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CONTRACTS I
PROFESSOR COLLINS
FALL 1999
I. REMEDIES FOR BREACH OF CONTRACT
A.
B.
Introduction
1.
Interests Protected by Standard Contract Remedies
a.
restitution – interest of a party in recovering values conferred on the other party
through efforts to perform a contract.
i.
goal is to prevent gain by defaulting promisor at expense of promisee
b.
reliance – party’s interest in recovering losses suffered by virtue of reliance on the
contract, whether or not there was a corresponding gain to the opposite party.
i.
goal is to reimburse promisee for change of position in reliance on the contract
“in as good a position as before promise made”
c.
expectation – interest of a party in realizing the value of the expectancy that was
created by the other’s promise.
i.
goal put promisee in as good a position as he would have occupied had
defendant performed his promise
The Goals of Contract Damages
1.
Hawkins v. McGee
 Court overrules use of reliance damages(put plaintiff in position he was in prior to
performance of contract.
 Should get expectation because the contract is forward looking. P gets value of perfect
hand – value of scarred hairy hand he is left with = expectation.
a.
Sullivan v. O’Connor
 operation on defective nose. 3 operations, 2 original and 1 remedy.
 in medical world expectation more difficult than in commercial world
 award reliance damages, only wants recovery for1 remedy operation
2.
Groves v. John Wunder Co.
 D willfully breaches consturction K. P wants cost of completion instead of difference in
value. P gets cost of completion, screw economic waste
 Award is to complete contract…cost of completion
a.
Peevyhouse v. Garland Coal & Mining Co.
 award is based on value
 can’t recover greater amt. of damages for breach of obligation than would have
gained by full performance
 if cost of completion disproportionate than difference in value.
b.
Cost or Value in General Contract Law
c.
Restatement of Torts, Second $901 (General Principle Damages)
3.
Acme Mills & Elevator v. Johnson.
 D to sell bushels to P at 1.03. Instead sells to another at 1.16. P wants diff b/t 1.16 and
1.03. Wants to get enrichment from breach that D got.
 Court says no way. Can only sue for expectation, and right now bushels at 1.00.
 Damages measured by diff in price of K and mkt price at time and place of delivery.
 No recovery for gain of breach.
a.
Laurin v. DeCarolis Constr Co.
 D removes gravel from property before turning property over. P essentially suing
for gain from breach. Hinged on willfulness. P gets value of gravel.
 Most states this would have been tort case of conversion.
b.
Damages as Punishment for Contract Breach – rarely applied. Don’t want punitive
damages because like idea of efficient breach.
c.
Snepp v. U.S..
 Signed K not to write without permission of CIA.
 gov’t gets royalties since no way to measure damage
 gain from breach was punishable, K was like a fiduciary relationship
4.
Louise Caroline Nursing Home v. Dix Construction.
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
C.
P argues D should pay benefit of bargian (value of building as is – value of what it would
be) Says mkt value would have exceeded contractual cost of construction
 P had other builder finish job within K price.
 No recovery for P, damages only to compensate P, since cost of completion < contract
price, no damage.
 Cost of completion ceiling on damages.
Limitations on Expectation Damages
1.
Rockingham County v. Luten Bridge Co.
 D K with P to build bridge to nowhere. D says stop and P continues to build.
 Court establishes duty to mitigate. Don’t run up damages. Duty to mitigate costs.
 P had duty not to run up. P can only get expenditures prior to breach + profit on the
whole contract.
a.
Leingang v. City of Mandan Weed Board.
 D can’t reduce by overhead b/c have that anyway.
 Only reductions for expenses that could have been avoided.
i.
Kearsage Computer v. Acme Staple.
 P fired by D and sues for breach. D felt that its damages reduced by savings of P
and other money made by P.
 No dice, P could expand and accept other bus, not like painter hired to do one
painting.
 Profit on other sales not deducted when expandable business.
2.
Parker v. 20th Century Fox.
 P to have leading role in musical. Instead offered drama western. P declines
 only have to mitigate when you can do something similar. Doesn’t include
different and inferior jobs.
 Same field and same level of work for personal service cases.
 Dissent says both acting jobs and shouldn’t be summ judg
i.
The Collateral Source Rule
 some courts find that for wrongful discharge employment contract cases,
fund received from collateral surces must be deducted, otherwise they
would grant discharged person more in dmages than he wouldn’ve had if K
hadn’t been breached.
 other courts disagree.
3.
Missouri Furnace Co. v. Cochran.
 When mitigating damages is difference between contract price and mkt price on date of
actual delivery
 this P had purchased forward price and lost a lot. Cover at own risk.
 Common law case. Ignores commercial realities and is rejected by UCC
a.
Reliance Cooperage Corp. v. Treat.
 D breaches K and P entitled to damages based on diff b/t cost in original K and
cost on intended date of delivery.
 No duty to mitigate until K actually breached, even tho aggrieved party knows K
will be breached before delivery date.
 D doesn’t get what he wants (date of breach when P knew). Instead breach is on
day of K.
 Allows P to wait around not mitigating. Also common law and rejected by UCC.
b.
Breach by Anticipatory Repudiation
i.
Common Law – Pre UCC no duty to cover and P bore risk as seen above. P
must wait until non performance. Ignores commercial realities, UCC rejects
ii.
2-610 When a party repudiates K w/ respect to performance not yet due the
aggrieved party may
 for a reasonable time await performance
 resort to any remedy for breach under 2-703/2-711 even if he’s notified
breacher that he’s waiting.
c.
The Buyer’s Damages under the UCC
i.
2-712 – buyer may cover in good faith and w/o reasonable delay and reasonable
purchase goods in substitute. cover is difference b/t K price and cover price in
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4.
5.
6.
7.
addition to incidental or consequential damages. Failure of buyer to effect
cover w/in this section doesn’t bar him from other remedy.
ii.
2-713 – if not cover, awarded mkt price at reasonable time after learned of
breach – k price.
iii.
Both include incidental (expenses incurred in response to breach) and
consequential (additional forseeable damages) minus expenses saved due to not
having to perform.
d.
The Seller’s Damages under UCC
i.
If resold (cover) in good faith awarded resale (mkt) price – k price (2-706)
ii.
if not resold, awarded mkt price at time/place of tender – k price (2-708)
iii.
If volume seller, then normal damages inadequate since would have been able
to sell goods to breacher and others, so awarded lost profits (k price – seller’s
costs.
iv.
all plus incidental damages – saved expenses.
Neri v. Retail Marine Corp.
 P breaches K to buy boat and wants deposit back. D wants profit back b/c could have
sold 2 boats.
 Seller entitled to 2 profits (2-708(2)). Must show could have made profit on the sale.
 Has to do with volume seller and putting them in as good a position as they would have
been in had the contract been performed.
Hadley v. Baxendale.
 one of first cases to establish rules regarding trial damages for contract. What is
appropriate measure for lost profits?
 To be liable for consequential damages, breacher must be able to forsee the damages.
Must be forseeable that breaching party is causing consequential damages.
a.
Lamkins v. International Harvester Co.
 alternative to Hadley forseeability. Holmes thought rule was tacit agreement test.
 Look at facts and determine if parties felt there was a tacit agreement that such
losses would be recoverable.
 Had Hadley been applied could have gotten lost night farming profits.
 Most courts have rejected this test.
b.
2-715 deals with difference between Hadley and Lamkins. Incidental damages from
seller breach include expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejected, commercially
reasonable charges, expenses or commissions in connection with effecting cover and
any other reasonable expense incident to delay or breach.
c.
Restatements 351– accepts Hadley rule, but restatement second say if result of giving
consequential damages results in disproportionate recovery, no dice (sort of like tacit
agreement)
d.
Victoria Laundry v. Newman Industries.
 P launderers and needed huge boiler which broke. Which lost profits available?
Boiler company should have known this was going to laundry
 Normal profits are what a normal laundry company fails to make b/c boiler
busted. Don’t get the lucrative dyeing profits b/c no reason for engineering
company to know.
e.
2-719(3) – consequential damages may be limited or excluded unless limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
person in case of consumer goods is prima facia unconscionable but limitation of
damages where commercial loss is not.
Valentine v. General American Credit Inc.
 P sues for mental distress b/c fired and lost peace of mind of job. Relies on Hadley b/c
damages flow from.
 SC says all would flow, have to draw line somewhere.
a.
Note: Emotional Distress Damages - Only get punitive damages when independent
tort exists. If K is of personal nature. Used to be could do for marriage
Freund v. Washington Square Press, Inc.
 P sues to get damages for delay of academic promotion, 10% of royalties, and cost of
publishing book himself. Trial gave 10K to publish, but rest too speculative.
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
D.
SC says no 10K b/c put him in better position. 10K not what P could have expected were
book published. If published would get royalties, not 10K.
a.
Fera v. Village Plaza, Inc.
 P signs lease for specific spot, is offered other spot, sues for lost profits. Trial
awards lost profits, intermediate says new business can’t figure out profits, SC
says test is only whether or not profits speculative
b.
Restatement Contracts, Second $352, Comment b – proof of profits. Varies with
nature of the transaction.
Alternative Interests: Reliance and Restitution.
1.
Reliance Damages
a.
When Granted?
i.
when expectation damages are too speculative or unmeasurable (Hawkins v.
McGee)
ii.
when vendor in land contract has tried to convey land title, but failed.
iii.
promisory estoppel cases.
b.
How are they measured?
i.
intended to put P back in position he occupied before K was entered into.
compensate for detriments suffered from reliance on K
ii.
Any measures taken by P after entering into K can be recovered as reliance
iii.
Measures taken before K entered into or in anticipation of K generally not
recoverable.
2.
Chicago Coliseum Club v. Dempsey.
 Wanted expenses prior to signing of agreement, expenses incurred after signing (before
breach), and profits they would have received if fight had gone on.
 D breaks K to do a fight. P wants expectation damages, profits they would have made
had Dempsey not breached K. Court says too speculative.
 Can only get reliance damages it incurred after signing contract.
 Don’t get money for money spent before K entered into. Also don’t get litigational
expenses, undertook at their own risk.
a.
Security Stove & Mfg v. American Ry Express.
 Carrier fails to take most important part to show. P loses chance of making sales.
Can’t determine lost profits.
 Court allowed P to get reliance damages, even though some expenses were
incurred before K
 Court applies forseeability test. Would carrier forsee that exhibit would be
entirely forseeable.
b.
Anglia Television Ltd v. Reed.
 minority rule: reliance damages granted, even for expenses incurred prior to
signing of K, Reed should have known that there would be damages if he
breached.
c.
Restatement Contracts, Second $ 349
d.
Albert & Son v. Armstrong Rubber.
 buyer agreed to buy 4 machines, won’t accept b/c 2 delivered late.
 Promisee can get outlay in prep for performance, subject toprivelege of promisor
to reduce it by as much as he can show the promisee would have lost, if the
contract had been performed.
e.
Equity Relief in Advance of Trial – temporary restraining orders and temporary
injunctions.
3.
Boone v. Coe.
 Statute of Frauds raised as defense in this case. Had K for family to move down to Texas
and have farm/house/barn/materials.
 If K can’t be performed in less than a year then need writing. Also need a writing for
transfer for interest in real estate.
 P also can’t recover b/c can’t show a loss and gain on part of defendant. none of
expenses incurred can be treated as benefits that are recoverable. Under theory of
restitution could be recoverable, but not reliance.
4.
United States v. Algernon Blair, Inc. **important
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5.
6.
Sub to provide parts of steel structure and sub completed 28% and general didn’t pay.
Sub sues, D avers that if sub had finished they would have lost money. D wants to use
expectation, and using that, no damages.
 P wants quantum meruit, money for work and labor done.
 Court says value of services rendered is recoverable, loss that would occur is irrelevant.
Also, if services far exceeded value of K would still be recoverable. If P can show value
far in excess of K price then can recover.
 Odd, b/c if injured party fully performed then there is limit to amount recoverable
 If P can’t recover on K since would have lost $ can still recover restitution off K for
reasonable value of part performance—goods/services suplied to D—under quantum
meruit.
a.
Kearns v. Andree.
 D makes demands and P complies. Court says unenforceable K, won’t award
damages for repapering and repainting done after D refused to purchase. P gets $
for work done to adapt to defendant.
 Case pushes restitution a little further.
b.
Curtis v. Smith.
 P had K to bulid stone walls around D bakery. D repudiates before installation
but after stone removed from quarry.
 Court says P suit to recover money spent in quarrying fails, P at work for self,
can’t get restitution
c.
Doing and Giving Problem
d.
Oliver v. Campbell.
 Lawyer providing services at reduced rate and is fired right at end. Sues for
amount services worth
 Gets K price b/c had pretty much finished work.
 Limit to Algernon
e.
Discontinuity at Full Performance
f.
The Common Counts and Restitution
Britton v. Turner.
 P K with D to work for year at 120. D says shouldn’t have to pay at all, P says should get
value of 9.5 mo. work. Court agrees. D can sue for damages resulting from having to
hire someone else for the rest of the time. Diff b/t K price and mkt price.
 Both went in knowing one or the other could back out, employment at will.
 Used to be other way around…so one who does some work worse off than one who does
nothing.
a.
2-718(2) – deals with case where buyer makes down pmt and defauts. Buyer entitled
to get down payment back but seller entitled to keep up to 20% of value of K but no
more than 500. Code doesn’t prevent seller to recover damages by buyer’s breach, if
mkt price declines after buyer breach seller entitled to that in form of damages.
b.
Thach v. Durham.
 Buyer wants back 3100 down payment for sale of sheep.
 Court says no way get back down payment, seller does this in order to protect self
from breach.
 This rule has been changed by legislation.
Pinches v. Swedish Evangelical Lutheran Church.
 P has K to build church. P fucks up part of church, and as soon as D realizes informs and
refuses to pay.
 Court applies substantial performance, recovery is allowed. What are damages.
 P entitled to restitution for work done and materials provided, less diminution of value due
to fucked up building.
 Contractor allowed to recover even tho hadn’t complied with K – substantial performance.
a.
In regards to substantial performance, NY says if you can’t sue under substantial
performance then you can’t get anything. However, NY has more liberal notion of
what falls under substantial performance.
b.
Kelley v. Hance.
 places willful breach above unjust enrichment.
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

E.
Contractor digs hole for sidewalk and stops.
P wanted reasonable value of work done.
P abandoned work without justification before any part of sidewalk built, not in
good faith, no explanation, no indication that person had accepted work of
contractor.
c.
Willful Breach – usually willfullness of breach can’t bar recovery. RST and UCC:
no willfullness bar.
7.
Vines v. Orchard Hills, Inc.
 I: Concerns right of purchasers of real property after their own default, to recovery
moneys paid at time of execution of a valid contract of sale.
 P puts down pmt, didn’t take title b/c transferred. P sues for dwn pmt.
 SC decides that purchaser whose breach isn’t willful has restitutionary claim to moneys
that unjustly enrich his seller. Defaulting buyer must show
 seller unjustly enriched
 damages suffered by seller are less than money received by seller from buyer.
 No evidence that seller wasn’t injured, no reason to disregard liquidated damages clause.
To uphold liquidated damages
 bears a relationship to damages
 actual damages are difficult to determine
 10% of real estate case is presumptively okay. Used for long time.
a.
Maxton Builders v. Lo Galbo.
 NY SC unanimously concludes that policy of denying defaulting purchasers
recovery of down payments of real estate contracts should be retained.
b.
Pacheco v. Scoblionko
 Kid to go to camp, wants 3100 dwn pmt back b/c has to go to summer school.
Was liquidated damages clause in K stating 500 deposit lost if don’t cancel.
 SC says P gets full 3100. D didn’t show that damages were anticipated by P’s
cancellation
 Non-breacher must show that damages difficult to estimate accurately, amount
fixed is reasonable forecast of what is required to justly compensate injured party.
c.
DeLeon v. Aldrete.
d.
The Forfeiture Rule
Contractual Controls on the Damage Remedy.
1.
City of Rye v. Public Service Insurance.
 Whether or not surety bond was penalty or legitimate liquidated damages clause.
 City trying to recover on bond wasn’t able to show any damages, court doesn’t buy the
lost tax revenue argument.
a.
Yockey v. Horn.
 D K with P not to voluntarily participate in litigation against P.
 P sues for the 50K in contract, court says can recover b/c testimony hurt P
reputation, hard to determine exact amount.
b.
Muldoon v. Lynch.
 P K with D to build monument. Delay b/c granite in Italy. P tries to offset her
pmt by liquidated damage clause.
 Court says no relation b/t her pain and suffering and $10/day damages. Also,
court doesn’t want to compensate pain and suffering via liquidated dam clause.
 K law doesn’t recognize pain and suffering like tort law
c.
The Penal Bond
d.
Restatement of Contracts, Second $356(1)
e.
Equitable Lumber Corp. v. IPA Land Dev.
2.
Wilt v. Waterfield.
 P puts down 1900 on farm and D sells to another. D says dam limited to 0% of K price
and P says it’s a penalty, not dam limit. P wants expectation interest 7K
 If liq dam clause enforceable then case over.
 Court says clause penalty b/c 1.9 activated for any of breaches possible in K. 1.9K like
buckshot, covers too wide range of possibilities from minimal to substantial damages
(blunderbuss clause).
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a.
Applying Damages Clauses
Fretwell v. Protection Alarm Co.
 Alarm company has clause says not insurer. P robbed and sues D company for 91K
(what burlars got).
 SC says not liquidated dam clause, is limit of liability.
 If it were liquidated damages clause would be floor and ceiling, here is 50 bucks or actual,
whichever less, not a floor and ceiling.
 Okay to limit liability, just don’t call it liquidated dam clause.
a.
2-719 – consequential damages limited or excluded unless unconscionable. can’t
agree to do things that are unconscionable. Breach of warranty with respect to
consumer goods the limitation of liability clause in contract is prima facia
unconscionable. Limits of liability clauses are enforceable
b.
The Penalty Rule and “Efficiency”
Enforcement in Equity.
1.
Introduction – sometimes use equitable remedies instead of usually monetary damags
a.
no adequate remedy exists at law
b.
definiteness – K terms must be definite in order to grant equitable relief. Must be
more definite for relief in equity than for relief at law.
c.
equity must not work inequity
d.
equitymust not be difficult to enforce
2.
Van Wagner Advertising Corp. v. S&M Enterprises.
 Basic rule for granting specific performance is that legal remedy is inadequate. Sale of
real property rule is that usually get specific performance.
 With lease of real property is different, doesn’t have long history.
 W/ lease better way to value loss, don’t just look to see if unique, also look to see how
hard it is to value property.
 Court says project into future to determine damages.
a.
Curtice Bros. v. Catts.
 Judge says not just K to purchase tomatoes, this was specific time for packing
tomatoes.
 P has K with lots of farmers and can’t easily get other tomatoes. Normally would
be diff b/t K price and mkt. price, but here packer can’t get other tomatoes.
 D restricted from selling crop to others
b.
Manchester Dairy System v. Hayward.
 D to sell all dairy products to P for 3 years. K has specifric performance clause.
 Spec perf available but not b/c of K. Can’t tell equity court what to do
c.
The History of Equity
d.
Restatment of Contracts, Second $360
e.
Paloukos v. Intermountain Chevy.
 P puts down pmt on truck. D says we’re out of trucks.
 Can’t get specfic performance b/c not unique, and a market, other legal remedy.
 Would grant for 77 Vette pace car.
f.
Eastern Rolling Mill v. Michlovitz.
 More liberal specific performance than in past.
 P K with D to buy all scrap from D operations. Default and court orders specific
performance (pre-code). Can’t tell what D output is so hard to measure damages.
g.
The Vendee’s Equity Action
i.
Vendee usually gets spec perf. However some land cases vendee makes resale
K at higher price to turn land into money, if doing just for money them some
reluctance by court to grant spec perf.
ii.
In case where D sells land to P for development. D strips gravel before
handing over. P brings case b/c had equitable ownership.
iii.
Equitable Clean-Up
 bring action against party seeking spec perf and they refuse to give you
property. Vendor conveys to third party after you bring action. If third
party a bona fide purchaser you are screwed, have to get damages, but how
do you do that in equity court?
3.
F.
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iv.
3.
4.
5.
II.
Timko v. Useful Homes Corp. (Collins likes this case)
 Buys property on installments from developer, get deed at end. While
paying off, builder sells to other developer. New developer assumes all
obligations of first, sold to third company who assumed no obligations
(second purchaser makes profit on sale).
 Property becomes worthless. Buyer doesn’t want peoperty anymore,
wants gain from breach, money back and gain from breach. No BFP here
Fitzpatrick v. Michael.
 Court won’t enforce personal service K, even if part performance no way to enforce.
 Rule for personal services, equity will not enforce negatively a contract which it could not
enforce affirmatively: wouldn’t order her to work for him if she quit, and will not do vice
versa.
a.
Dallas Cowboys v. Harris.
 Won’t grant spec perf. That’s for equity courts. Harris not unique, but granted
temp injunction b/c no other similar available at time.
 Many sports cases describe the atheletes as unique.
b.
Pingley v. Brunson.
ABC v. Wolf.
 Court says breach of good faith negotiations provision b/c negotiated with others.
 First refusal not breach, could prior to end of K negotiate with someone else and no right
of first refusal.
 P seeks injunction for first 3 mo, but court doesn’t want to grant b/c term of contrac up,
would grant if K term not yet up and services unique
 Post K period won’t provide negative enforcement if in writing and then restrict only if
equitable relief available only to prevent injury from unfair competition or similar tortious
behavior
a.
Fullerton Lumber Co. v. Torborg.
 Won’t enforce negative injunction for excessive period, reduced from 10 yrs to 3.
New, didn’t use to be able to reduce time. All or nothing
 Today overbroad clause just unconscionable.
b.
2-302
i.
If K or part of K unconscionable court can refuse to enforce, or can enforce
remainder of K w/o bad clause, or limit bad clause.
ii.
when climaed that K unconscionable parties can present evidence to
commercial setting, purpose and effect
iii.
2-302 does what Fullterton case does and gives court powers to change K.
c.
Data Management Inc. v. Greene.
Northern Delaware Indus Dev. v. E.W. Bliss.
 D falls behind schedule P wants court to give spec perf make D put up night shift.
 Court refuses, not sure there are another 300 workers, court shouldn’t supervise shit like
this, plans not specific enough.
a.
City Stores v. Ammerman.
 P wrote letter supporting rezoning for D in order to get space in building
 Court does grant spec perf b/c that’s what parties contemplated, detailed plan, no
problem, special master to work out not too intrusive.
 Contrast to Northern Delaware
b.
Grayson Robinson Stores v. Iris Corp.
i.
D build and lease to P. D can’t get financing, really tried. Arbitrator says
build.
ii.
K can’t empower equity court to make spec perf, but can do it for arbitrator
c.
Comment on Arbitration
i.
Bad Things
 no discovery
 No way to appeal, only if cheated.
 No requirements or qualifications for arbitrators by statue
 English courts don’t like it.
GROUNDS FOR ENFORCING PROMISES.
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A.
B.
Formality.
1.
Congregation Kadimah Toras v. DeLeo.
 Decedent orally promises 25K for synagogue. P sues estate to get it.
 Court rules that hope or expectation of 25K in budget not equivalent to legal detriment or
reliance, hadn’t started construction of library.
 No legal benefit to promisor and no legal detriment to promisee and thus no consideration.
a.
Consideration and Form
b.
Formalism and the Seal
c.
Gifts and Promises
d.
Donative Promiss
Exchange Through Bargain.
1.
Introduction “Promise must induce detriment, detriment must induce promise; where only one
party present its promissory estoppel.
2.
Hamer v. Sidway.
 Kid doesn’t drink and court says that is consideration.
 Consideration when one party abandons legal right in present or limits his legal freedom
of action in the future as inducement for the promise of the first.
a.
Earle v. Angell.
 If P agreed to attend funeral of aunt she gives him 500
 Promise for a promise, all good.
b.
Whitten v. Greeley-Shaw.
 K where D’s duty as man and P duty as mistress
 D hadn’t bargained for it so it didn’t count. Mistriss put in a clause b/c she felt he
deserved something (she admits)
c.
Restatement Second $71 – Requirement of exchange.
d.
Restatement Second $81 – Consideration as Motive or Inducing Cause
e.
Apology for Consideration
3.
Fischer v. Union Trust.
 Slow girl pays 1 buck for farm. Mortgages on property foreclosed and girl sues for
damages. Wants to be paid for loss b/c Dad didn’t pay off mortgage.
 No consideration, promise to pay debt on land isn’t enforceable as promise
 Nominal consideration is no consideration at all. Not looking at evidence surrounding the
bargain, but whether or not the bargain in an conceivable world could have been struck.
a.
Meritorious Consideration
b.
Simmons v. United States.
c.
Nominal Consideration – no consideration at all.
4.
Batsakis v. Demotsis.
 Note where P wants 2000 when note was 25. D doesn’t want to pay b/c unequal.
 Court says consideration sufficient, inadequacy of consideration not issue for court as long as
court finds a deal.
 Doctrine of unconscionability not yet formed.
a.
Embola v. Tuppela
 Give me 50 and I’ll give you 10,000 if I get land back.
 Not unconscionable, D’s mind good when gave promise.
 Contingency that never occur makes a transaction such as this an investement, not
loan, so no usury.
b.
Adequacy of Consideration
5.
Duncan v. Black.
 P supposed to get cotton allottment. D backs out second year.
 Court says no valid consideration for note. Original land K not envorceable and can’t be
used as consideration for 1500 note, original promise to make up acreage is against public
policy and is therefore no good, that part of K unenforceable.
 Alleged consideration of 1500 note is forbearance of suing D over the 65 acres, however
had no right to sue, no forbearance, no consideration.
a.
Military College v. Brooks.
b.
Restatement Second $74
6.
Martin v. Little, Brown & Co.
10



C.
D.
P goes to D with plagarized book. P wants returns from court victory.
No express promise, what about implied?
To get implied one performs with other’s knowledge a useful service of character usually
charged for and latter avails himself of service. Only implied where reasonable
expectation. Wasn’t reasonable.
 If wanted to get quasi K would have to show person wrongly secured or passively
received benefit that would be unconscionable to retain.
a.
Collins v. Lewis.
 Guy holds cows and says going to charge D. D knew services rendered.
 Was implied K here, D knew about services and later sold cows to third party
b.
Quasi v. Implied in Fact Contracts.
i.
held up by robber can’t imply K to repay person held up.
ii.
quasi contract more related to preventing unjust enrichment. restitution to
prevent unjust enrichment (what is this)
Promises Grounded in the Past.
1.
Introduction – here don’t have promise inducing detriment, only have detriment inducing the
promise.
2.
Mills v. Wyman.
 Sick kid cared for by promisee. Sick kid Dad later says I’ll pay.
 Detriment induced the promise, but promise didn’t induce detriment.
 No enforceable obligation against father, maybe agains son. Past consideration worthles
a.
Promises to Pay Barred Obligations.
i.
if prior enforceable obligation, then subsequent promise to pay the obligation in
whole or in part is enforceable even tho no new consideration.
ii.
if debotor promises to pay on different terms or for less also enforceable, and
only enforceable on terms specified by debtor
iii.
if bankrupt later promises to repay debt enforceable
iv.
can ratify a contract from minority.
v.
In NY second promise is enforceable if in writing and signed by both parties.
3.
Webb v. McGowin.
 P drops to floor to save D. D promises to pay pension for life and payed for long time.
Estate won’t pay.
 Detriment induced the promise, promise didn’t induce the detriment.
 However court carves exception and says promisor received material benefit and that
equals valid consideration
a.
Harrington v. Taylor.
 P blocks axe, D promises to pay savior
 No basis b/c past consideration. Detriment induced promise, but promise didn’t
induce detriment. North Carolina doesn’t go with Webb exception
b.
Restatement Restitution $112
c.
Restitution Absent Later Promise
d.
Promises Grounded in Past: Unjust Enrichment and Law of Contracts
4.
Restatement Contracts Second $86. Goes with Webb/McGowin as law reform doctrine.
Promise made in recognition of benefit previously received by promisor from promisee is
binding to extent necessary to prevent injustice. Would change result in Harrington.
Reliance on a Promise. – when talking reliance you are talking detriment didn’t induce the promise.
1.
Kirksey v. Kirksey.
 P abandons land live with brother in law. Had to leave her house for crappy one then
kicked out.
 No consideration here. Promise induced the detriment, but detriment didn’t induce the
promise
 Leaving her land not consideration.
a.
Ricketts v. Scothorn.
 D grandpa gives P note for 2K says don’t work. Took note, quit job.
 This case isn’t reliance on statement of facts, reliance on a promise.
b.
Prescott v. Jones.
11

2.
3.
4.
5.
6.
Insurance company say will renew if don’t respond. Court doesn’t extend
promissory estoppel.
 Would be enforceable promise in most jurisdictions.
Allegheny College v. National Chautauqua Bank.
 D pledges form memorial fund. Repudieates and dies. D executor won’t pay the rest.
 Court says consideration, P subjected self to duty at request of D to make fund in her
name. College has implied duty to create the fund.
 Promissory estoppel is equivalent to consideration in charitable subscription.
 Find contract on implied consideration, could have just done promissory estoppel.
a.
Restatement Second 90-2 – don’t need reliance to enforce a charitable subscription.
b.
Cardozo in Allegheny College
c.
Siegel v. Spear & Co.
d.
Carr v. Maine Central R.R..
e.
Misfeasance and Nonfeasance
East Providence Credit v. Geremia.
 D borrowed from P secured loan. D supposed to keep car insured. P said would pay
insurance.
 P induced D action by promissory estoppel. Since had relied.
a.
I&I Holding Corp v. Gainsburg.
 No specific reliance in charitable subscription
 Section 90 restatement says charitable prima facia enforced
b.
Salsbury v. Northwestern Bell.
 Court rules that D has to pay charitable subscription.
 Most courts say not prima facie enforceable.
Seavey v. Drake.
 D gave P some land. P has occupied land and done lots of stuff. P detriment didn’t
induce promise by father. Was also oral K. Father said would give P land.
 Court says promise induced change in position of plaintiff (promise induced the
detriment)
 Part performance doctrine of statute of frauds, part performance entry into land and
improvements trumps the statute of frauds. Reliance anc part performance means
plaintiff gets land under doctrineof promissory estoppel.
a.
Restatement 139 – says reliance is enough for exception to statute of frauds
b.
Seymour v. Oelrichs.
 P quits job for oral promise and promised 10 years of employement. Works for
2.
 Court applies reliance to overcome statute of frauds one year limitation.
 Collins doesn’t like b/c judge goes to far. Statute reads as it does for a reason.
c.
Reliance and the Statute of Frauds
Forrer v. Sears.
 P works for Sears, quits buys farm. Induced back to sears and promised permanent
employment. Sells farm
 Court determines promise fulfilled when the plaintiff is hired. Permanent employment
begins. Employment forever is at will employment.
 Once had job contract over.
a.
Red Owl Case.
 P does a bunch of shit to get franchise. Promisee changes position, but nothing to
enforce by way of promise so Wisconsin adopts promissory estoppel.
 Give stuff to promisee on basis of his reliance interest.
 Hard though b/c don’t know what a franchise is.
 In Forrer was suggested that WI was backing off of Red Owl case, went a little
far.
Stearns v. Emery-Waterhouse.
 Promised employment to 55 years old. Is fired early. P claims promissory estoppel.
 Court says P can’t enforce, rejection of 139. Doesn’t want to allow reliance to overcome
statute of frauds one year requirement.
12

E.
Reliance always in employment, this would be too far. In employment could be too
much fraud.
 Could have sued equitable estoppel if proved fraud. Oral promise can be enforced if
fraud or injustice occurs by following the statute.
 Equitable estoppel reliance based on fact, promissory based on promise.
a.
Goldstick v. ICM Realty.
7.
Goodman v. Dicker.
 P wants to distribute Emerson stuff. D encourages P to do stuff to have outlet. D
doesn’t give. Sues for expenditures and lost profits.
 First is reliance and gets those. Lost profits are expectaiton and the don’t get them, too
speculative.
 Promissory estoppel.
a.
American National Bank v. A.G. Sommervile.
 Makes statement that has received car when hasn’t. ON reliance on that
statement lent money to dealer.
 Bank taken assignment of K and is attempting to asser dealers .
 Purchaser had represented that he had received merchandise, reliance on statement
of fact…equitable estoppel.
b.
Fried v. Fisher.
 One guy wants out of partnership. Landlord says okay. Later sues this guy for
rent.
 Fisher changed position in reliance on promise by landlord. There was reliance
on the promise, but now have to see if detriment or injustice if promise not
enforced.
c.
Beyond Reliance, Promissory Estoppel, Contract Formalities, Misrepresentations
d.
D’Ulisse Cupo v. Board of Notre Dame.
e.
Restatement of Contracts, Second $90. Promise Reasonably Inducing Action or
Forbearance
i.
A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach may be limited as
justice requires
ii.
A charitable subscription or a marriage settlement is binding under subsection
(1) without proof that the promise induced action or forbearance.
f.
Promissory Estoppel Damages
g.
Reliance on Contract Adjustments
h.
Mahban v. MGM Grand Hotels.
8.
Levine v. Blumenthal.
 D rented at one price for one year, and higher price next year.
 P agrees to reduce rent. P sues D for unpaid rent over the years b/c D had backed out of
lease.
 No consideration b/c D didn’t do anything different. Just performed less than had said
they would.
 If had expedited payment, paid in different place.
 If have change in terms, must have consideration for change in terms.
a.
Legal Duty Rule – UCC 2-209(1) agreement modifying contract needs no
consideration to be binding, must have good faith and reasonable dealing in fair trade.
Rejects Levine v. Blumenthal.
Promises of Limited Commitment.
1.
Introduction
a.
Davis v. General Foods Corp.
 No K b/c P only relied on honor of D to pay…basic bad plan. Volunteered in the
face of the statement that D gave about its discretion in terms pf payment.
 No commitment
b.
Nat Nal Service Stations v. Wolf.
 P suses to get its discount (oral K). P had to purchase requirements from D.
13

2.
3.
4.
5.
6.
III.
SC says nothing in terms of oral to bring under statute of frauds. Can be
performed in year b/c each purchase different K.
c.
Mutuality of Obligation
Obering v. Swain-Roach Lumber.
 D buy from P in 4 years after P strips. P buying from dead guy and reselling.
 P seeking specific performance of D to accept deed.
 When D goes out and buys land, everything is firmed up and contract finished. Until
event occurs no contract.
a.
Paul v. Rosen.
 D to sell P liquor business and stock.
 Since K made securing of lease a condition to its effectiveness but placed not duty
on P to secure it, entire K was void for want of mutuality and D owed no duty to
perform.
b.
Restatement Contracts, Second $77. Illusory and apparent promises.
c.
Gurfein v. Werbelovsky.
 Even the shortest space of time that a party lost its freedom to act. Whether seller
had right even for short time to compely buyer to take and pay for goods.
Wood v. Lucy, Lady Duff-Gordon.
 court finds implied best efforts promise for D to market Lady-Duff Gordon.
 2-306 says must use best efforts if exclusive rights case.
 Implied promise so mutuality is inferrable and K is to be enforced.
Omni Group, Inc. v. Seattle First National Bank.
 How far can party reserve discretion w/o invalidating contract? K subject to purchaser
receiving engineer’s and architect’s report
 Is something for benefit of purchaser and up to them, has nothing to do with whether or
not K illusory.
a.
Flexible Business Arrangements
b.
Lima Locomotive v. National Steel Castings.
 Loco compn ongoing need for steel, D will buy all requirements.
 Court upholds even tho not determined what requirements are.
Feld v. Henry Levy&Sons.
 D K to sell P all breadcrumbs. Allows the output K, but question occurs when
discontinuance of production of bread crumbs.
 2-306(1) output K. Good faith observance of reasonable commercial status and dealing
in trade. Is the discontinuance to curtail losses or b/c market dried up.
 Send back to trial to determine if good faith discontinuance.
a.
Corenswet v. Amana Regrigeration.
 Franchise has lots of discretion for good faith. Is good faith applied to
cancellations of franchise.
 UCC 1-203. Good faith.
 Can discontinue but must give reasonable notice.
b.
Fort Wayne Corrugated Paper v. Anchor Hocking Glass.
 Taking all requirements on paper boxes. When buyer’s plant closes does it
violate K.
 No, plant closing is a good faith way to end the K.
c.
The Franchised Dealer and the Law – auto dealer day in court. Good faith is acting in
fair and equitable manner so as to guaranty one party freedom from coerction by the
other.
Sheets v. Teddy’s Frosted Foods.
 one of first cases to limit at will employment doctrine
 Collins agrees with majority in this case.
 Employee whistle blower.
 Issue is whether or not there is doctrine of wrongful discharge, adopt as common law
doctrine.
 Dissent says leave this to legislature
THE MAKING OF AGREEMENTS.
14
A.
Mutual Assent.
1.
Introduction – has to do with meeting of the minds.
2.
Embry v. Hargadine-McKittrick.
 P goes to D and asks about employment. D says go ahead, don’t worry about it.
 Whether reasonable person would think K is jury question.
 Move from subjective law to objective law, doesn’t matter meeting of minds, this
abandons meeting of minds and goes to objective standard.
 UCC says also look to trade custom and past performance to establish whether employer
had done this to renew.
a.
Whittier, Restatement of Contracts Mutual Assent.
i.
Thinks subjective view better b/c objective creates K where people don’t want
to make them.
ii.
Why hold them to K before other person changes his/her position in reliance.
iii.
Stick to meting of minds and use tort to see if there is negligent manifestation
of words which causes injury
iv.
Contract formed the moment McKittrick made his comment, contract right
away, no look to see if Embry changed position (Whittier doesn’t like).
3.
Kabil Developments v. Mignot.(329)
 P K with D for chopper. D had to determine if safe, no, P gets other chopper sues.
 D was asked if he intended to contract and that was admissible.
 Where evidence used to establish existence of contract = bad. Where evidence used to
establish there was no contract = okay. Can be subjective when showing no contract.
a.
NY Trust v. Island Oil & Transport.
 Whether K between former owner and purported subsidiary enforceable.
 When people engage in sham contracts a third party who changes their position as
result of the contracts may be able to recover damages or estoppel.
 Can show this was a sham, variation on objectve, go to intent of parties, not
manifestations.
b.
Subjective doctrine can’t show a contract. Can only show that there is no contract.
4.
McDonald v. Mobil Coal.
 Employee handbook. P wants to abide by rules of handbook even though had signed
waiver that this was terminable at will.
 Majority: disclaimrer not sufficiently offset, must be conspicuous (rule of decision, not
statutory)
a.
Kari v. General Motors.
 Handbook can constitute a contract, can be part of employment relationship.
 If handbook says its not a contract then go back to Mobil case.
b.
Changes in Handbooks - Where employee has handbook and employer changes book,
tells employee, employee keeps working. Is this an effective modification of the
contract? Implied consent by still working.
c.
Death Benefits - If have death benefit in handbook, moment that contract is formed is
when person dies. No contract during employment b/c employers can change at any
time.
d.
Gilmer Case.
 employee if required as condition of getting job signs arbitration clause can’t
bring a civil suit. Has waived rights to courts.
e.
Note Page 342 Important
5.
Moulton v. Kershaw.(343)
 D sends telegram with offer, P says ship me salt, D retracts.
 Court says this was offer to offer (solicitation) not an offer. Basically an advertisement.
 Offer lacked any quantity term, and didn’t say how quantity would later be determined.
 Seller was a step away from making a promise.
a.
Problem – fur coat for early customers. P in line and says I accept. Court says K.
Usually advertisements are not contracts. Case is wrong. Why? B/c of Embry. On
next Saturday guy knew about house rules, no offer made second time b/c knew about
the rules. Once you know they’re not offering, you can’t accept.
6.
Joseph Martin Delicatessen v. Schumacher.
15


7.
8.
9.
10.
11.
12.
At common law agreement to agree not enforceable.
Allowed to leave terms open for future determination if some mechanism in K for
resolution of dispute over those terms. K has renewal clause and will decide terms at that
time. Not enforceable under 2-305 (agreement to agree isn’t enforceable unless you can
see K is intended and has determination for damages). If price left open then use
reasonable price.
 Here traditional agreement to agree, not like stuff right above.
 UCC would change result in this case were it not for fact that this is real property.
UCC.
a.
1-205 establishes hierarchy
i.
what contract says
ii.
course of dealing
iii.
usage of trade
b.
2-208 Course of Performance / Practical Construction – something parties under their
present contract have done in earlier stages of the contract.
i.
what contract says
ii.
course of performance
iii.
course of dealing
iv.
usage of trade
c.
Restatement Second $33. – essentially tracks UCC. Reasonably certain if provide
basis for determinign breach and giving remedy. Too much uncertainty means no
contract. What kind of, how many gaps the court will fill in where parties leave
something open, and how far can parties go with gaps before it seems like parties
never intended to contract. Where something missing for loan terms, buyer can get
spec perf by putting up cash. Look at problems on 351.
d.
Southwest Eng Co v. Martin Tractor.
 Payment terms not agred on, doesn’t invalidate according to 2-204
 If basis for giving remedy and agreed on the courts willing to enforce, court will
apply reasonable terms.
Empro Mfg v. Ball Co Mfg.
 P says preliminary letter means D obliged only to sell to P.
 Agreement to agree 2-305.
 Court reads letter as creating conditions of contract formation, not contract performance.
 P then feels entitled to reliance damages based on something like promissory estoppel, in
corporate arena no deal, and expenditures made on letter can’t be relied on.
Texaco v. Penzoil.
 One of largest contract judgments in history.
 Penzoil trying to get Getty and letter of intent, champagne meeting. Texaco makes offer
to steal Getty away.
 First, whether or not Penzoil had rights against Getty to own Getty, second, tort action
against Texaco alleging that T had induced Getty to breach.
 People surprised that there was contract in the agreement to agree.
Billings v. Willby.
 Binding if meeting of minds, just didn’t get valid oral K into writing.
 Had wanted to solidify agreement with writing but didn’g.
 Difference between convenience or memorialization and not having a deal until
memorialization present and signed.
 What does trade normally expect.
Contemplating a Writing
Wheeler v. White.
 D to secure $ for building one way or another. P demolishes buildings.
 H: Court says P pleading on estoppel states a cause of action. Majority said terms were
too indefinite, so no K, use promissory estoppel. Concurring said K with missing terms,
Restatement 33.
 No expectation damages for loan, but can grant reliance damages.
 Concurring says don’t have to go estoppel, just use reliance expenditures. There was a
contract, just some missing terms, use Restatement 33 (Collins likes)
16
a.
B.
Howard v. Beavers.
 Court says no basis for expectation recovery, but there is basis for breach of K
using reliance. Same as Wheeler case.
13.
Raffles v. Wichelhaus.
 P selling D 125 bales cotton. D refused to accept b/c came on different ship.
 Not really mistake case b/c each party believes subject matter is different, not one or both
parties mistaken about some aspect of K.
 Parties minds never met, subjective view of K law, no K where one party thought it was
buying cotton in Sept and buying cotton in Dec. Mo meeting of minds, no K.
a.
Questions.
i.
Two wine estates close. Perhaps difference in time October v. December is
equivalent of difference in two vineyards.
ii.
If knew two ships named Peerless then not sufficient meeting of the minds, the
misunderstanding doctrine could probably apply.
iii.
Both parties know that there were two ships named Peerless sailing regularly
from Bomban and both understood it was the October one. Enforce this K b/c
ambiguity didn’t affect anyone.
iv.
What if P knew of both Peerless ships but D only knew of one? If P thinks D
only knows of one then has duty to tell, otherwise K. If P doesn’t know that D
doesn’t know then no K, no meeting of minds. Only when P thinks D intends
something different that P does, if not, neither party liable (Dickey)
b.
Flower City Painting Contractors v. Gumina.
 P says only had to paint interior, not exterior. Plans not in agreement. D
removed P from job when wanted more $.
 Court says no meeting of the minds (can’t expect P to know all house rules)
 Dictum says trade usage doesn’t apply, P shouldn’t have to learn about industry
exterior/interior standards since he is new in the business.
c.
Dickey v. Hurd.
 P wrote D asking what price would sell land. D said price and will stand untill
18th. P said would give answer in that time. 17th P replies and says I’ll buy, D
says no, need $ now.
 Original offer ambiguous but P’s two letters made it clear though just needed to
accept, not $
 Enforce the K. If P hadn’t sent other telegrams about the deal then would be a
Peerless case.
d.
Restatement Second $20. Effect of Misunderstanding
i.
each party has a misunderstanding and both misunderstanding’s are
understandable then no K.
Control Over Contract Formation.
1.
Cobaugh v. Klick-Lewis.
 Hole in one case. P says won the car, D says wasn’t for him.
 Court says there was offer for unilateral K. Up until hit hole in wone could have revoked
offer. Contract that looks to acceptance by perforamance or inaction when that
acceptance occurs, contract formed. D tries subjective intent defense…no dice.
 If hit 30 days later would be question of fact whether or not offer still open.
a.
Unknown Offers of Rewards
b.
Master of the Offer – If offer can be accepted before its withdrawn, that means that
offeror is giving something away for free. Offer creates power of acceptance, gives
offeree power to bind offerror up until offer is withdrawn. Gives offeree power over
offeror and offeror gets nothing out of it.
c.
Caldwell v. Cline.
 Offer sent Jan29, rec’d Feb2, acceptance sent 8, acceptance rec’d 9.
 Original offer says have 8 days to accept. 8 days start running on 2 nd, when
person knows that offer exists.
 If says must accept by Feb 1 you have until Feb1.
d.
Textron v. Froelich.
17

2.
3.
4.
5.
6.
Seller offers broker two lots of steel rods at stated prices. Buyer says I’ll think
about it, calls seller back to see what’s going on, orders rods. Seller says, “fine,
thank you” then refuses to perform.
 Court says issue of fact whether or not reasonable time has passed, by saying fine,
thank you, acceptance. There was offer in this telephone conversation.
 Seller is master of offer and had opportunity to make acceptance conform to his
standards.
 If no expiration date on offer then expires at reasonable time.
Allied Steel v. Ford.
 Ford wants indemnity b/c Allied had that in its contract. Injury occurs before
acknowledgement copy sent to Ford.
 Ford had acceptance when Allied performed. If Ford made the form the all-inclusive
thing would have kept Allied out of plant.
Davis v. Jacoby.
a.
P wants spec perf of D’s will. P came to D and took care of Mr. and Mrs. D. By
time K formed P on the way to D. Mr. D commits suicide (does offer die with
offeror, usually, but can'’ always check to see if offeror alive).
b.
P wants estate. Court says P accepted offer by saying they would come. This guy
died after the K offer had already been accepted.
c.
Bilateral K – promise you estate if you promise to come help. K formed before he
dies.
d.
When in doubt about acceptance assume whatever offeree does is acceptance
Restatement 31.
e.
Restatement Second $36. Methods of Termination of Power of Acceptance
i.
rejection or counter-offer by offeree
ii.
lapse of time
iii.
revocation by offeror
iv.
death or incapacity of offeror or offeree
v.
nonoccurrence of any condition of acceptance under terms of offer
Contract Doctrines:
a.
Accord and Satisfaction – Was there a unilateral contract.
b.
Executory Accord – Promise advanced by debtor to creditor that the debtor will pay
off some larger obligation earlier, and a promise by creditor that there will be a
discharge of debt (bilateral).
c.
Substituted Contract (Movation) – when performance substituted
Petterson v. Pattberg.
 Whether or not there was a unilateral contract. Petterson mortgage on property, got letter
that if would pay off now, lesser terms. Went to Pattberg and Pattberg says offer
revoked. (Today would advise Petterson to shout that was here to pay off)
 Majority says where act is called for K requires cooperation by offeror, and until
cooperation forthcoming, no contract. Court sees revocation of offer before acceptance.
 NY legislature enacted that tender of performance is equivalent of performance in this
type of case, would be impossible to accept otherwise. However, here, court says there
was revocation before tender
 Prong about cooperation completely gone today.
a.
Wormser, True Conception of Unilateral Contracts – offer to walk across Bridge. If I
revoke before you get across bridge that’s okay accoring to Wormser. Restatement
says if performance of act begis offeree has power to complete performance and get
complete contract.
b.
The Unilateral Contract
c.
Restatement Second $45. Option Contract Created by Part Performance or Tender
i.
avoids use of unilateral contract. Not a helpful position, unilateral contracts
are widely used in court opinions.
ii.
Also overturns Petterson v. Pattberg.
iii.
Where acceptance by performance unilateral contract once performance begins
there is a contract.
Brackenbury v. Hodgkin.
18

C.
Promisee starts to relocate and before ultimate benefit tendered is met with revocation of
offer.
 Equity action for spec perf. Court says son is bona fide purchaser, son doesn’t qualify b/c
knew about arragnement b/t mother and daughter to transfer land to daughter.
 Court orders spec perf and daughter and son-in-law stick around b/c they’d started.
Torment mom.
 Good authority is restatement 45(1) tenders beginnign of performance.
 Beginning of performance makes irrevocable. Beginning of performance operates as
promise to complete performance.
7.
Restatement Second $62. Effect of Performance by Offeree Where Offer Invites Either
Performance or Promise. (If offeror doesn’t give option then 62 doesn’t kick in. 62 only
kicks in when offeror says accept by performance or by promise, wherever ambiguity 62 also
kicks in, and there is return promise. If offer not ambiguous then 62 doesn’t kick in).
a.
Where anoffer invites an offere to choose b/t acceptance by promise and acceptance by
performance, the tender or beginning of invited performance or a tender of a beginning
of it is an acceptance by performance.
b.
Such an acceptance operates as a promise to render complete performance.
8.
Reward cases primary source of unilateral contracts. When only unilateral no implied return
obligation when performance begins to complete performance (if start looking for lost dog
don’t have to continue looking for lost dog).
9.
Notion of return implied promise to complete performance once performance begins, but
drawing distinctions on form of offer doesn’t make sense to Collins.
10.
Dickinson v. Dodds.
 What constitutes revocation varies depending on subjective/objective view. By mid 19 th
century subjective view on the way out, idea that thought in your head, or act indicating
revoke not known to other, got rid of subjective.
 When some manifestation made to offeree that offer withdrawn
 Offer revoked when offeree leraned from 3rdh party that offeror had sold or was offering
to sell property to someone else.
 Case stands for objective view of contract law, notion that before an offer accepted offer
can be revoked.
11.
Only real subjective view left is that death reokes an offer whether or not offeree knows about
the death.
Precontractual Obligation.
1.
Introduction
2.
Thomason v. Bescher.
 Offeree paid $1 to hold offer open. Offeror revokes. Can offeree get spec perf?
 Don’t worry about nominal consideration in option contract, look to see if adequate
consideration in second contract. If second okay, will enforce option.
a.
2-205Firm Offer. Offer by merchant to buy/sell in signed writin which by its terms
gives assurance that will be held open isn’t revocable for lack of considerattion for
time stated, or reasonable time, not to exceed three months.
i.
Can have firm offer with an option contract, doesn’t allow you to revoke.
ii.
Can have firm offer in terms of promise to make an irrevocable offer.
b.
Restatement Second $87(1). Options
i.
Offer is binding if:
 is in writing and signed by offeror, recites a purported consideratoin for
making of ofer, proposes exchange on fair terms within reasonable time
 is made irrevocable by statute.
3.
James Baird v. Gimbel.
 General relies on sub promise/offer/bid to and incorporates into its own general bid. Sub
“if successful in being awarded this K we’ll provide linoleum at this price.”
 Hand says not going to use promissory estoppel. If general wants to bind sub, could have
bargained for it.
 Hand doesn’t want to do this for policy reasons, court shouldn’t be involved trying to
adjust bargaining relationship of parties in commercial transaction.
4.
Drennan v. Star Paving.
19

D.
Same facts as Baird. There is argument for promissory estoppel (but there is no promise
here). Traynor finds implied promise.
 Forseeable that general use’s sub’s bid. Traynor talking about section 45 unilateral K
beginning contracts with ability to continue contract.
 Section 45 recognizes implied subsidiary promise (If someone starts to do somehthing,
offeror promises them stuff if they complete requested performance, have right to finish
walking across bridge b/c of implied subsidiary promise.
 Activist opinion, used Section 45(unilateral) and compared it to this bilateral.
 This opinion eventually becomes codified in Restatement
 Gets to recover diff in sub bid and what general had to pay.
 If relied on too good to be true then can’t recover
5.
Restatement $87 – codifies Drennan. When offeror can reasonably expect reliance to be
induced the option is binding to te extent that it prevents injustice.
6.
Southern CA Acoustics v. Holder.
 Attempt to reverse Drennan. In CA general must put sub’s name in bid. Sub saw this
and turned down other offers. General gives bid to other sub.
 Sub sued on theory like Drennan. Sub says forbor other work, general says there was no
promise, and sub says there was subsidiary promise like Drennan, court rejects.
 Had general promised then could sue promissory estoppel.
a.
Once general has main job, attempts to go ou tnad get lower bid the general’s power of
acceptance terminates. If general goes bid shopping sub is off the hook.
Conduct Concluding a Bargain.
1.
Livingstone v. Evans.
 Makes offer to sell 1800. Buyer wires back 1600. Seller replies can’t reduce price.
Buyer accepts but in interim seller had sold.
 The response about not being able to reduce price was renewal of original offer. If the
buyer had only made an inquiry then would be K off the original offer.
 Questions?
 Offeree wires back “your price 1800 seems high, but like the terms, is your figure
firm?” Probably a contract in that case.
 P draws line through 1800, writes 1600, then does nothing and later accepts. Would
be a counteroffer.
a.
The Deviant Acceptance – counteroffer is a rejection of original offer.
b.
Ardente v. Horan.
 Offere, “my clients are concerned that following items remain with real estate.”
 Court says this was rejection, can’t change terms ofoffer, can only “acceptance
may be valid despite conditional language if acceptance clearly independent of
contition”
c.
Problem. Offer stays open even tho offere has offered 88K. Offeror has said they
want to keep open for certain amount of time, so policy consideration about protecting
offeror doesn’t apply. Don’t need to protect offeror b/c they have said they want to
leave open for said amount of time.
2.
Idaho Power v. Westinghouse Electric Corp.
 D gives P offer to supply equipment. D form excludes consequential damages and
consequential damages occurred. Was the disclaimer effective.
 Court says no express requirement that acceptance of additional form necessary so falls
under 2-207. Contract
 At common law no contract
 Court also says okay for D to disclaim strict liability b/c dealing with two giants.
a.
Roto-Lith v. Bartlett.
 Roto-Lith wrong according to Collins.
 Case is opposite reading of 2-207. In this case 2(b) would apply.
 Different result from Idaho. Has been uniformly rejected.
 Order that P puts in were on P form which had warranties. D told P before it got
goods that there were no warranties, then P took goods so D not liable. P never
objected. First case to apply 2-207 and it applied it incorrectly.
20

E.
Under common law offer was tender by D and there were no warranteies
and contract formed when P accepted goods, not when D agreed to P order.
3.
Morrison v. Thoelke.
 P in FL, owns property. Send offer to purchaser in TX. P sends form and D executes
contract, puts in mail. TX calls FL before acceptance gets there and revokes acceptance.
Contract?
 Court adopts Adams v. Moselle. Had been adopted everywhere except U.S. court of
claims which now adopts. After offeree deposits acceptance in mail it is accepted, as
soon as out of offeree’s possestion.
a.
Acceptance by Letter or Telegram
b.
Restatement Second $63. – Basically Adams rule
i.
acceptance made in manner and by medium invited by offer operative and
completes mutual assent as soon as put out of offeree’s possesion, without
regard to whether it ever reaches offeror; but
ii.
acceptance under option K not operative until received by offeror.
4.
Toms Tree Surgery v. Brant.
 P contractor wants $ for labor, machine, material, used to landscape. P did extra work in
past had been paid.
 Trial awarded $ on time basis from implied K. Affirmed.
a.
Restatement Second $69. Acceptance by Silence or Exercise of Dominion
i.
1(b) Where offeror has stated or given offeree reason to understand that assent
may be manifested by silence or inaction, and offeree in remaining silent and
inactive intends to accept offer (offeror can’t bind offeree, but offeror is saying
offeree can bind me by their silence then there is K.
5.
Hobbs v. Massasoit Whip Co.
 P sends skins to D who keeps and spoil.
 Judgement for P. Had done this in past and D had paid. At least D had duty to inform
wasn’t gong to accept.
 Does this allow P to force K on D? No, hinges on fact had done this for long time.
 RST Second $69©
a.
McGlone v. Lacey.
 P writes to lawyer says want you to take my case. Partner says D will look at
take care of later. Statute of limitations runs out.
 Court says no contract. D simply didn’t respond to offer to take case, no prior
representation by lawyer, naked offer which lawyer ignores.
b.
Privelege of Silence – typically the silence cases are insurance cases. In insurance
cases like McGlone usually insurance company has to pony up. Insurance different
somehow. Usually outside of insurance cases P’s arent’ very lucky with silence
acceptance.
c.
Austin v. Burge.
 read newspaper after subscription ran. Had tried to cancel.
 Wouldn’t have had to pay if had thrown paper away, but instead continued to read
it so has to pay for it.
 Changed by Postal Reorganization Act.
d.
Unsolicited Merchandise – No obligation to send items back. If I was sent a key ring
and used it then quantum meruit. Action speaks louder than words.
i.
In MI if you send stuff in mail, by statute it is treated as gift, can do anything
with your gift.
6.
Morone v. Morone.
 Not going to find implied K b/t unmarried couple living together, wont’ do it for married
couple living together.
 Can have express K but don’t want to do implied. Don’t want to attach contractual
significance to stuff you would do for someone else in a relationship.
 Even hard to get for express contracts.
The Effects of Adopting a Writing.
1.
Introduction
a.
certain situations where statute requires writing.
21
premise of statute of frauds is that writing more reilable K than one that isn’t.
strong preferences for written K over oral K, however, with modern discovery, worries
might not be as severe.
Parole Evidence Rule. – doesn’t allow oral information made prior to contract or
contemporaneous with formation of contract. Its rules don’t apply to oral stuff after contract
made. Once shit falls under parole evidence it doesn’t get in. Court says parol evidence is
substantive, not procedural. Also applies to written prior and contemporaneous undertakings.
a.
Mitchell v. Lath.
i.
Icehouse case. D sells land to P and P later says oh yeah, take off that
icehouse that is on adjacent land. D says sure.
ii.
D doesn’t remove icehouse and P sues for spec perf.
iii.
Court rules that the oral evidence never should have been admitted, even
though it was telling and probably true. Done in interest of larger perjuries.
Court adopts three prong test.
 Transaction Must Be Collateral – where alleged oral undertaking alleged
by same consieration. Here purchaser giving money and in return
purchaser gets land, and if she’s right, removal of icehouse. No
independent consideration for removal of icehouse.
 Can’t Contradict Express or Implied Provisions of K. – no clear here
whether or not it does this. Leaning towards yes, probably does
contradict. Can argue that there is general contradiction, purchaser saying
gets land and icehouse removed (costs money) when buyer just giving
money for land.

Must be provision that one wouldn’t expect parties to put into writing –
this is what this case hinges on. Would expect that would put this in
writing, at least according to the judges.
Integration Clause – your basic bad plan not to have one of these. They are ineffective to
problems like fraud, but attempt to prove oral evidence in the face of a merger clause is like
polishing the brass on the Titanic.
Hatley v. Stafford.
 Lessor argues there was oral understanding of time limit for buyout clause 70/acre.
Needed time to harvest.
 Buyout clause was unconditional and lessee trying to prove oral statement that is
inconsistent with unconditional.
 End up letting parol evidence in, parties not sophisticated, no lawyers, k was handwritten.
If used attorneys, more likely to be included in writing.
 Collins says this is problematic holding.
a.
Masterson v. Sine.
 Used extrinsic evidence to show wanted ranch in family and option not personal
to grantors and not assignable to third persons.
 Natural not to put this in writing.
 Natural to keep nontransferrence separate from deed document.
b.
RST Second 209,213,214,216
c.
RST 216 – Consistent additional Terms
i.
Evidence of consistent additional term admissible to supplement an integrated
agreement unless the court finds that the agreement completely integrated
ii.
Agreement not completetly integrated if writin gomits consistent additional
agreed term which is
 agreed to for separate consideratoin
 such a term as in the circumstances might naturally be omitted
d.
RST takes position that fact that there are gap filling rules doesn’t mean the parol
evidence rule will preclude matters such as warranties. NY parol evidence rule
expansive and rejected by restatement in consistency position.
e.
UCC Parol Evidence rule 2-202 – Major departure from parol evidence rule. 2-202
reflects Corbin view of parol evidence. Precludes contradiction of confirmatory
memoranda by prior or contemporaneous oral agreements when the writing was
“intended by the parties as final expression of their agreement” and permits the
introduction of consistent additional terms unless the court finds the writing to have
b.
c.
2.
3.
4.
22
5.
6.
been intended. Also as a complete and exclusive statement of the terms of the
agreement. Focus is on intention of parties, not integration practices of reasonable
persons acting normally and naturally.
i.
Doesn’t talk about natural test of #3 Lath.
f.
Luria Bros. v. Pielet Bros Scrap.
 Broad concept of consistency.
 D says oral understanidng that D would provide scrap only if it could find
suppliers for itself.
 D claims parol didn’t contradict but rather explained.
 Court defines consistency in 2-202b to be absence of reasonable harmony in terms
of language and respective obligations of parties. Inconsistent with K in this
case.
Long Island Trust Co v. International Packaging.
 Creates rule of exception to parol evidence for a condition precedent to the K.
 4/5 guarantors sign note and said conditional on 5 th guy (makes sense, don’t want to pay
25%).
 Only admissible if parol evidence doesn’t contradict a term of the writing, precondition
must be consistent with written undertaking
 not condition of performance, but condition of contract formation.
a.
Western Commerce Bank v. Gillespie.
 Was obtaining financing a condition precedent or a condition of the contract?
 Court looks at parties intention and thinks this was a condition operating to
contract itself.
 Apply UCC 2-202 look at intention of parties (not sale of goods)
b.
Question
i.
Is the defense of conditional delivery distinguishable in principle from the
sham-transaction defense used successfully in NY Trust v. Island Oil. If parol
evidence applied then you wouldn’t be able to show that the contract was a
sham. Had all the attributes of an integrated contract, but you can show that it
was just a sham. Exception to parol is sham.
ii.
If a purported contract recites consideration you can go behind the K and show
that there was no consideration. Show that there is no contract b/c the writing
that is the contract isn’t valid. sort of circular.
c.
The Fraud Exception – Tort and Contract
Lipsit v. Leonard.
 P supposed to get equity interest in D business.
 Parol evidence would bar b/c this deal inconsistent with writing which included statement
that maybe go equity if things work out.
 Can tort action lie in fraud? Did this guy never really intend for things to work out?
Does parol evidence bar this action?
 In most jurisdictions can obtain benefit of fraudulent promise (here equity interest in
company). NY says no relief based on fraudulent promise, but can get relief based
on reliance.
 In NY can get recission of K but that gets him squat.
 Value of services rendered – money he receives for those services. Not gonna get much
here.
a.
Bank of America v. Pendergrass.
 Demand note, parol evidence bars evidence that it wasn’t demand note.
 Condition about the time was fraudulently made to induce demand note. Still not
in, a promise for conditions on demand note inconsistent with notion of demadn
note.
 Court limits fraud exception.
b.
Sabo v. Delman.
 Fact that there is merger clause can’t preclude proof of fraud.
 Was asking for recission of the contract.
c.
Danann Realty v. Harris.
23

F.
P says D made fraudulent representations about operating expenses of building.
Merger clause in K.
 Can’t prove fraudulent representations b/c merger clause very specifc, geared
towards operating expenses, revenues.
 Fraud doesn’t trump a specific merger clause.
7.
Lafazia v. Howe.
 P 60K down on busines. 30K note to D. Turns out the place a dive, has already paid
20K on note.
 Court says no action for fraud, cites Danann. Here there was specific merger clause.
 Collins said most courts would allow this evidence of the fraud.
a.
Rio Grande Jewelers v. Data General.
 No action in tort b/c K comprehensive merger clause. Just a way of getting
around UCC to go for tort.
8.
Hoffman v. Chapman.
 This is mutual mistake, bost mistaken to same fact. Unilateral mistake (Drennan v. Star
Paving, generally no relief for unilateral mistakes) Mistake exception to parol evidence
rule. Mistaken as to the same fact
 Interpretation of Written Agreements
 this case there is mistake about the size of land. Have to show by clear and convincing
proof that the parties intended to buy and sell a smaller parcel of land.
9.
The Four Corners Rule – to what extent can you go outside the document to give words a
meaning that is different from their normal meaning. How far can youg o to extrinsic to give
special meaning to those words?
a.
If the words are ambiguous in normal understanding you can always go outside the
contract to show that they had a particular meaning. They may disagree as to whether
or not words ambiguous, but that is a decision for the judge.
b.
Bethlehem Steel v. Turner Construction.
 If words clear on face, can’t go extrinsic
 Stands for four corners rule.
10.
Pacific Gas v. Thomas Drayawge.
a.
Traynor says can’t make any judgment until you look at extrinsic. No such thing as
plain meaning in today’s crazy world. Judge should always take evidence as to some
other proffered possibility for words in the contract.
b.
Traynor adopts a deconstructionist position.
c.
RST Second 212
Standardized Forms: Assent and “Public Policy”
1.
Introduction
a.
Allied Van Lines v. Bratton.
 Didn’t read bill of lading and signed. Gods are lost and carrier is asserting
limitation of liability.
 You sign and don’t read, that’s your problem.
 If someone affirmatively misleads you then there is basis for recovery, you are not
bound to the clause in the K that limits liability.
b.
Agricultural Insurance v. Constantine.
 Left keys in ignition and given ticket with limit on it.
 Maybe deal was struck when she left the car and the ticket was a later add on. I
 If have no reason to believe that manifestation part of the deal then don’t have to
abide by it. That’s RST Second $211 position on pg 527.
2.
Mundy v. Lumberman’s Mutual.
a.
You sign something you don’t’ read then screw you.
b.
Was new easy to read insurance policy that was signed by the people.