded as qualifying the
meaning of broad general words in relation to a particular subject
e) Unless contrary to the plain meaning of the contract, an
interpretation given by the parties themselves will be favored.
f) W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157 (1990)
(1)Facts: Π entered a contract to purchase land from Δ. K called
for $25k up front, $225k upon closing, and $500k to be
mortgaged. K contained a clause allowing either party to
cancel if the litigation on Δ was not settled by a certain date.
Standard merger clause present. Δ dallied on the litigation
waiting for the cancellation date. Π sues for specific
performance.
(2)Issue: Π wants the court to interpret the cancellation clause
as one way, in that it was intended to protect him from the
buyer’s continued litigation.
(3)Result: Π had exclusive rights in certain clauses immediately
surrounding the offending clause, implying that the two
parties knew what they were doing. They had done it before,
so their omission here suggests they intended this clause to be
different. No specific performance. Restatement 2d §§202(5),
203(d), 203(a)
4. Parol Evidence
a) Parol Evidence is admissible to ascertain the true intent of the
contractual parties even where the writing seems clear and
unambiguous.
b) Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging, 69 Cal.
2d 33 (1968)
(1)Facts: Δ promised to purchase insurance “to indemnify [Π]
against all loss, damage, expense, and liability resulting from
… injury to property, arising out of or in any way connected
with the performance of this contract.” Δ damages the
equipment, and Π sues for the insured damages. TC ruled for
Π.
(2)Issue: How should the court interpret the indemnity clause?
Specific to 3rd parties’ damages, or inclusive of Π’s?
(3)Held: Traynor: The exclusion of Π’s equipment could be
justified only if it were feasible to determine the meaning the
parties gave to the words from the instrument alone. Looking
only at the plain meaning of contractual language ignored the
possibility that the parties had contrary intentions.
(4)Criticism: Kozinski of the 9th C complained that even when
the transaction is sizeable and the parties are sophisticated,
and the result is unambiguous, costly litigation cannot be
avoided if one party has a strong enough motive to challenge
the K.
5. Insurance Policies
a) Insurance companies will be held to higher standards in this case as
well. Any ambiguity in the policy will be construed to favor the
insured. Contra Proferentem
b) Z.R.L. Corp. v. Great Cent. Ins. Co., 156 Ill. App. 3d 856 (1987)
(1)Facts: Π operates a club that is insured by Δ. A racial
discrimination suit is brought against Π by a 3rd party for
“wrongful eviction” and Π seeks to force Δ to pay for the
suit.
(2)Held: Where language in an insurance policy is subject to
different interpretations, such ambiguity is to be construed to
favor the insured (Π) not the insurance company, which
drafted the policy.
6. Customs and Practices
a) Hierarchy of practices
(1)Express terms of the agreement
(2)Course of Performance – how a company had performed the
contract so far can imply the meaning of how the contract
was meant to be performed.
(3)Course of dealing – how a party has performed on similar
contracts in the past can imply the meaning of how the
contract was meant to be performed.
(4)Trade practice – local customs can imply terms in a contract.
b) The risks of waiving your performance on express terms of the
contract are great. If you do it systematically, it becomes your
course of dealing.
c) Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772
(1981)
(1)Facts: Π had a longstanding K with Δ for the sale of asphalt
supplies. (1963-1974). Δ twice raised prices, but gave Π a
warning and held the price constant for a few months.
(2)Issue: Can local customs imply terms in a contract?
(3)Held: Yes. There was overwhelming evidence that it was
customary to practice price protection in the asphalt industry
in Hawaii (Trade Practices). In past dealings, Δ had price
protected and given warning when the price was to go up.
(Course of Performance). Ruled for Π. UCC §2-202
(4)Note: now the question becomes how prevalent must a
practice be before it becomes a trade practice?
7. CISG cases CAN include parol evidence

a) MCC_Marble Ceramic Ctr, Inc. v. Cermaic Nuova D’Agostino,
144 F.3d 1384 (1998)
(1)Facts: Π entered oral negotiations and agreed with Δ on
price, quality, quantity, delivery, and payment in 10/90. K
memorialized by Δ’s standard form. When Δ did not satisfy
orders in 4/, 5/, and 8/91, Π sued for breach. Δ responded that
it was under no obligation to satisfy the order because Π
hadn’t paid for some previous shipments. Π responded that
the shipments they had received were of lower quality than
requested, and the CISG allows them to pay less for them. Δ
responds that terms for dealing with lower quality receipts are
on the back of the form, in Italian. Π responds that they had
never intended those terms, just the oral terms.
(2)Result: CISG Article 8(1): courts must interpret the
“statements … and other conduct of a party … according to
his intent” as long as the other party “knew or could not have
been unaware” of that intent. Thus, CISG cases can include
parol evidence.
C. Implied Terms and the Implied Covenant of Good Faith

1. Definitions
a) Good Faith is a total absence of any intention to seek an unfair
advantage or to defraud another party; an honest and sincere
intention to fulfill one’s obligations
(1)In the case of a merchant, good faith refers to honesty in fact
and the observance of reasonable commercial standards of
fair dealing in the trade. UCC §2-103(1)(b).
(2)More generally, the term means “honesty in fact in the
conduct or transaction concerned.” UCC §1-201(19).
2. Missing Terms
a) When a term is missing, a reasonable term may be inserted by the
court, i.e. reasonable time is implied when a temporal term is
missing.
b) It is generally agreed that where a duration may be fairly and
reasonably supplied by implication, a contract is not terminable at
will. Restatement 2d §230.
c) A contract is not voided by conditions that arise outside the
contemplation of the parties after execution.
d) Haines v. City of New York, 41 N.Y.2d 769 (1977)
(1)Facts: Π was a developer that wanted to add a sewer system
outside NYC in a town that had contracted with NYC in 1923
that “all costs of construction and subsequent operation
maintenance and repair” shall be at the expense of NYC. The
K also stated that it required NYC to extend the sewer lines
when necessitated by future growth and building up of the
communities. The sewer system is now at capacity, and
further additions would be impossible without building a new
plant.
(2)Issue: K did not say for how long the K would be in effect, or
what to do when it becomes impossible to add sewer lines.
NYC argues it can terminate the K at will.
(3)Held: The contract’s missing time term should be added to be
the reasonable time required to perform the contract. NYC is
obligated to maintain the existing plant, but not to expand it.
3. Open Price Term UCC §2-305

a) Parties can write a contract without the price term settled.
b) At the time of delivery the price is a reasonable price if
(1)nothing is said of price,
(2)the price is left to be determined but the parties fail to agree
(3)the price term is to be fixed to some 3rd party price index or
market standard.
c) Good faith rules apply.
d) If the parties agree not to be bound without a price, there is no
contract. Buyer must return all goods received or pay the
reasonable value if unreasonable to return them. Seller must return
prepaid money.
4. Good Faith
a) Summers: the obligation of good faith performance is better
understood simply as excluding behavior inconsistent with
common standards of decency, fairness, and reasonableness, and
with the parties’ agreed-upon common purposes and justified
expectations.
b) Burton: Bad faith is the exercise of discretion for the purpose of
recapturing opportunities forgone or bargained away at the time
of contracting, with the identification of such forgone opportunities
depending on objective analysis of the parties’ expectations as they
may be inferred from the express contract terms in light of the
ordinary course of business.
c) Centronics Corp. v. Genitron Corp., 132 N.H. 133 (1989)
(1)Facts: Π agreed to sell biz assets to Δ. The purchase price
was pegged at a value that arbitration was to determine. An
escrow account held money from DD pending the results of
the arbitration.
(2)Issue: Π charged that Δ was breaching the implied covenant
of good faith when Δ would not allow any money to be
removed from the escrow before arbitration ended even
though that money was going to be Π’s after arbitration and
that Δ was belaboring the arbitration.
(3)Held: Π had not asked for any clause in the K to allow them
to pull any money out in the event of a long arbitration. Δ had
good faith reasons to want to keep the money in escrow until
the end of arbitration.
d) Four question test
(1)Does the agreement ostensibly allow to or confer upon Δ a
degree of discretion in performance tantamount to a power to
deprive the plaintiff of a substantial proportion of the
agreement’s value?
(2)If the ostensible discretion is of that requisite scope, does
competent evidence indicate that the parties intended by their
agreement to make a legally enforceable contract?
(3)Assuming an intent to be bound, has Δ’s exercise of
discretion exceeded the limits of reasonableness?
(4)Is the cause of the damage complained of Δ’s abuse of
discretion, or does it result from events beyond the control of
either party, against which Δ has no obligation to protect Π?
e) CISG contains no clause requiring good faith in the international
sale of goods by merchants but most European codes have clauses
closely following Restatement 2d §205 which implies the duty of
good faith and fair dealing in every contract.
5. Output, Requirements, and Exclusive Dealings UCC §2-305

a) A term that measures the quantity by the output of the seller or the
requirements of the buyer is still bound by a quantity of good faith,
and no quantity unreasonably disproportionate to any stated
estimate or comparable prior output may be tendered or demanded.
b) A lawful agreement for exclusive dealings imposes an obligation
on the seller to use best efforts to supply and on the buyer to use
best efforts to promote the sale.
c) A shutdown by a requirements buyer for lack of orders might be
permissible where a shutdown merely to curtail losses would not.
Comment 2.
d) Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 (1988)
Requirements K
(1)Facts: Δ entered K with Π to convert 3000 trucks from gas
powered to propane “as required by [Δ]” and then buy all the
propane from Π for 8 years. Δ, giving no reason decided not
to convert its fleet. Π sues Δ for lost profits on 2,242
conversions.
(2)Issue: What is unnecessarily disproportionate under UCC §2-
305(1)?
(3)Held: With proper jury instruction, no reasonable jury would
have found for Δ. If no reason at all need be given to reduce a
buyer’s requirements to zero, then a requirements contract is
reduced to an option contract. There must be a good reason to
change the requirements to zero, and Δ did not supply one.
6. Employment and Good Faith

a) An at-will employee can still be terminated at any time without a
good faith duty for the employer to give a reason.
b) Most jurisdictions recognize a narrow “public policy” exception
that must involve a public duty.
c) Donahue v. Federal Express Corp., 753 A.2d 238 (2000)
(1)Facts: Π, a permanent employee, was a “whistleblower” at
company Δ which then terminated him. Π appealed his
termination with the Guaranteed Fair Treatment Procedure
provided for in his K, which upheld the termination.
(2)Issue: Π argues that Δ did not act in good faith in Π’s
termination and that P supplied sufficient additional
consideration to be classed differently than an at-will
employee.
(3)Held: As a matter of law, an employee cannot maintain
action for breach of implied duty of good faith and fair
dealing insofar as underlying claim is for termination of an
at-will employment. Superior performance is not good
enough to be classed differently than an at-will employee
because that is what is expected.
D.Express and Implied Warranties

1. Definitions
a) Warranty – an assurance by one party to a contract of the existence
of a fact upon which the other party may rely, intended precisely to
relieve the promisee of any duty to ascertain the fact for himself,
and which amounts to a promise to indemnify the promisee for any
loss if the fact warranted proves untrue.
2. UCC §2-313 on the Creation of Express Warranties

a) Any affirmation of fact or promise made by S to B that becomes
part of the basis of the bargain creates a warranty that the goods
will conform to the affirmation or promise
b) Any description of the goods which is made part of the basis of the
bargain creates a warranty that the goods will conform to the
description.
c) Any sample or model which is made part of the basis of the bargain
creates a warranty that the goods will conform to the sample.
d) The use of the words “warrant” or “guarantee” are not necessary.
e) Opinions do not make a warranty, expressions of fact do.
f) Express warranties must be part of the basis of the bargain to take
effect.
g) Carpenter v. Chrysler Corp., 853 S.W.2d 346 (1993)
(1)Facts: Π purchased two cars from Δ dealer. Π requests a
“reliable car” and dealer tells Π that the LeBaron is what he
wants. The car then has a series of failures and defects. Π
stops making payments on the car when Δ cannot repair the
car’s defects. Δ then repossessed the car.
(2)Held: Under UCC §2-313, a warranty was created because
the dealer gave a (mis)representation of fact. When the car
did not live up to the representations, the warranty was
breached.
(3)Note: look out for statute of frauds or parol evidence
problems. This case had no SoF problems because it was a
written contract with an oral supplement. No Parol Evidence
problem because the written instrument was not a full
integration.
(4)The dealer could have protected himself from salesmen’s
slips by putting an integration clause into the contract.
3. Implied warranties
a) UCC §2-314 on Implied Warranty of Merchantability and Usage of
Trade
(1)Unless excluded or modified, a warranty that the goods shall
be merchantable is implied in a contract for their sale if the
seller is a merchant with respect to goods of that kind. See the
statute for a description of what makes goods merchantable.
b) UCC §2-315 on Implied warranty on Fitness for purpose
(1)Where the seller at the time of contracting has reason to know
any particular purpose for which the buyer is purchasing the
goods and that the buyer is relying on the seller’s judgment,
there is, unless modified, an implied warranty that the goods
will fit that purpose.
c) Vlases v. Montgomery Ward & Co., 377 F.2d 846 (1967)
(1)Facts: Π purchased 2000 chicks from Δ. The chicks were
then found to carry a disease that left them unsuitable for use.
(2)Held: UCC §314 and UCC §315 hold. It doesn’t matter that
Δ could not have known that the chicks were sick nor that Δ
took care in ensuring that the goods were quality. All that is
important is that the goods were not. Δ is in breach.
4. UCC §2-316 Exclusion or Modification of Warranties

a) Words or conduct relevant to the creation of an express warranty
and words or conduct tending to negate or limit the warranty shall
be construed as consistent whenever reasonable. §2-316(1)
b) To exclude or modify the implied warranty of merchantability or
fitness must mention merchantability or fitness and be
conspicuous. §2-316(2)
c) See exclusions in text.
d) Singer Co. v. E.I. Du Pont De Nemours & Co., 579 F.2d 433
(1978)
(1)Facts: Π approached Δ about purchasing their
electrodepositing system. Π then contracted Δ to build the
system. Π then experienced problems with the system that Δ
was unable to fix, including altering the original
consumables. Π then removed Δ’s consumables and replaced
them with another company’s. Π then sues Δ.
(2)Result: Π is awarded $$. Reliance interest was formed when
Δ accepted the offer to provide Π a system. §2-316(2) applies
as the implied warranty of fitness was cumulative to and not
excluded by the express warranty. Π relied on Δ’s expertise
in the area. §2-315. The question of the parties’ intent was a
proper issue to reach the jury.
e) Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57 (1969)
(1)Facts: Π’s dealer sold Δ a combine. Δ put $675 down, and
financed the rest for $534.52 a year for the next 3 years. Δ
defaulted on the first payment and Π brings suit to recover
the deferred payments. Δ defends on breach of implied
warranties of fitness in UCC §2-316.
(2)Result: Affirmed the ruling for Δ because the language that
limited the implied warranties was not conspicuous enough.
(3)Note: why is the manufacturer/financier losing? The court
states that its conduct put it in the status of a seller and that its
status as a seller outweighed its status as an assignee, and
therefore did not entitle them to the protection of an assignee
against defenses that derived from its actions as a seller.
E. Modifications
1. Generally
a) Usually, modifications of contracts are contracts themselves
requiring consideration.
(1)Preexisting duty rule: an agreement modifying a contract is
not supported by consideration if one of the parties to the
agreement does or promises to do something that he is legally
obligated to do.
(2)Courts are hesitant to apply this rule when unanticipated
difficulties arise and the other party, not influenced by
coercion or duress, voluntarily agrees to the amendments.
b) UCC §2-209(1).
(1)An agreement modifying a contract [for the sale of goods]
needs no consideration to be binding.
(2)A signed agreement which excludes modification or
rescission except by a signed writing cannot otherwise be
modified or rescinded, but except as between merchants, such
a requirement on a form supplied by the merchant must be
separately signed by the other party.
(3)The requirements of the statute of frauds must be satisfied if
the contract as modified is within its provisions
(4)Although an attempt at modification or rescission does not
satisfy the requirements of (2) or (3) it can operate as a
waiver.
(5)A party who has made a waiver affecting an an executory
portion of the contract may retract the waiver by reasonable
notification received by the other party that strict
performance will be required of any term waived, unless the
retraction would be unjust in view of a material change of
position in reliance on the waiver.
c) Angel v. Murray, 322 A.2d 630 (1974)
(1)Facts: Δ entered a K with the city to collect garbage for a fee.
Δ later asked the city to increase the fee paid to him to cover
an unexpected increase in garbage to be collected. The city
obliged. Π, a citizen of the city, sues Δ, a garbage collector
company for repayment of fees paid to the latter by the city
claiming a lack of consideration.
(2)Issue: is consideration necessary for modification?
(3)Result: The volume of garbage had risen unexpectedly and
substantially. The modification to the contract was made
during a time when the contract had not been fully
performed. Therefore, the decision to pay the additional fees
was fair and equitable.
2. Oral Modifications
a) Oral modifications of contracts within the Statute of Frauds are not
enforceable.
b) Oral modifications that do not materially alter the underlying
obligations may not be barred. Where one party relies on the other
to reduce an oral agreement to writing, failure to do so will not
prevent the relying party from taking the modification out of the
statute of frauds.
c) An oral modification may be valid on estoppel or statutory grounds.
d) Brookside Farms v. Mama Rizzo’s, Inc, 873 F.Supp. 1029 (1995)
(1)Facts: Π entered K with Δ to sell basil as Δ required. Δ
agreed to buy a minimum over a year. Π and Δ agreed to a
series of modifications over the months as Δ’s needs and
financial situation changed. Δ then bounced a payment check.
Π brings suit because Δ did not purchase the minimum
amount over the year. Δ counters that Π raised the prices in
violation of the K’s express language that no modifications
would be made unless in written form.
(2)Held: While the K’s no waiver clause prevents oral
modification, other legal theories (noted in (b) and (c)) allow
for the modifications. Δ breached, so Π is awarded damages.
V. Legal Regulation of Contracts

A.Mistake of Fact
1. Generally
a) A mistake is a belief that is not in accord with the facts.
b) Mutual Mistake – Where a mistake of both parties at the time a
contract was made as to a basic assumption on which the contract
was made has a material effect on the agreed exchange of
performances, the contract is voidable by the adversely affected
party unless he bears the risk of the mistake under the rule stated
in §154. Restatement 2d §152.
(1)Look out for limited information! If the parties recognize
their limited information and proceed anyway, K will be
enforced.
c) Unilateral Mistake – Where a mistake of one party at the time a
contract was made as to a basic assumption on which he made the
contract has a material effect on the agreed exchange of
performances that is adverse to him, the contract is voidable by
him if he does not bear the risk of the mistake under the rule
stated in §154 and
(1)The effect of the mistake is such that enforcement of the K
would be unconscionable, or
(2)The other party had reason to know of the mistake or his
fault caused the mistake.
d) A party bears the risk of a mistake when
(1)The risk is allocated to him by agreement of the parties, or
(2)He is aware, at the time the contract is made, that he has only
limited knowledge with respect to the facts to which the
mistake relates but treats his limited knowledge as sufficient,
or
(3)The risk is allocated to him by the court on the ground that it
is reasonable in the circumstances to do so.
2. Reformation –
a) A court may reform the contract if parties orally agree to a deal and
then mistakenly draft a document that incorrectly reflects the terms
of the deal.
b) A party’s negligence does not prevent him from obtaining relief,
even if he didn’t read the contract.
c) Parol Evidence may be allowed.
d) For more, refer back to the remedy of Reformation, above
3. Lenawee Ct. Bd. Of Health v. Messerly, 331 N.W.2d 203 (1982)

a) Facts: Δ sold land to Π on which a 3 unit apartment stood. After
the sale, the county condemned the property as it had a defective
sewer system. Δ sued to rescind the sale on the basis of mutual
mistake. Both parties were blameless as neither new of the sewer
defect. The sales K contained an “as is” provision allocating risk to
the buyer.
b) Held: The parties had a mutual mistake of fact, but this case does
not warrant rescission. Rescission is not available to relieve a party
who has assumed the risk of loss in connection with the mistake.
c) In the cited Barren Cow case, Sherwood v. Walker, 66 Mich. 568
(1887), the parties agreed to the sale and purchase of a cow which
was thought to be barren, but which was, in reality, with calf,
showing it to have a much greater value. The court permitted the
rescission as the state of the cow was the substance of the
agreement. “The thing sold and bought had in fact no existence.”
Sherwood is distinguished from Messerly because the very thing
being sold was different in Sherwood, as opposed to the value of
the thing being sold being different in Messerly.
4. Lanci v. Metropolitan Ins. Co., 388 Pa. Super. 1 (1989)

a) Facts: Π agreed to settle an accident claim with Δ, his insurer, for
$15k. After which, he finds that his policy allowed him $250k. Π
argued that he had settled under a mistaken belief that $15k was all
he was entitled.
b) Held: This was a unilateral mistake under §153. The performance
was adverse to him, the mistake was such that enforcement would
be unconscionable, and Δ had reason to know of the mistake.
B. Public Policy and Illegality

1. Illegality
a) Neither law nor equity can be invoked to redress a wrong that has
resulted from the injured party’s own wrongful and illegal conduct.
b) Clouse v. Myers, 753 S.W.2d 316 (1988)
(1)Facts: Π and Δ entered an agreement to jointly run a tavern.
Π paid money to Δ as an investment in the venture, with more
to pay at a later date. However, it was not legal for Π to
operate a tavern in the manner propsed, and the authorities
halted the operation. Π then sued Δ for return of the payment
made.
(2)Held: Because Π and Δ were violating the law when they
entered the K, the action is denied. (see (a) above.)
2. Covenant Enforceability
a) A noncompetition covenant is okay if the enforcing agent can prove
it is necessary for business interests.
b) A covenant cannot deprive a community of a unique skill.
c) A covenant cannot impose undue hardship on the terminating
worker
d) Geography constraints are upheld when the business serves a
limited geographical area
e) Time constraints should be reasonable related to the legitimate
interest which the employer is seeking to protect.
f) Hopper v. All Pet Animal Clinic, 861 P.2d 531 (1993)
(1)Facts: Π worked for Δ for a time under a K that disallowed
her working as a small animal veterinarian within the 5 miles
surrounding the city for 3 years. Π left and then worked at
another animal hospital and depleted some of Δ’s business.
(2)Issue: Are covenants such as these enforceable?
(3)Result: The Court held that the 3 year duration was
unreasonable, and reduced it to 1 year. The Court affirmed
the remaining terms of the covenant.
3. A.Z. v. B.Z., 431 Mass. 150 (2000)

a) Facts: Π and Δ divorced after going through artificial insemination
and storing pre-embryos. Δ wants to have the pre-embryos
implanted; Π does not.
b) Issue: Can an individual be compelled to procreate? Does a consent
form constitute a contract between the couple?
c) Held: A person cannot be compelled by court to procreate. Also,
the purpose of the consent form was not to bind the couple to an
agreement, but was only meant to direct the clinic.
d) Note: public policy will also not force an abortion of the child,
even if a couple agrees that the woman would go on birth control
and does not.
C. Unconscionability
1. Definition
a) Something is unconscionable if it is so unreasonably detrimental to
the interest of a contracting party as to render the contract
unenforceable.
b) Procedural Unconscionability is concerned with “unfair surprise,”
fine print clauses, mistakes, or ignorance of important facts or other
things that mean bargaining did not proceed as it should.
c) Substantive Unconscionability is an unjust or “one-sided”
contract.
d) An Adhesion Contract is one so heavily restrictive of one party,
while so non-restrictive of another, that doubts arise as to its
representation as a voluntary and uncoerced agreement. Often a
standard form printed contract prepared by one party and submitted
to the other on a “take it or leave it” basis.
2. UCC
a) UCC §2-302 official comment – The basic test is whether, in the
light of the general commercial background and the commercial
needs of the particular trade or case, the clauses are so involved are
so one-sided as to be unconscionable under the circumstances
existing at the time of the making of the contract.
b) Unconscionability is generally recognized to include an absence of
meaningful choice on the part of one of the parties together with
contract terms which are unreasonably favorable to the other party.
c) Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315
(1965)
(1)Facts: Π entered a contract with Δ stating that payments on
rent-to-own merchandise are to be applied equally to the
outstanding balance of all debts owed pro rata. Π defaulted
on a payment, and Δ used this clause to repossess all the
belongings with any outstanding debt, some having owed less
than a dollar remaining.
(2)Held: This is classic unconscionability.
d) Many courts hold that there must be both procedural and
substantive unconscionability present to establish a claim.
e) Maxwell v. Fidelity Fin. Servs., Inc., 184 Ariz. 82 (1995)
(1)Facts: Δ financed Π’s purchase of a water heater for their
$40k home. The heater cost $6500, and with 19% financing
for 10 years, cost $15k. The heater didn’t work. When
financing was renewed, the balance was down to $5733. The
K called for securing the payments with the home. Π argues
unconscionability. Δ argues novation and passing the statute
of limitations.
(2)Held: No one should be able to repossess a $40k house for
nonpayment on a $6500 heater. This is substantively
unconscionable. This court does not require both procedural
and substantive unconscionability though.
3. Bargaining power
a) Courts are reluctant to accept pleas of unconscionability between
merchants. (similar bargaining power)
b) When gross inequality of bargaining power and a misunderstanding
or unawareness of a provision is present, a court may invoke
unconscionability.
c) Langemeier v. National Oats Co., Inc, 775 F.2d 975 (1985)
(1)Facts: Π entered a K to grow popcorn for Δ. The K provided
that Δ could reject popcorn with defects including damage
due to freezing weather. Π got Δ’s permission to proceed and
plant. After a freeze damaged the corn, Δ refused it, and Π
sold it to another firm. Δ had not told Π that the crop required
an extra 20 days in the field, exposing it to the frost damage.
(2)Held: the clause stating Δ could reject the popcorn was
unconscionable.
(3)JJ: isn’t this odd? Shouldn’t you avoid using this case on the
final? Hint Hint…
4. Bank One v. Coates, 125 F.Supp.2d 819 (2001)

a) Facts: Δ entered a K with Π for credit. Π then sends an addendum
to Δ including a forced arbitration clause. Not responding within 30
days is regarded as acceptance of the addendum. After the 30 day
period, Δ finds he does not want the arbitration clause.
b) Held: This case is not unconscionable. Arbitration is not inherently
unfair, and Δ had the right to deny but didn’t. He was given
options, and failed to take them.
VI. Remedies
A.Expectation Damages
1. Definitions:
a) This is a measure of the money damages available to plaintiff in an
action for breach of contract based on the value of the benefit he
would have received from the contract if Δ had not breached, but
had completed the performance as agreed.
b) The amount is generally the monetary value of full performance
minus the costs plaintiff avoided by not performing his own part of
the contract.
D = VFullPerformance – Cavoided
c) When the buyer breaches, the seller’s expectation damages will
ordinarily be the contract price less the cost saved.
D = K - Cavoided
d) When the seller breaches, the buyer’s expectation damages will be
measured by the fair market value of the performance at the time
and place of promised performance.
D = VFairMarket
2. UCC Provisions
a) UCC §2-712 – “cover” damages, damages for replacement goods
b) UCC §2-713 – damages for goods not delivered
c) UCC §2-714 – damages for goods delivered not to spec
d) UCC §2-715 – damages incidental to main
e) UCC §2-715(2) – damages consequential to main (as a result of bad
goods, extra damages occurred) (Hadley v. Baxendale rule)
f) UCC §2-717 - the buyer on notifying the seller of his intention to
do so may deduct all or any part of the damages resulting from any
breach of the contract from any part of the price still due under the
same contract.
3. General rules
a) No speculative damages. Π has to prove his damages with
reasonable certainty.
b) The injured party should not recover more from the breach than he
would have gained had the contract been fully performed.
c) ‼ Common law alert: the common law did not recognize cover as
a remedy.
d) Specific performance is only awarded when damages are not
adequate.
e) Freund v. Washington Square Press, 34 N.Y.2d 379 (1974)
(1)Facts: Π contracted with Δ to publish his manuscript with a
$2k advance upon receipt of the work and royalties on the
copies. Δ then decides not to produce his book. Π finds a
different publisher and pays then to publish. Π sues Δ for
specific performance (denied at TC) and damages.
(2)Issue: Π argues his promotion was delayed, he lost royalties,
and he make other arrangements.
(3)Result: Nominal damages only. Π was promoted anyways,
royalties were speculative at best, and on the cost of
publication, the injured party should not recover more from
the breach than he would have gained had the contract been
fully performed.
4. Efficient Breach and Economic Waste

a) If the seller finds a better buyer, he should breach and present the
original buyer with damages.
b) The cost of performance is the proper measure of damages ‘if this
is possible and does not involve unreasonable economic waste’.
Restatement §346(1)(a)(i)
c) The diminution in value caused by the breach is the proper measure
‘if construction and completion in accordance with the contract
would involve unreasonable economic waste’. Restatement §346
(1)(a)(ii)
d) Peevyhouse v. Garland Coal Mining Co., 382 P.2d 109
(1962)
(1)Facts: Π entered a K with Δ to allow Δ to strip mine coal on
Π’s land for a period of years if they return the land to the
way it was at the end of the lease. Δ refuses to fill in the holes
they left saying it would cost them $29k, while only adding
$300 in value. Π sues for $25k.
(2)Held: The measure of damages in Restatement §346(1)(a)(ii)
is used because unreasonable economic waste would occur if
the K was completed as written.
e) Doran: there is a risk that a seller with the prospect of zero
damages will breach when someone else will have to bear the cost.
It’s not that we don’t want parties breaching, but we want
breaching parties to do so efficiently. An inefficient breach would
be that society as a whole would have to pay more than required
while society would gain less than it could.
5. Lost Volume Sellers

a) To be a lost volume seller, these criteria must be met
(1)Capacity to make an additional sale
(2)Profitable to make an additional sale
(3)Probably would have made an additional sale absent the
buyer’s breach
b) Lost Volume sellers do not have to mitigate their loss on a license
sale because the new sale would have been one they could have
made absent the breach.
c) In re El Paso Refinery, 196 B.R. 58 (1996)
(1)Facts: Refinery (R) went bankrupt and RHC took over their
processes and assets. UOP alerts RHC that they are operating
without a license, and RHC and UOP negotiated a new
license.
(2)Issue: did UOP mitigate R’s damages in the sale of licenses
to RHC? UOP argues that R’s damages were not mitigated
because RHC was a new potential customer, and UOP is a
lost volume seller.
(3)Held: UOP is not a lost volume seller, because absent R’s
breach, UOP would not have been able to sell to RHC which
used the same refinery. Thus, R’s damages were mitigated.
6. Cost Plus
a) KGM Harvesting Co. v. Fresh Network, 42 Cal. Rptr. 2d 286
(1995)
(1)Facts: S contracted to sell lettuce to B which would pass the
lettuce to another buyer at cost plus. During a period of
skyrocketing lettuce prices, S refuses to supply B with
lettuce, forcing B to find another, more expensive supplier.
(2)Issue: Why should B recover damages when they suffer no
consequences of the breach?
(3)Held: B should get the benefit of the bargain in all situations.
(4)See Doran’s note above.
7. Incidental Damages
a) Fertico Belgium v. Phosphate Chemicals Export Ass’n, 501
N.Y.S.2d 867
(1)Facts: B contracts with S to deliver fertilizer to Belgium
which will then go to Iraq in two shipments paid by letter of
credit. The first shipment will arrive late, so the second
shipment is canceled. The first shipment is covered for $700k
more. B then sells the first shipment when it arrives for $450k
profit.
(2)Result: B has to subtract the profit on the resale because he
never would have had that profit were it not for the breach.
8. Consequential Damages
a) A plaintiff can only recover consequential damages when
(1)They arise naturally from the breach itself
(2)They arise from the special circumstances under which the
contract was actually made if the special circumstances were
communicated by Π to Δ.
Hadley v. Baxendale, infra.
b) Hadley v. Baxendale, 9 Exch 341 (1845)
(1)Facts: Π operated a mill that suffered a broken shaft.
Manufacturer asked Π to send them the shaft. Δ delayed in
sending the shaft and as a result the mill was inoperable for
longer than it had to be.
(2)Issue: is Δ liable for the lost profits Π suffered from their
delay in shipment?
(3)Result: Δ owed no damages by the famous rule noted above
that is now represented in UCC §2-715(2)
B. Mitigation
1. Definition
a) Mitigation of Damages is a requirement that one injured by reason
of another’s breach of an agreement exercise reasonable diligence
and ordinary care to avoid aggravating the injury or increasing the
damages.
2. When Applicable
a) In general, the party that did not breach has the duty to mitigate in
lessening the damages incurred by the other party, and not
increasing their damages.
b) UCC §2-709(1) Action for the Price – when the buyer fails to pay,
the seller may recover the price of goods accepted or of conforming
goods lost or damaged within a reasonable time after risk of loss
has passed to the buyer or goods identified to the contract if the
seller can’t reasonably resell them.
c) A seller only has the duty to mitigate when loss could be avoided
with reasonable effort and without undue risk, expense, or
humiliation.
3. Siemens Energy & Automation v. Coleman Elec. Supply Co, 46

F.Supp.2d 217 (1999)
a) Facts: Δ was a distributor of Π’s products. Δ was late on its
payments to Π. Δ tried to return some goods to Π, but Π refused
them in favor of money. Π sues for such money. Δ argues that their
duty to mitigate suggests they should have to recover the goods.
b) Issue: does Π have the duty to mitigate?
c) Result: No. UCC §2-709(1) holds.
C. Reliance Damages
1. Definitions
a) Incidental damages include losses reasonably incident to a claim for
actual damages. These would include things like “expenses
incurred in inspection, receipt, transportation, and care and custody
of goods rightfully rejected…(UCC §2-715 - buyers) or “any
commercially reasonable charges, expenses, or commissions
incurred in stopping delivery, in the transportation, care and
custody of goods after the buyers breach in connection with return
or resale of the goods…” (UCC §2-710 – sellers)
b) Consequential damages are those which are caused by an injury but
which are not a necessary result of the injury. Because they do not
necessarily flow from the injury, they must be specially pleaded
and proven.
2. Availability
a) Reliance Damages may be limited to the expectation of complete
performance.
3. UCC
a) UCC §2-715 – Buyer’s Incidental and Consequential Damages.
(1)Incidental damages resulting from Seller’s breach include
expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully
rejected.
(2)Consequential damages resulting from the seller’s breach
include
(a)Any loss resulting from general or particular
requirements and needs that the seller was told or
would have reason to know
(b)Injury to person or property proximately resulting from
any breach of warranty.
b) UCC §2-710 - Seller’s Incidental Damages
(1)Incidental damages to an aggrieved seller may include any
commercially reasonable charges, expenses or commissions
incurred in stopping delivery, in the transportation, care, and
custody of goods after the buyer’s breach, in connection with
return or resale of gods or otherwise resulting from the
breach.
D.Restitution Damages
1.
E. Specific Performance
1. Definition
a) This is an equitable remedy available to an aggrieved party when
the party’s remedy at law is inadequate forcing the party in breach
to undertake to perform or complete performance as prescribed by
the contract.
2. Availability
a) Specific Performance is only available in common law jurisdictions
when other remedies are inadequate or where damages are
impractical. In civil law jurisdictions however, it is usually
available before other remedies are used.
b) Contract has to describe a performance so specific that other
remedies would be inadequate. Having indefinite terms however
does not bar a court’s use of specific performance. (See City Stores,
infra.)
c) Common law usually decrees specific performance for land
contracts because each plot of land is considered unique unless the
difficulties of supervision outweigh the importance of specific
performance to the P. (Especially true for construction on D
controlled land because P cannot employ another contractor at D’s
expense.)
3. Restatement
a) Restatement 2d §360 says: In determining whether the remedy in
damages would be adequate, the following circumstances are
significant:
(1)the difficulty of proving damages with reasonable certainty,
(2)the difficulty of procuring a suitable substitute performance
by means of money awarded as damages, and
(3)the likelihood that an award of damages could not be
collected.
4. UCC
a) UCC §2-716 says that (1) Specific Performance may be decreed
when goods are unique. Additionally, (3) the buyer has the right of
replevin “goods identified to the contract” if cover is attainable
with reasonable effort, or if circumstances reasonably indicate that
such effort will be of no avail.
5. City Stores Co. v. Ammerman, 266 F.Supp. 766

a) Facts: P entered an agreement with D such that if P helped D gain
zoning approval to build their mall, D would give P the opportunity
to be a tenant at a favorable rate. The terms of the lease to P would
be similar to what was offered to other tenants when they were
acquired. D did secure zoning privileges and then entered leases
with Woodward & Lothrop and Hecht’s, but not with P.
b) Issue: Is the K definite enough to warrant specific performance?
c) Result: The precise measure of damages was too difficult to
ascertain. Even if it was ascertainable, money would not be
adequate compensation for the right to participate in the shopping
center. Specific Performance awarded.
F. Liquidated Damages and Agreed Remedies

1. Definition
a) An amount stipulated in a contract which the parties agree to as a
reasonable estimation of damages owing to one in the event of
breach by the other.
2. Enforceability
a) In order for such a provision to be enforceable, the liquidated
damages must be reasonable in light of
(1)A forecast of the damages likely to actually result from the
breach
(2)Difficulties in proof of loss
(3)Inconvenience or infeasibility of otherwise obtaining an
adequate remedy
b) If these conditions are met, liquidated damages clauses establish a
maximal liability.
c) If these conditions are not met or if it otherwise appears that the
clause was included to deter a breach rather than by a good faith
effort to estimate probable damages, the provision will be
considered punitive and unenforceable. (This does not exclude
normal damage calculations.)
3. Restatement
a) Restatement 2d §356
(1)Damages for breach by either party may be liquidated in the
agreement but only at an amount that is reasonable in the
light of the anticipated or actual loss caused by the breach
and the difficulties of proof of loss. A term fixing
unreasonably large liquidated damages is unenforceable on
grounds of public policy as a penalty.
(2)A term in a bond providing for an amount of money as a
penalty for non-occurrence of the condition of the bond is
unenforceable on grounds of public policy to the extent that
the amount exceeds the loss caused by such non-occurrence.
b)
4. UCC
a) UCC §2-718
(1)Damages for breach by either party may be liquidated in the
agreement but only at an amount which is reasonable in the
light of the anticipated or actual harm, the difficulties in proof
of loss, and the inconvenience or nonfeasibility of otherwise
obtaining an adequate remedy. Unreasonably large liquidated
damages are void as a penalty.
b) UCC §2A-504 – Liquidation of Damages (leases)
(1)Damages payable by either party for default, or any other act
or omission, including indemnity for loss or diminution of
anticipated tax benefits or loss or damage to lessor's residual
interest, may be liquidated in the lease agreement but only at
an amount or by a formula that is reasonable in light of the
then anticipated harm caused by the default or other act or
omission.
(2)If the lease agreement provides for liquidation of damages,
and such provision does not comply with subsection (1), or
such provision is an exclusive or limited remedy that
circumstances cause to fail of its essential purpose, remedy
may be had as provided in this Article.
(3)If the lessor justifiably withholds or stops delivery of goods
because of the lessee's default or insolvency (Section 2A-525
or 2A-526), the lessee is entitled to restitution of any amount
by which the sum of his [or her] payments exceeds:
(a) the amount to which the lessor is entitled by virtue of
terms liquidating the lessor's damages in accordance
with subsection (1); or
(b) in the absence of those terms, 20 percent of the then
present value of the total rent the lessee was obligated
to pay for the balance of the lease term, or, in the case
of a consumer lease, the lesser of such amount or $500.
(4)A lessee's right to restitution under subsection (3) is subject to
offset to the extent the lessor establishes:
(a) a right to recover damages under the provisions of this
Article other than subsection (1); and
(b)the amount or value of any benefits received by the
lessee directly or indirectly by reason of the lease
contract.
c) UCC §2A-528 - Lessor's Damages for Non-acceptance, Failure to
Pay, Repudiation, or Other Default.
(1)Except as otherwise provided with respect to damages
liquidated in the lease agreement (§2A-504) or otherwise
determined pursuant to agreement of the parties (§§1-102(3)
and 2A-503), if a lessor elects to retain the goods or a lessor
elects to dispose of the goods and the disposition is by lease
agreement that for any reason does not qualify for treatment
under §2A-527(2), or is by sale or otherwise, the lessor may
recover from the lessee as damages for a default of the type
described in Section 2A-523(1) or 2A-523(3)(a), or, if
agreed, for other default of the lessee, (i) accrued and unpaid
rent as of the date of default if the lessee has never taken
possession of the goods, or, if the lessee has taken possession
of the goods, as of the date the lessor repossesses the goods
or an earlier date on which the lessee makes a tender of the
goods to the lessor, (ii) the present value as of the date
determined under clause (i) of the total rent for the then
remaining lease term of the original lease agreement minus
the present value as of the same date of the market rent at the
place where the goods are located computed for the same
lease term, and (iii) any incidental damages allowed under
Section 2A-530, less expenses saved in consequence of the
lessee's default.
(2)If the measure of damages provided in subsection (1) is
inadequate to put a lessor in as good a position as
performance would have, the measure of damages is the
present value of the profit, including reasonable overhead, the
lessor would have made from full performance by the lessee,
together with any incidental damages allowed under Section
2A-530, due allowance for costs reasonably incurred and due
credit for payments or proceeds of disposition.
d) Liquidated damages should not put the lessor in a better position
than it would have been in had the lease been fully performed.
UCC §2A-504
e) A contract aloowing the lessor to collect the present value of all
future rent and the present value of the equipment’s fair market
value at the end of the lease while permitting the lessor to sell the
repossessed equipment immediately without providing the lessee
with any credit for the proceeds of the sale violates UCC 2A-504.
f) ePlus Group, Inc. v. Panoramic Comm., 50 UCC 2d 213 (2003)
(1)Facts: Π entered a master lease agreement with Δ with a K
that included a liquidated damages clause. The lease was then
modified to include a co-lessee. Δ eventually breached. Π
sues for $1.1M, reduced from $1.2M by a credit for the
releases and sale of returned equipment.
(2)Issue: the liquidated damages clause stated that Π will credit
the Net Proceeds to damages owed by Δ. Damages were the
amount of money left on the lease, while net proceeds were
the value or re-leasing or selling the equipment. The value
left on the lease was much greater than the value in re-leasing
or selling the equipment.
(3)Result: The court ruled that the liquidated damages clause
may be unreasonable (so refused to grant summary judgment
on its enforceability).
VII. Conditions
A.Express Conditions
1. Definitions
a) A condition is something attached to an agreement, the occurrence
of which will trigger the performance of a legal obligation. A
condition is not a promise. Failure to meet a condition is not a
breach.
b) A condition precedent is a fact which must exist or occur before a
duty of immediate performance of a promise arises. The party to
whom a duty is owed must prove the occurrence in order to
compel the other party to perform.
c) A condition subsequent is a fact which will extinguish a duty to
make compensation for a breach of contract after the breach has
occurred.
d) A concurrent condition is a condition precedent which exists only
when parties to a contact are found to render performance at the
same time. The party owing the duty must prove the condition has
occurred to discharge the duty.
2. Condition vs. Promise
Condition Promise
Upon not meeting the condition, Upon not performing the promise,
the duty is discharged then
 total breach: the duty is
discharged.
 material breach: the duty is
performed, but there are
damages recoverable.
3. Restatement view
a) See Howard v. Federal Crop Insurance Corp., 520 F.2d 695, on
p.99
(1)Facts: Due to heavy rains, Π’s tobacco crop was damaged
and unusable. Π plowed and disked the land so he could plant
a cover crop. When Π tried to get an insurance claim, Δ, his
insurer denied the claim because they had not inspected the
damage. The K said in one paragraph “it shall be a condition
precedent to the payment of any loss [that the insured provide
info regarding the loss]” and in the next “[the crops] shall not
be destroyed until the Corporation makes an inspection.”
(2)Issue: Is the latter paragraph a promise or a condition? If it is
a condition, its violation results in Π’s forfeiture of coverage.
If it is a promise, Δ may recover damages from Π for the
elimination of the crop but does not cause a forfeiture of the
policy.
(3)Held: If the policy was intended for the latter paragraph to be
a condition, it would have been labeled as such like the other
paragraphs were. Therefore, this paragraph is a promise, and
Π has not forfeited the policy.
b) Restatement §261: Promises and Conditions: Where it is doubtful
whether words create a promise or an express condition, they are
interpreted as creating a promise; but the same words may
sometimes mean that one party promises a performance and that the
other party's promise is conditional on that performance.
Illustration: An insurance company A issues B a policy containing
the clause “In the event of disagreement as to the amount of loss it
shall be ascertained by two appraisers and an umpire. The loss shall
not be payable until 60 days after the award of the appraisers when
such an appraisal is required.” This provision is a promise to
arbitrate AND makes the award conditioned on A’s duty to pay
upon disagreement.
4. Strict compliance is the rule

a) Courts frequently avoid applying the strict compliance rule when a
forfeiture would result. A forfeiture occurs when one party has
relied on the bargain (either by preparing to perform or by actually
making part performance), and insistence on strict compliance with
the condition would cause him to fail to receive the expected
benefits from the deal. See Restatement 2d §227(1)
B. Implied or Constructive Conditions

1. Definitions
a) An implied condition is one that can be implied from the parties’
conduct.
b) A constructive condition is one that is not agreed on by the parties,
but which is supplied by the court for fairness.
2. Substantial Compliance is the rule

3. Restatement view
a) When parties have structured a contract to require periodic
payments or alternating performances, a party’s duty to perform a
portion of the contract is constructively conditioned upon the other
party’s having substantially performed any corresponding duties.
Look at who is first to fail to substantially perform.
b) See K & G Construction Co. v. Harris & Brooks, 223 Md. 305,
p.104
(1)Issue: Did the contractor have the right to refuse progress
payments when a condition of the contract was not met? Did
the subcontractor have the right to refuse to perform when the
contractor stopped paying them?
(2)Held: Mutually dependent promises. Contractor’s refusal to
pay did not relieve Sub’s duty because it was the Sub that
breached in the first place.
c) Restatement 2d §237: Except as stated in §240, it is a condition of
each party’s remaining duties to render performances to be
exchanged under an exchange of promises that there be no uncured
material failure by the other party to render any such performance
due at an earlier time.
Illustration: A contracts to build a house for B for some amount,
with progress payments while A is building. For no reason, B fails
to remit a progress payment, and A opts to suspend building. B’s
failure is an uncured material failure. A is not in breach, and B
has no claim against A. A has a claim against B if it is damaged by
the delay. However, if B makes a delayed payment and it is not too
late to cure the material breach, A’s duties are not discharged.
4. Taylor v. Johnston,15 Cal. 3d 130 (1975)

a) Facts: Π had two mares to be bred with Δ’s horse. Δ sold his horse
out of state before Π bred the horse making it very difficult for Π.
Π attempted to find a way to breed the horses, but Δ’s horse was
not available because it was often breeding with other horses
owned by its shareholders. Π gave up and bred the horses with a
different horse.
b) Issue: When was Π in breach? When they sold the horse, or when
the contract period ended? The court noted that no condition
appeared that Π was required to take a subordinate position to the
shareholders.
c) Held: Π could have still bred his horses with Δ during the
contracted term but for his own actions (like bringing a pregnant
horse to the stud, and finding another stud). The condition
constructed by the actions of Δ at most amounted to a partial
breach, insufficiently material to terminate the contracts.
5. Anticipatory Breach and the Right to Adequate Assurance of
Performance
a) Anticipatory Repudiation is a breach committed before the arrival
of the actual time of required performance. It occurs when one
party by declaration repudiates his contractual obligation before it
is due. See Taylor v. Johnston,15 Cal. 3d 130 (1975), supra.
b) This is covered under UCC §2-609: (1) a contract for sale imposes
an obligation on each party that the other’s expectation of receiving
due performance will not be impaired. So, when a party has reason
to believe that the contract’s performance is in jeopardy, he may
demand in writing assurance, and may if commercially
reasonable, suspend performance for which he has not already
received the agreed return. Merchants must use commercial
standards as grounds for reasonableness. §2-609(2). Acceptance of
improper delivery or payment does not preclude the use of this in
the future. (No waiver.) §2-609(3). A party receiving such a
demand has repudiated the contract if he does not respond with
assurances in a reasonable time not exceeding 30 days. §2-609(4).
This clause was an attempt to battle problems with anticipatory
repudiation. A lawyer may erroneously signal to his client that the
other party has breached, and instruct him to cover his losses. At that
point, his client may have breached if the other party actually hadn’t.
(1)Pros: instead of immediately putting the client in a situation
where he may cause a breach, a lawyer can force the other
party to give assurances that he will continue to perform as
contracted, and then wait the month.
(2)Cons: introduces problematic concepts that may extend the
weaseling a couple more moves.
(a)What are “reasonable grounds for insecurity?”
(b)When has a party given an “adequate assurance” of due
performance?
(c)When is it commercially reasonable to suspend
performance while awaiting assurance? (Remember the
repudiatee is only authorized the suspension of
performance “for which he has not already received the
agreed return.”
c) See Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d
324.
(1)Facts: D, a construction company has entered a contract with
P to provide asphalt as required. Then, D writes P saying that
he is selling the company to a third party. P demands
assurances that D will continue the contract, and D does not
respond with assurances.
(2)Result: P had good reason to ask for assurances under §2-
609, and D violated it when he did not respond. Summary
judgment is granted.
C. Impossibility, Impracticability, and Frustration

1. Impossibility occurs where
a) An unexpected contingency occurs
b) The risk of which was not allocated either by agreement or custom
and
c) The occurrence of the contingency has made performance
impossible.
2. UCC §2-614
a) Substituted Performance – when the agreed performance is
unavailable due to unforeseeable contingency, but another
alternative is available, the substitute must be tendered and
accepted.
(1)Where without fault of either party the agreed berthing,
loading, or unloading facilities fail or an agreed type of
carrier becomes unavailable or the agreed manner of delivery
otherwise becomes commercially impracticable but a
commercially reasonable substitute is available, such
substitute performance must be tendered and accepted.
(2)If the agreed means or manner of payment fails because of
domestic or foreign governmental regulation, the seller may
withhold or stop delivery unless the buyer provides a means
or manner of payment which is commercially a substantial
equivalent. If delivery has already been taken, payment by
the means or in the manner provided by the regulation
discharges the buyer's obligation unless the regulation is
discriminatory, oppressive or predatory.
b) But, take note that the buyer of services can say that fixed fees
inherently are allocation of risks and as such, the buyer should not
have to pay more for the services substituted for the services.
3. UCC §2-615
a) Delay in delivery or non-delivery in whole or in part by a seller
who complies with paragraphs (b) and (c) is not a breach of his
duty under a contract for sale if performance as agreed has been
made impracticable by the occurrence of a contingency the non-
occurrence of which was a basic assumption on which the
contract was made or by compliance in good faith with any
applicable foreign or domestic governmental regulation or order
whether or not it later proves to be invalid.
b) Where the causes mentioned in paragraph (a) affect only a part of
the seller's capacity to perform, he must allocate production and
deliveries among his customers but may at his option include
regular customers not then under contract as well as his own
requirements for further manufacture. He may so allocate in any
manner which is fair and reasonable.
c) The seller must notify the buyer seasonably that there will be delay
or non-delivery and, when allocation is required under paragraph
(b), of the estimated quota thus made available for the buyer.
d) What is “impracticable?”
(1)
e) But, again, take note that the buyer of services can say that fixed
fees inherently are allocation of risks and as such, the buyer should
not have to pay more for the services substituted for the services.
4. Long term contracts are the ones that will cause this affect the most.
5. Alabama Football v. Wright, 452 F.Supp. 182 (1975)
a) Facts: Π hired Δ to play football for them, and gave a $75k signing
bonus. When Π and the league folded, Π requested Δ remit the
$75k. Δ countersued that Π failed to provide him with a forum to
perform the contract.
b) Result: Δ was allowed to keep the $75k as it was consideration for
a performance Δ actually did: sign the contract. Π was not granted
any damages in the countersuit because it was impossible.
VIII.Third Party Rights and Responsibilities

In general, third parties can only sue for damages if they are intended
beneficiaries, not incidental beneficiaries.
The law is receptive to payees who wish to assign their rights to payment.
The law is generally unreceptive when the suit is over the delegation to
perform a duty.
 For instance, if you contract a brain surgeon to operate on you, and he
has his less qualified friend do it, your cause of action is against the
surgeon.
 C, A member of the public cannot recover for injury from B’s failure
to perform a contract with the United States to carry mail over a
certain route. Restatement §145 (illus 1)
Magnussen-Moss
Fill in Later
UCC §2-318
A natural person is a human. A person as compared to a natural
person may include a corporation.
Three options to the states in implementation: A seller’s warranty
(express or implied) extends…
 Alternative A: to the immediate family or household or guest of
the buyer if it is reasonable that such person would be injured by
breach. (Seller cannot exclude.)
 Alternative B: to any natural person who would reasonably be
expected to use the goods and could be injured by breach.
(Seller cannot exclude.)
 Alternative C: to anyone who would reasonably be expected to
use the goods and could be injured by breach. (A seller may not
exclude or limit the operation of this section with respect to
injury to the person of an individual to whom the warranty
extends.)
Martinez v. Socoma Companies, 11 Cal.3d 394 (1974)
1. Facts: Δ contracted with the government to build and provide
jobs for Π. When Δ failed to do so, Π sued.
2. Issue: can Π sue for damages when the contract was between Δ
and the government?
3. No: Although Π would certainly benefit from the performance
of the K as intended, Π was not a direct party to the contract.
Π’s beneficiary status was only incidental.
A.The Assignment of Rights and Delegation of Responsibilities

1. Definitions
a) Assignment is the transfer of an interest in a right or property from
one party to another.
b) Delegation is the transfer of authority by one person to another
which may infer a general power to act for another’s benefit or
which may assign a debt to another.
c) Subrogation is one’s payment or assumption of an obligation for
which another is primarily liable.
2. Assignment of payment
a) Usually no one will mind if the rights to payment are assigned.
(This is the usual case.)
b) An exception may be an assignment of payments from a
manufacturer to a bank.
(1)If the recipient of goods has a problem with the goods, they
may lose their ability to sway the manufacturer to fix the
problem if the payment had been assigned. Holding back
payment as a threat won’t work against a bank; they will just
repossess the goods.
3. Delegation of Duties
a) A party delegating is contractual duties is still liable to the original
party it contracted with if the delegated party does not perform
correctly.
b) Contemporary Mission v. Famous Music Corp., 557 F.2d 918
(1977)
(1)Facts: Π, a group producing music sold its rights in return for
royalties to Δ, a distributor. Δ then assigned its record
division (and Π’s music) to a 3rd party. When the 3rd party
refused to participate in part of the contract, Π sued Δ.
(2)Issue: Who is liable for the breach?
(3)Held: Δ is liable for any obligation that was not fulfilled,
even after assigning responsibilities or performance to the 3rd
party.
c) A party may assign but the new party must grant adequate
assurance that it will perform under the agreement.
d) UCC §2-210 deals with assignment of duties.
(1)Also look at UCC §9-404 (p 806) in short is that the assignee
takes subject to the defenses that the assignor had. So, the
assignee needs to make sure the assignor performs in some
cases.
e) UCC §3-305 Defenses and Claims in Recoupment (under
Negotiable Instruments)
(1)Except where otherwise provided in this section, the right to
enforce the obligation of a party and pay an instrument is
subject to the following:
(a)Infancy of the obliger, duress, lack of legal capacity, or
illegality of the transaction, fraud, insolvency…
f) In re Nedwick Steel Co., 289 B.R. 95 (2003)
(1)Facts: before bankruptcy, B was the exclusive distributor for
N. Now bankrupt N wants to assign its duties of performance
to a third party W whence the original creditor B does not
want the assignment to occur because it feels W is a
competitor to B.
(2)Held: W was a direct competitor to B thus clearly increasing
the risk imposed on B. B had the right to refuse the
assignment, and did so.
(3)Borrowed: Sally Beauty, 801 F.2d 1001, 1006, held that the
duty of performance under an exclusive distributorship
cannot be delegated to a direct competitor without the
obligor’s consent because such an agreement does not
bargain for best efforts of his competitor when the contract
was entered into.
B. Suretyship and Guaranty Contracts

1. Definitions
a) A surety is one who undertakes to pay the money or perform other
acts in the event that his principal fails to do so; the surety is
directly and immediately liable for the debt.
b) A payment bond pays the subcontractors should the general
contractor default on payments to them.
c) A performance bond promises the other party of the contract that
the contract will be performed in the event that the contractor fails.
2. Beware of statute of frauds issues with surety contracts. UCC §2-

201
3. If the underlying obligation is secured by a security interest in
collateral and the oblige impairs the value of that interest, the
secondary obligation is discharged to the extent that such impairment
would otherwise increase the difference between the maximum amount
recoverable by the secondary obligor pursuant to its subrogation rights
and the value of the secondary obligor’s interest in the collateral.
Restatement 3d §42 (Suretyship)
4. National Surety Corp. v. United States, 118 F.3d 1542 (1997)
a) Facts: Π backed the performance of D for the government. When
D failed to perform, Π completed the work as contracted. As part of
D’s contract, D was required to have 10% retainage kept from his
payment until satisfactory performance was completed.
Government did not actually keep the retainage, but since there was
no completion, Π is suing the government for the retainage which it
was entitled to.
b) Result: Gov’t was liable for improper release of retainage; release
did not implicitly modify the contract; failure to notify gov’t of D’s
default did not affect Π’s right of subrogation; damages were not to
be based on full retainage amount but on Π’s actual damages.

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Contracts Outline

I. A Roadmap for Contract Law 7

I.I. A Roadmap for Contract Law

2. Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 (1995)

Parol Evidence Baker v. Bailey §209, 210, 213, Integration

Express Howard v. Fed. §227 (condition Implied promise

II. The Bargain Theory of Contract

3. Refraining from a right is adequate consideration.

6. Moral Consideration and Past Consideration

3. Equitable Estoppel and the emergence of Promissory Estoppel

4. Promissory Estoppel in Franchise Negotiations

C. The Restitution Interest

2. Bailey v. West, 105 R.I. 61 (1969)

III. Negotiation and the Contract

B. Offer and Acceptance

3. Counteroffers and Mirror Image Rule

4. Meeting of the Minds

5. Contracts Concluded by Exchange of letters

7. Contracts Accepted by the Offeree’s Performance

C. Negotiation and Closure

D.Good Faith in Contract Formation

2. Negotiating a new contract

3. New England Insulation Co. v. General Dynamics Corp., 26 Mass.

E. Problems with Standard Form Contracts

2. Seven scenarios for UCC §2-207

3. Confirmation of Oral Contracts via Forms

4. Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991)

F. The Statute of Frauds

3. The One Year Limit Rule

4. Multiple Writings to Comply with the Statute

5. Exceptions to the Written Requirement

6. Promissory Estoppel does not Trump the Statute of Frauds.

IV. The Content of a Contract

5. Parol Evidence is allowed in interpreting terms that are not clear

B. Interpreting the Terms of the Contract

3. Principles of Construction – 5 principles

7. CISG cases CAN include parol evidence

C. Implied Terms and the Implied Covenant of Good Faith

3. Open Price Term UCC §2-305

5. Output, Requirements, and Exclusive Dealings UCC §2-305

6. Employment and Good Faith

D.Express and Implied Warranties

2. UCC §2-313 on the Creation of Express Warranties

4. UCC §2-316 Exclusion or Modification of Warranties

V. Legal Regulation of Contracts

3. Lenawee Ct. Bd. Of Health v. Messerly, 331 N.W.2d 203 (1982)

4. Lanci v. Metropolitan Ins. Co., 388 Pa. Super. 1 (1989)

B. Public Policy and Illegality

3. A.Z. v. B.Z., 431 Mass. 150 (2000)

4. Bank One v. Coates, 125 F.Supp.2d 819 (2001)

4. Efficient Breach and Economic Waste

5. Lost Volume Sellers

3. Siemens Energy & Automation v. Coleman Elec. Supply Co, 46

5. City Stores Co. v. Ammerman, 266 F.Supp. 766

F. Liquidated Damages and Agreed Remedies

4. Strict compliance is the rule

B. Implied or Constructive Conditions

2. Substantial Compliance is the rule

4. Taylor v. Johnston,15 Cal. 3d 130 (1975)

C. Impossibility, Impracticability, and Frustration

VIII.Third Party Rights and Responsibilities

A.The Assignment of Rights and Delegation of Responsibilities

B. Suretyship and Guaranty Contracts