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Contracts Outline
I. An Overview of Contract Law (2)
A. Enforcing Promises
1. Implied in fact contract OR implied in law contract (quasi-contract) (Bailey)
2. If promise made under intoxication as a joke, still enforceable (Lucy)
3. Indefiniteness voids contract
4. Agreement to agree unenforceable (Martin)
5. Consideration – peppercorn? – benefit-detriment? – bargained-for?
6. Unconscionability – procedural (lack of meaningful choice) + substantive (Williams)
B. Performance of the Obligation
1. If contractual partner makes trivial breaches, the remedy is damages, not forfeiture (Jacob & Youngs)
2. Impossibility – must-deliver rule (Stees) OR pay damages (Taylor)
C. Remedies for Nonperformance
1. Damages – expectancy, reliance, restitution
2. Efficient breach – promisor can breach with promisee, pay damages, and taken on better contract
3. Coase Theorem – if negotiation costless, law won’t matter – only affects relative wealth
4. Specific performance (§ 2-716) – when goods are unique or in other proper circumstances
5. Consequential damages – only those that arise naturally over reasonable course of things (Hadley)
II. Enforcing Promises (14)
A. Consideration
1. Mere inadequacy of consideration doesn’t void contract (Batsakis)
2. Was person in gift-giving state of mind, or bargaining for something?
B. Promissory Estoppel – “nasty amount of reliance” says to enforce (RSC § 90)
C. Material Benefit Rule – is there a timing defect in bargaining process that hides what really is a bargain?
III. Bargain Context (17)
A. Offer and Acceptance
1. Price quotes don’t constitute an offer, but can if detailed enough (Dyno)
2. Power of acceptance terminates after a reasonable time (§ 41)
3. Commencing performance implies a promise to accept (§ 4)
4. Offer invites acceptance in any reasonable manner, unless otherwise indicated (§ 30.2)
B. Offer and Counteroffer
1. Offeree’s power of acceptance terminates when counteroffer made
2. CL – mirror image rule – unless an acceptance reflects mirror image of the deal, it is counteroffer
3. 2-207 – offeree can: counteroffer OR accept with proposal for different terms
IV. Relationships and Conduct (20)
A. Exclusive dealings – must use reasonable efforts
B. Modification – CL = pre-existing duty (new consideration), 2-209 = no new consideration, if in good faith
V. Regulating Bargaining Process (20)
A. Duress
1. If conduct that manifests assent was physically compelled by duress, no assent given (§ 174)
2. Draws line between legitimate threat because of changed circumstances AND opportunistic threats
B. Disclosure and Concealment
1. No general duty to disclose in real estate transactions
2. Kronman – must disclose casually acquired information – deliberately acquired = protected, unless asked
C. Statute of Frauds – limits enforceability of certain oral contracts – parties must make written note – 2-201
VI. Parol Evidence Rule (22)
A. Three writings: un-integrated, partially integrated, fully integrated
B. Tests: four corners test, natural omission test, merger clause
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I. An Overview of Contract Law
A. The Purposes of Contract Law
1. Nearly all contracts are somewhat incomplete
a. Often a contract dispute is based on something that the contract doesn’t specify or govern (or not in
detail)
b. The cost of including EVERY possibility in a contract is not possible
2. Most (but not all) rules of contract law are “default” rules
a. If parties agree with the default rules, they don’t have to say things about what happen if X happens
a. Nature of the term “default rule” means that the parties can contract around the rules to have a different
rule apply
b. Example
i. Default rule – offer to enter contract can be accepted under any reasonable means
ii. I could offer to sell a car, buyer could accept offer verbally or via email
i. If I don’t like the default rule, I can specify the means by which the buyer has to accept the offer
c. This is good:
i. Limits the damage that is done by an incorrect judicial decision
ii. Allows the parties to account for special circumstances that may not be taken into account by the
default rule
d. Why setup default rules? – lowers the cost of contracting
e. Tension – should courts create rules that apply to people broadly OR should they make specialized
rules?
f. Not all rules can be contracted around
B. Enforcing Promises
1. What is a Promise?
a. Bailey v. West
i. Facts
(a) Bailey boarded the horse and began the suit by filing a complaint
(b) West purchased the horse, but sent it back to seller; seller wouldn’t accept it, so it was sent to
Bailey
(c) Bailey is asking for cost of boarding and trimming horses hooves
ii. What is odd about the dates when West and Bailey?
(a) W – 2-3 months
(b) B – 1-2 months
(c) It might be reasonable to reimburse Bailey between the time when Kelly dropped horse off and
West disclaimed ownership
(1) West has an incentive to push the time toward the drop-off date
(2) Bailey has an incentive to push the time up
iii. Bailey won expenses in trial court, but only for first 5 months
(a) Both of them appealed
iv. Implied in fact contract (theory of trial court)
(a) If parties’ actions, from a third-party perspective, imply mutual intent to contract, we assume
that they intended to contract
(b) We put on them the costs of being idiosyncratic (acting in a weird way)
(c) Implied in fact isn’t different effectively from an express contract
(d) Not intent in the conventional sense – measured by what a third party would see
v. SC of RI rejects the implied in fact contract
(a) Meeting of the minds isn’t present (as judged by objective third party)
(b) Bailey and West had never transacted business before
vi. What arguments could we make on Bailey’s behalf?
(a) Why should Bailey suffer because West is acting through agents?
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(b) Why is it unreasonable for Bailey to board the horse, just because West and Strauss are
disputing ownership?
vii. Reasonableness protects the third party and the original first party
(a) If the agent does something unreasonable, the hirer is not responsible
(b) If the principle communicates secretly to agent, the third party isn’t responsible for what is said
viii. Quasi-Contract – contract implied in law (restitution, unjust enrichment)
(a) Three crucial elements (p. 8a)
(1) Benefit conferred on defendant by plaintiff
(2) Appreciation of benefit by defendant – really means that defendant must be aware
(3) Acceptance and retention of benefit
(b) Another test
(1) Plaintiff conferred benefit on defendant
(2) Plaintiff expected repayment (not a volunteer)
(3) Plaintiff either:
(i) Gave defendant opportunity to decline, or
(ii) Has an excuse for not doing so
(c) Not really a contract, since there is no promise
(d) Duty to pay is imposed, in order to prevent the unjust enrichment of the other party
(e) Examples
(1) Doctor treating the patient:
(i) Doctor did confer a benefit
(ii) Doctor might have expected repayment
(i) Doctor meets 3.b
(2) Bob the painter
(i) Meets 1 & 2 in all three cases
(ii) Recovers from Randall because he had an opportunity to decline
(iii) Guy away on vacation wasn’t the least cost avoider
(ii) Garage – he’s an officious intermeddler – could’ve gone into market easily
ix. Agent problem
(a) It would be easier to say that there was mutuality, if West had dropped the horse off himself
(b) It’s annoying that West seems to do better for having used agents (and be least liable)
(c) Did Bailey have reason to believe, based on West’s actions, that Kelly had authority to enter into
the boarding contract?
b. Lucy v. Zehmer
i. Differentiation with Bailey
(a) Lucy wants “specific enforcement” of the sale agreement
(b) There is no need to imply a contract – we have an “express” contract
ii. Facts
(a) Zehmer, after several drinks in a bar, drafted and signed a 12 word agreement on the back of a
guest check
(b) Zehmer, his wife, and Lucy all signed the agreement
iii. Does Zehmer’s action, despite of his lack of intent to contract, result in him being contractually
bound?
(a) Court: Zehmer is bound
(1) The law imputes to Zehmer an intention that comes from the written agreement
(b) Zehmer’s defense: he was drunk
(1) Court doesn’t buy this
(2) His lawyer conceded that he had capacity to contract
(c) Restatement §§ 12,16
(1) 12.1 – no one can be bound by contract if they don’t have the capacity to incur at least
voidable contractual duties
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(2) Void vs. voidable
(i) Void – invalid, regardless who wants it (ex: contract to murder)
(ii) Voidable – one party has the ability to get out of the contract
 Ex: contract between infant and adult (I contract to sell a dog to a 5-year-old for $5)
(3) If Zehmer was intoxicated, he would have the power of voidability
(i) But we would have to prove that people could tell he was intoxicated
(d) Zehmer’s only real defense: it was a joke
(1) Even if we assume that Zehmer was joking, he would still lose
(2) Lucy believed that the contract was serious – he was justified in holding this belief
(3) If Lucy can detect that Zehmer is joking, he wouldn’t be able to enforce the contract
(4) The requirement is an objective standard coupled with an anti-opportunistic “smack down”
(i) Objective intent – external expression or intention is what matters for contract
enforcement (§ 2, comment B)
(ii) It is easier for idiosyncratic people to figure out the norms
c. Leonard v. Pepsico
i. Facts
(a) P sees a TV commercial for a Harrier Jet, then amasses 7 million Pepsi points
(1) He raises money from “acquaintances,” then purchases the points from Pepsi
(b) Pepsi says there are no jets available, and P sues
ii. Court says
(a) P was unreasonable to think that Pepsi was offering the jet
(b) The seeming offer in the ad was too good to be true – it was just puffery
iii. Pepsi was the least cost avoider
(a) They could easily have put some small print on the commercial saying “Jet isn’t available”
(1) But, they didn’t put the jet in the catalog
(b) At almost 0 cost, Pepsi could have said that the jet cost 7 billion Pepsi points
iv. Is it really right to use the objective person standard for TV broadcasting? – Should you have to use
the “damaged person” standard?
(a) Pepsi knew well that people would see the commercial who didn’t have full capacity to contract
(1) A contract with a minor is voidable by the minor
(b) Given that Leonard is sophisticated enough to get investors to back him, he should know that the
deal is not real
(1) He seems to be taking advantage of Pepsi
v. P’s brief
(a) Court suppressed docs from Pepsi that said other people had attempted to get the jet too
d. Theories of Contract Law (essay)
i. Autonomy
(a) We enforce contracts because they are the expression of the parties’ intention
(b) If we enforce promises, this allows people to be more free by binding themselves
(c) People aren’t so attached to their rejection of the objective theory of contract that they would
rather the world end than abandon their theory
(d) What would the result of instant retraction be?
(1) It’s indeterminate vis-à-vis 30 seconds
(2) They probably don’t care either way
(e) Ex post – given what people have done, what should we do?
ii. Economic
(a) Loves the objective theory
(b) The state should protect economically beneficial decisions
(c) Works on the ex ante approach – what enforcement is better for the future?
(d) Would economic theory allow for instant retraction?
(1) It seems to be agnostic over some short period of time after promise is made
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(2) Theorist might say – what’s important is that we have a rule so people can plan
iii. Reliance
(a) Suggests that the state should enforce promises to allow beneficial reliance
(b) Your promise to me is more valuable if I can rely on it being enforced
(c) Instant retraction should be allowed – there is no significant reliance over the first 60 seconds
(d) Since enforcement by the state is not cost free, that would way in on the side of not enforcing
(e) Critics
(1) Reliance can be difficult to prove – it’s a messy issue
(2) How much reliance is sufficient to support a binding contract?
(3) We also must decide whether the reliance is reasonable or not
2. Indefinite Promises and Open Terms
a. Corthell v. Summit Thread Company
i. Facts
(a) P is an inventor who worked for STC
(b) D had entered into special contract with Corthell
(1) For the next five years
(2) Should be on basis of what is reasonable
(c) Thread company declines to renew P’s contract
(d) P then sues, seeking to enforce the contract
ii. What can STC say, if anything, in its defense?
(a) The increase in his salary is compensating for his work
(b) In general, it would be good to have other compensation – this was during
(c) The basis and amount are its sole discretion
iii. Courts can come in and impose a fair amount
iv. The contract isn’t too vague for enforcement
v. Corthell should be paid a truly reasonable amount
b. Martin v. Schumacher
i. P leased a retail office from D for 5 years, with renewal clause (can renew at an agreed upon rate)
ii. P says he wants to exercise his right to renew, but D wants a high rental rate
iii. Agreement to agree is unenforceable
(a) Court might not want to bind people if they have only agreed to agree on a price
(b) Aren’t the parties in a dispute better to decide on the price or a formula to calculate the price?
iv. Why did the parties leave the gap in?
(a) It’s hard to come up with a formula that will set a fair price (real estate is hard to price)
(b) If it is a good, we can easily say how much the commodity will cost
v. Two approaches for indefiniteness
(a) Court might deny enforcement of promises that parties made, because the parties should make
the decisions themselves
(b) Actual intent
(1) Courts become concerned by the large size of gaps in contracts
(2) There might be a lack of intent
(3) Don’t enforce, because this must have just been preliminary considerations
vi. UCC
(a) Disfavors court regulation approach; and favors actual intent approach
(1) But there is enough wiggle room to allow court regulation
(b) Section 2-204, ¶ 3 (p. 111a)
(1) Two requirements for enforcement of a contract with open terms
(i) There must be a reasonably certain basis for enforcing the contract
(ii) Parties must have intended to make a contract
(c) Parties are allowed to create indefinite agreements, as long as they manifest an intention to be
bound
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(d) The actions of parties may be conclusive, despite the omissions (p. 112a)
(e) Section 2-305 – open price term
(1) Open price term will not prevent the enforcement of a contract, if the parties intended to be
bound by the agreement
(2) If the parties start by agreeing to agree, then fail to agree, court would be justified in filling
the gap with a reasonable price
vii. Types of Default Rules
(a) Majoritarian
(1) What most parties would want in the circumstances
(2) In one sense, this is an “off the rack” rule
(3) However, as seen in Bailey, the rules can be tailored to certain people/groups
(4) The less tailored the default rule is, the cheaper it is to administer
(5) On the other hand, the more tailored the default rule is, the more facts we’ll make relevant,
and the more default rules we’ll have
(i) This raises the risk of apparent inconsistencies
(b) Penalty
(1) Not what most parties would want
(2) The rule is what parties would not want if they sat down to think about it
(3) If the indefiniteness doctrine is used, but legislature abolishes it, courts could subvert the
legislature and impose a penalty rule
(4) Why else might courts impose a penalty default?
(i) Parties will negotiate, decreasing litigation costs
(ii) If we force parties to negotiate, that may force them to reveal information to each other
(iii) If we cap damages for torts at $1,000, it forces “egg shell” people to take precautions
3. Which Promises will be Enforced?
Autonomy-guy – enforce all promises to which the parties intend to be bound
a. Doctrines
i. Consideration – the main way that we divide the world of promises into enforceable and not
enforceable
ii. Promissory estoppel & material benefit rule (pick up a few promises that consideration says “no” to)
iii. General rule – contracts not supported by consideration aren’t enforced
b. Hamer v. Sidway
i. Facts
(a) P is the assignee of the nephew’s claim
(b) D is the uncle’s estate
(c) Uncle had promised Willy $5,000 if he refrained from smoking, drinking, swearing, and
gambling until he reach 21
(d) Willy wrote, saying that he did it
(e) Uncle wrote back, agreeing that he would pay, but that he would keep the money until Willy
was older
(f) After turning 21, until the uncle died, Willy borrowed and lost $13,000 from the uncle
ii. Benefit / detriment test for consideration
(a) There should have been a detriment to the promisee OR a benefit to the promisor
(1) Typically, person who is giving something other than money is the promisor
(b) In general, if I promise to buy your car for $10,000, and you promise to give me your car for
$10,000
(c) Created to distinguish between contracts & promises to make gifts
(d) Consideration is necessary, but not sufficient
(e) Suggests an objective test
iii. Nephew was legally detrimented because he gave up some of his rights
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(a) It doesn’t matter, but uncle did have a legal benefit – wouldn’t have to bail nephew out of jail,
family name held in hirer esteem, etc.
iv. Is this a unilateral contract?
(a) Uncle’s letter seems to say that the nephew promised to forbear from the activities
(b) But the court says that the nephew “assented” – maybe just said “ok”
c. St. Peter v. Pioneer Theatre Corp.
i. Issue: Does the person whose name was drawn as the winner at “bank night” have an enforceable
contractual right to recover from theater owner?
ii. Facts
(a) P and her husband had registered for bank night, then milled around on sidewalk outside
(b) Why does the theater let people mill around on sidewalk?
(1) They are trying to not violate Iowa lottery law
(2) It looks good for theater if people are standing outside
(c) Kafer announces that St. Peter wins
(d) St. Peter is told that it was her husband who won
(e) Manager said that he was too late
iii. Trial judge entered directed verdict against P
iv. Unilateral contract
(b) Their performance constitutes acceptance of the offer and consideration
(a) St. Peters didn’t promise anything back – they just performed
v. Theater owners are trying to take advantage of the public by hiding behind State v. Hundling (bank
nights were not a lottery, so long as there was no payment of valuable consideration)
(a) But this decision focused on a criminal prosecution under the state’s lottery statute
vi. Consideration exists
(a) Theater was promising to pay money whose name was drawn and made a timely claim for the
prize
(b) Patrons were offering a performance – signing register and hanging around
(1) People shouldn’t waste money on a lottery, but they can waste their time
vii. Court seems to use both tests for consideration
(a) They are moving in direction of bargain for test, but hang on to benefit/detriment test
(b) Was the act induced by the promise made? (p. 52a)
(c) Did the St. Peters suffer a detriment?
(1) Yes, they weren’t legally bound to mill around outside
(2) Signing the register foreclosed them from leaving
(3) Peppercorn theory of consideration – a peppercorn is enough to furnish consideration
(d) Was there a benefit to the theater?
(1) Yes, indirectly
(2) Theater expected benefits
viii. Theater’s best argument: conditional gift
(a) But it’s not a conditional gift
(1) Theater does not view the signing and milling about as a mere condition to fulfill its
charitable impulse to give away money
(2) Instead, the theater company sees bank night as the unfortunate price to pay to increase
attendance
(b) Why shouldn’t courts enforce promises to make gifts?
(1) Not enforcing these promises will hurt people
(2) Bottom line – it’s great to think about a particular promise, but if I actually agree to
maximize net beneficial reliance, we have to think about the quality & quantity of
promises
(i) If, in fact, enforcing a subset of promises, would decrease the quality & quantity of
promises, we might get less net beneficial reliance
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(ii) It’s not the case that, with the state not enforcing, we will have no beneficial reliance on
it
ix. If we want to maximize beneficial reliance, why don’t we enforce all promises?
(a) If we enforce all promises, promisees don’t have to take precautions – no hostages, etc.
(b) If we enforce all promises, we will increase precautions taken by the promisor
(1) Will probably make fewer promises
(2) Will make less high quality promises (will start conditioning them)
(c) Once you look at it this way, it’s no longer quite so obvious that we want to enforce all promises
(d) Are promisors going to degrade quantity and/or quality of promises, leaving us with less net
beneficial reliance?
4. Limitations on Enforcement: Unconsionability
a. Williams v. Walker-Thomas Furniture Co. (I & II)
i. Facts
(a) Replevin suit – tort-like suit for return of the goods
(b) Company is suing to enforce the cross-collateral clause and get their goods back
(c) Williams bought a variety of household items on credit
(d) Contract had a ¶ that prorated her payments over all the purchases she made
(e) She always owed a little bit on everything
(f) The company retained title to all goods until she paid the balance off
(g) Note 1 (p. 60) – this doesn’t mean that the company can keep all her stuff
(1) Technically they are supposed to sell the stuff, pay off her balance, and return the proceeds
to her
(2) BUT, the stuff is probably worth a whole lot more to her than to a third party
ii. Two main claims:
(a) There was no “meeting of the minds” when the contracts were signed
(1) In NO 1, court invokes penalty default rule – duty to read contract (p. 56a)
(b) Contracts should be void as against public policy
(1) In NO 1, court condemns the store for selling her a stereo that cost twice her monthly
income
(2) In NO 2, we’ll talk about it as finding the contract as unconscionable
iii. Number 2 (Skelly Wright)
(a) The contract was a form contract
(1) The vast majority of provisions weren’t dickered over between salesman and Williams
(2) In particular, cross-collateral clause was already set
(b) Disagrees with DC court of appeals – under common law there is a concept of unconscionability
(1) Certain contracts that are unconscionable are not enforceable under common law
(c) What does unconscionability require?
(1) There has to be a procedural unconscionability, coupled with substantive unconscionability
(p. 59a)
(2) Procedural – lack of meaningful choice (p. 59b)
(i) Manner in which the contract was entered
(i) Did each party have reasonable opportunity to understand the contract?
 One party could be more sophisticated
 Could be fine print
(ii) Would the contract be enforceable if the cross-collateral clause was in bold print and
initialed by Williams? – possibly
(3) Substantive
(i) Furniture company retained title to all goods until total balance is paid
(ii) Does Williams benefit from this?
 The less security that customers offer, the furniture company will raise the interest rate
 The cross-collateralization clause enables her to get credit
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(iii) We might want to look at the profits of the furniture company
 If they are making huge profits, the contracts might be unreasonably favorable to them
(iv) Autonomy guy – any consented to contract is fair
(d) How can this make Williams better off?
(1) Welfare state says that everyone should be at least at the floor
(2) We don’t want people to gamble away the money we give them
(3) Wright’s answer – I know that I am restricting William’s access to credit, but that is good
(i) This restricts her access to gamble, ensuring that she is making more cash purchases
C. Performance of the Obligation
1. Introduction to the Idiosyncratic Bargainer
a. Jacob & Youngs v. Kent
i. Facts
(a) P – Jacob and Youngs Construction Co.
(b) D – Kent – cranky rich guy
(c) Refuses to make the final payment
(d) Contract – said, unambiguously, that the plumbing pipes must be “of Reading manufacture”
(e) Kent learns that not all of the pipe is Reading, and tells the contractor to replace the pipe
(f) Construction company says it is too much trouble
(g) Kent refuses to pay
(h) Construction co. sues him for the final payment
ii. If your contractual partner makes “trivial and innocent” breaches of contract, the remedy is
damages, not forfeiture
(a) Typically, if the contractual partners breaches, you are under no obligation to perform your end
(b) However, if the breach is “trivial”, I am obligated to perform and can seek some amount of
damages that reflects why I’m worse off
iii. Is Cardozo’s rule good?
(a) Sellers have more of an opportunity to take advantage of buyers
(1) They can put “Reading pipe” in the contract, then shop around when the time comes
(b) It limits the opportunism of buyers
(1) Kent has a 200 ¶ contract
(2) We don’t want the buyer to scrutinize the contract and find one thing that is wrong
(3) If Kent doesn’t care about the brand of pipe, he could scam the construction co.
(c) If we had the opposite of Cardozo’s rule…
(1) Contractor would be worried that his workers would screw up the contract
(2) Contractor would charge more for the house, in case there was a mistake
(d) With Cardozo’s rule…
(1) Contractor has a little leeway, so he can charge less for the house
(2) Potential homeowners are better off
(i) Most of them are not obsessed with the actual brand
(ii) They put a brand name as a measure of quality
(e) Cardozo suppresses the “tear down and replace” clause
(1) This suggests that the parties did contract around the default rule
(2) You might need to specify Reading pipe in this clause
(3) Or maybe you should provide a reason why you want Reading pipe
iv. Dissent, McLaughlin
(a) If Kent had contracted to have Ionian columns and gotten Doric columns, it would be absurd for
the court to reward him nothing, based on the argument that the house value is the same
(b) There is a difference between artistic element vs. backbone elements
(1) Most people are interested in the functionality of pipes
(2) If people contract about some external feature, they may be interested in the aesthetics of
the element – should uphold this
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v. The promise of Kent to pay is not conditioned upon receiving “perfect tender” of a house that meets
all the specifications; instead the promise to pay is conditioned on substantial performance of the
contract
vi. Simple  Utilitarian (complex)  Aesthetic (complex)
(a) Aesthetics – We give more free reign to the buyer when it comes to aesthetics (everyone is
idiosyncratic in their own way)
(b) Simple contracts – If I contract for No 2 W and end up getting No 1 W, I won’t have to pay
2. Allocating Risks
a. Stees v. Leonard
i. Facts
(a) D entered into a contract with P to erect a building in St. Paul
(b) Builders had raised building to height of 3 stories – it collapsed
(c) Builders got to 3rd story again, but building collapsed
(d) The building site was quicksand – not known to builders until after contract signed
(e) Builders abandoned project and refused to perform
(f) P sued
ii. Might be seen as agreeing more with J. McLaughlin as opposed to J. Cardozo in Kent case
iii. A sort of absolute, strict-liability must-deliver rule
iv. Court – “no difficulty short of absolute impossibility, will excuse him from doing what he has
expressly agreed to do.”
v. “Acts of God” would excuse the contract if the Law prevents exercise of the contract
vi. BUT – can’t you at least pay damages if a contract is truly impossible?
b. The Puzzle of Incomplete Contracts (essay)
3. Excuse for Nonperformance
a. Taylor v. Caldwell
i. Opposite result of Stees
ii. Facts
(a) There was a contract for use of The Surrey Gardens and Music Hall
(b) D agreed to let P use the facilities for four days for concerts, paying 100 for each day
(c) Parties (inaccurately) call this a “letting” and money paid “rent”
(d) Contract merely gives P use of the facilities
(e) Essential for fulfillment of contract – facilities must be in a state fit for a concert
(f) After contract, but before concerts, hall was destroyed by fire
iii. Even if a contract becomes impossible, damages should still be paid (p. 89a)
(a) But this is applicable only if the contract is positive and absolute
(b) There might be an implied condition that can excuse D
(c) The contract implies the condition that the music hall should exist
iv. The contract doesn’t say what happens if the music hall burns down, court is specifying that parties
are excused
v. What do we do if something unforeseen causes performance to be unduly burdensome?
(a) Strict letter of contract is followed (Stees)
(1) Benefit
(i) Provides the parties with an incentive to write complete contracts (as good as possible)
(ii) Don’t have to decide if the risk is unforeseen or not
(2) Costs
(i) But it’s a bit foolish to think that a contract can ever be complete – can raise contracting
costs
(ii) Supposedly it does what the parties intended, but it might not
(b) If no fault, split the loss
(1) Benefit
(i) If you can determine the risk and cost of the risks, this provides certainty in the outcome
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 This makes parties view the contract as a shared venture
 Parties then try to agree and settle things out of court
(2) Costs
(i) It may not always be easy to figure out the risk and the costs to be allocated
(ii) It’s not very satisfying to split the loss, if we can do better (i.e. if we can identify who
the loss should fall on)
(c) Corrective justice (Canadian position)
(1) Courts should be protecting boundaries and annulling wrongful gains and losses
(2) When something unforeseen happens, the loss isn’t wrongful
(3) The unforeseen risks result in harm, but not wrongful harm
(d) Comparative advantage (least cost avoider)
(1) If we decide there’s a risk that is unforeseen or un-contracted for, we should figure out who
would have born the risk if the parties had negotiated over it – should assign the risk to the
party who would have agreed to bear the risk, had they thought about it
(2) The person who could have born it at lowest cost would bear the risk
(3) R (magnitude of risk) = I (impact) * P (probability)
(4) Taylor v. Caldwell – least cost avoider?
(i) Caldwell is better able to know probability of a fire AND can take steps to prevent a fire
(ii) As far as impact, Taylor has control (can print simple posters, knows if special guests
are coming, etc)
(iii) Court says – parties would assign risk to Taylor
 Theater owner has ample incentive to prevent fire
 Magnitude of risk is lower if risk is on Taylor
(5) Paradigm case
(i) Who better controls Impact of not enjoying the castle? – tenant
(ii) Who better knows Probability of an invading army?
 Not clear – landlord might live far away and not know what’s going on
 Tenant might can hire guards and keep the army out
(iii) Tenant might be least cost avoider – better able to control risk
vi. Personal service contracts are excused at the death of the person
D. Remedies for Nonperformance
1. The Compensation Puzzle
a. Globe v. Landa
i. Facts
(a) Presumably price of oil has gone up so Landa doesn’t want to sell oil to Globe at contract price
(b) Globe claims breach of contract forced them to breach with downstream customers (i.e.,
Landa’s breach leads to host of downstream problems)
(c) What is Globe seeking in damages from Landa?
(1) Difference in contract and market price of oil
(2) Cost of sending train to and fro
(3) Damages to customers downstream
(4) Malicious breach of contract (punitive)
(5) Loss of reputation
ii. Holmes is saying that ct doesn’t buy Globe’s argument, despite being blameless, for not covering
itself – trains could have gotten oil from elsewhere and so no damages for 2, 3 and 5 above (default
damage rule that party being breached against must cover for itself – breach may not be party acting
as jerk but asking for help – “other side can cover more cheaply than us”
iii. No recovery for breach of contracts downstream – why?
(a) No reason to have been breached if covered for through substitute performance
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(b) If not substitutable good in immediate area, then incur cost of “incidentals” as extra price of
traveling beyond other party’s site
(c) But can we say incidentals might be included in the market price of goods in particular locale?
iv. Market damages
(a) Most pervasive measure of contract damages
(b) Difference b/w market price and contract price
(c) Idea is endorsed in RSC §350
(d) If not substitutable (i.e., cover is not securable), then can precluded from getting more than
market damages
(e) RSC §344  market damages = expectancy damages
v. In some cases, expectancy interests are difficult to ascertain b/c measure of market value is too
difficult to calculate (i.e. Freund) and so ct simply covers out of pocket expenses to get them back to
where they were prior to the contract (not where they would have been if contract performed)
vi. Right in contract is protected with liability rule instead of property rule
Theory that rights stem from three rules: property, liability and inalienability
(a) Property rule = no one can take without your consent
(b) Liability rule = if taken without consent, liable, but only for fixed amt exogenous to two parties
(1) Ex: protection of cars – in driveway, property rule applies (idiosyncratic values are
protected – cannot be taken without consent); while driving, liability rule applies (damage
car and must pay blue book value=exogenous value=market price (thus no protection of
idiosyncratic values)
(c) Inalienability rule = cannot take without consent, but also cannot be sold (but can be given
away)
(1) Ex: organs, sexual services, etc. – why? Need to ascertain theory of what rules apply when
b. Freund v. Washington Square Press, Inc.
i. Central idea – not meant to punish breacher, but make victim whole
ii. Types of damages
(a) Expectancy – put in position as if K performed
(b) Reliance – in interim b/w receiving promise and breach, may have foregone opportunities or
taken different course of action than otherwise – put back to where you were before K – usually
invoked when can’t calculate expectancy (too speculative or uncertain)
(c) Restitution – deterrent effect – meant to bust breacher to level at which would have been precontract (take away advantage given to breacher)
iii. Facts
(a) P (author and college professor) and D (publisher) contracted
(1) P gave publisher exclusive rights to publish and sell P’s work on modern drama
(2) D agreed to pay $2,000 “advance” when P delivered manuscript
(3) Unless terminated within 60 days, D would publish work in hardbound within 18 months,
and later in paperback
(4) D would pay royalties to P
(5) If D didn’t publish within 18 months – all rights reverted to author, and payments were still
his
(b) P delivered manuscript and was paid $2,000
(c) D merged with another publisher and stopped doing hardbound
(d) D didn’t exert the 60 day termination right, but won’t publish the book at all
(e) P initially sought specific performance
iv. P can recover only nominal damages; reversed
v. Freund’s claims rejected for one of variety of reasons above:
(a) Royalties – too speculative
(b) Delay in promotion – not adequately proven
(c) Did not publish book on own – did not incur cost of self-publication
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vi. K is different from torts  K can boost to post-contract status whereas torts returns to state of being
at time of incident
vii. Efficient breach (market damage)
(a) Prediction that will fulfill promise or pay damages
(b) Economically efficient b/c promisor can breach with promisee by paying damages and taking on
more lucrative promise with 3rd party
(c) Rival rule would demand specific performance
(1) Contract gives property right to promisee such that 3rd party would need to buyout
c. Evaluating Damage Measures with the Coase Theorem (essay)
i. It suggests that law doesn’t matter
ii. When negotiation is costless, what people do is going to be unaffected by how the law allocates
entitlements among people, and how the law protects those entitlements
iii. Example
(a) If you have noisy-guy and quiet-guy, the city council might pass an ordinance giving either one
an absolute right to their activity
(b) But the city council doesn’t have any lever on what happens
(c) If noisy-guy values playing the drums at $100, but quiet-guy values peace and quiet at $10
(d) Quiet-guy will sell his right to quiet to noisy-guy for some price between $10 and $100
(e) If the drum players care more about drum playing than the quiet guys care more about quiet,
we’ll still have drum playing
(f) What will control noisy and quiet is the intensity of the preferences of the actors
(g) BUT law does affect the relative wealth of the guys (distribution of wealth)
(1) In the city that doesn’t allow music, he has to bribe quiet guy
(2) In a city that wants music, noisy-guy can play all he wants, quiet guy will bribe him
2. Specific Performance
a. Klein v. Pepsico
i. Facts
(a) Klein looked for a corporate jet & contracted to buy Pepsico’s
(b) Pepsico wouldn’t turn over the jet
(c) This decision falls under the UCC, since it is a sale of goods
(1) Specific performance is only mandated if the thing is unique (one of a kind) OR there are
other proper circumstances
(d) The jet isn’t unique, since there are 3 other like it
(e) Broker didn’t buy one of the other 3 planes because the price was raising, not because of the
scarcity
ii. What should happen
(a) Go buy one of the other 3 jets
(b) Send the bill for the difference to the original seller
iii. A party might not be being a jerk by reneging, but really asking for help
iv. UCC § 2-716 – specific performance decreed where goods are unique or in other proper
circumstances
v. What happens if covering is unreasonable – price of cover is particularly high?
(a) Court might say that it was unreasonable to cover
b. Why Isn’t Specific Performance Generally Available? (essay)
3. The seller can cover by purchasing goods on the market and then fulfilling the contract
a. In a market where either party can purchase substitute goods, specific performance provides no benefits
or costs
b. Who can more easily cover? – they might be on equal footing
c. The promisor bears the cost of the choice between “perform and lose” vs. “breach and pay”
d. If the seller can cover more cheaply than they buyer, he will purchase substitute goods and perform the
contract
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e. There are strong incentives for sellers to “perform and lose”, especially since breach is stigmatized in
other ways
f. A seller might breach if the buyer can cover more cheaply – breach would be a “cry for help”
4. Limitations on Compensation
a. Hadley v. Baxendale
i. Facts
(a) P’s ran a mill, the crankshaft broke
(b) P need to send the old crankshaft to the manufacturer as a pattern, so a new one can be created
(c) D is the carrier that was supposed to deliver the crankshaft “next day”
(d) Delivery was delayed by neglect from the carrier – lost profit
ii. Consequential damages – as a consequence of the carrier’s failure, profits were lost
(a) Damages that are available are not going to be the actual damages that the victim suffered
(b) The damages are going to be those that arise naturally over the reasonable course of things
(c) D must be aware of what damages might occur
(d) What does this mean you should do being sensitive-guy?
(1) Reveal your condition to everyone
(2) Hotelier would charge a little more for the room
iii. This is a classically liberal case – everyone is on their own
iv. If the special circumstances are known to both parties, damages that could reasonably arise are
compensable
v. Court reporter said that the P told the carrier that the mill was stopped & the crankshaft should be
sent immediately (Barron Alderson disagreed with this)
vi. Today, parties largely contract for even fewer damages
vii. If you know you’re high damages guy, you can get more damages, if you reveal at time of contract
II. Enforcing Promises
A. Consideration
1. Bargain Versus Gift
a. Fact that nephew suffered legal detriment by giving up rights = consideration (Hamer v. Sidway)
b. Kirksey v. Kirksey (p. 132)
i. Widow is homesteading a house, which she will own if she lives there long enough
ii. Brother-in-law invites her to his land, promises to give her a house
iii. Widow loses – man was in gift-giving state of mind
(a) D promised to make a gift – not enforceable
(b) Benefit-detriment test – ask – “will promisor be upset if promisee doesn’t perform?”
(1) Did D have a benefit?
(i) Knew brother’s children cared for – but he only wanted to help her, not benefit himself
(ii) Trying to hook up with her – contract for illicit cohabitation not enforceable
(2) Did P have detriment?
(i) Gave up her legal right to continue homesteading – but D wasn’t seeking her moving
c. In Re Greene (p. 134)
i. Man contracted with ex-lover to pay her monthly, give life insurance money, and pay rent
ii. Woman sues in bankruptcy court – TC reverses – no claim
iii. No consideration
(a) Cohabitation is in past – past consideration is no consideration
(b) $1 payment – only nominal consideration
(c) “other good and valuable consideration” – nothing behind this
(d) Release of claims – woman has no claims to release
(1) But R § 74.1.b – if he thought she had claims against him, it’s consideration
(e) Seal – only presumption of consideration – significance eroded
(1) RSC § 95.1 – in absence of a statute, seal furnishes consideration
(2) But most states have statutes making seals not binding
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2. Adequacy of Consideration
a. Batsakis v. Demotsis (p. 144)
i. Facts – D promises to pay back $2,000 – she borrowed $25 in drachmas
ii. Rule – mere inadequacy of consideration will not void K
(a) Inadequacy – bargain, maybe not equal (but might be unconscionable, duress, mistake, fraud…)
(b) Failure – K not enforceable – party didn’t get what bargaining for
iii. Courts respect private valuations – enhances reliability of promises
b. Wolford v. Powers (p. 147)
i. Facts – L promised money if W named son after him; L died; W sued, but lost in TC
ii. Ruling – W’s naming son after L AND taking care of L was consideration
iii. Non-legal sanctions against L disappeared when he died – court steps in – Dead Guy Rule
c. Examples
i. Theresa’s will (p. 151) – husband’s contracts not enforceable
ii. Reward for murderer – can only recover the reward if you know about it ahead of time
iii. Man agreed to pay, woman waived child support suit – maybe enforceable – man in bargain mode
B. Promissory Estoppel – “nasty amount of reliance” says we should enforce – RSC § 90
1. Conduct must be reasonably foreseeable to promisor & in good faith
2. Intrafamilial Contexts
a. Haase v. Cardoza (p. 162)
i. Facts – H sues to get $10k note from C, who stopped paying monthly payments – loses TC & appeal
ii. No consideration
(a) Bargained-for – H did nothing as unfortunate price to pay for the $10k
(b) Benefit-detriment – C had guilt mitigated by making promise (benefit) – only matters if not
promise to make gift
b. Ricketts v. Scothorn (p. 164)
i. Facts – grandfather promises $2k to S so she doesn’t have to work, S quits, G dies, S sues estate
ii. Ruling – grandfather foresaw and intended that S would rely on the promise – enforceable
iii. Assume no consideration, would PE apply? – would grandfather foresee that S would quit? –
maybe
iv. If grandfather wanted promise enforceable – could’ve said “if you quit, I’ll give you $2,000”
v. Just saying “you can quit if you want to” doesn’t make quitting foreseeable
vi. Simply giving S the option of quitting is not a benefit to her – gift of an option
3. Employment Contexts
a. Feinberg v. Pfeiffer Co. (Mo. 1959) (p. 174)
i. Facts – directors told F she could retire and get pension, F retired, company cut pension in half
ii. B-D test requires that F experience a detriment bargained-for by the Board
iii. Promisor should’ve reasonably foreseen that promisee would rely
b. Hayes v. Plantations Steel Co. (RI 1982) (p. 178)
i. Facts – H announced retirement, someone takes over company & cuts off pension
ii. No consideration, not enforceable under PE
iii. Rule – PE has an implicit “substantial” component – promisse must rely substantially on promise
2. Fuller functions
a. Evidentiary – provide evidence of existence of agreement
b. Cautionary – guard promisor against ill-considered action
c. Deterrent – discourage the enforceability of transactions that aren’t sure if win-win
c. Channeling – allows parties to distinguish binding contracts from other transactions (tentative
intentions, exploratory negotiations)
4. Categorized – enforced, if hard bargaining
a. Reciprocal  enforced
i. St. Peter – didn’t bargain, but might have – form contract exception
ii. Hamer – uncle thought out specific requirements for nephew to follow
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iii. Ervin – bargaining more plausible in divorce – appellate court says “don’t enforce”
iv. Feinberg
v. Batsakis – it of exception – but creditor realized debtor might not live long
b. Non-reciprocal  non-enforced
i. Haas
ii. Kirksey
iii. Greene
iv. Hayes
c. Non-reciprocal  enforced, if dead
i. Wolford – between social friends
ii. Rickets – between family members
iii. Hamer
5. Charitable Subscriptions
a. Salsbury v. Northwestern Bell Telephone Co. (p. 189)
i. Facts – Bell promised to give to failed college, but not on pledge form
ii. Ruling – enforce the promise, even though no consideration or reliance
iii. § 90.2 – charitable subscriptions binding, even without reliance (public policy perspective)
b. Congregation Kadimah Toras-Moshe v. DeLeo (p. 192)
i. Congregation sues estate of DeLeo for $25k promise – loses
ii. Court says no consideration OR reliance
iii. In order to be enforced under § 90.2, must have probability of reliance
iv. Congregation claims it was going to name a library after DeLeo – not enough reliance
6. Preliminary and Incomplete Negotiations
a. Coley v. Lang (p. 199)
i. L suing for breach of agreement to purchase stock of his company
ii. TC, AC affirmed – this is only an agreement to agree – not enforceable
b. Hoffman v. Red Owl Stores, Inc. (p. 204)
i. Facts – H wanted Red Owl franchise, purchased land for store, sold bakery, rented house – H sues
ii. RO defense is going to have to be – they were just stating a present intention to contract on certain
terms, but never did contract
iii. Indefiniteness is a big problem for H’s recovery
iv. But H can recover under PE
v. Only owe a duty of good faith to contractual partners, not negotiations
vi. Damages
(a) Grocery store --- fair market value – original purchase price
(b) Future profits – calculated into fair market value
(c) Future profits from RO franchise – too uncertain
C. Material Benefit Rule
1. Past Consideration in General
a. Mills v. Wyman (Mass. 1825) (p. 224)
i. Facts – P had cared for D’s son, who died; D promised to pay P – D wins
ii. No present consideration – only past consideration (see In Re Greene)
iii. RSC § 86 – material benefit rule
iv. This is best viewed as mutual exchange of gifts – not enforceable (§ 86.2.a)
v. Moral obligation to pay is not enough to make legally binding
vi. If this had been his dependent son, promise would be enforceable
2. Non-Donative Material Benefits
a. Manwill v. Oyler (p. 226)
i. Facts – P made payments on D’s farm, gave him cattle; D promised to pay later – dismissed
ii. Past consideration can’t be a mere gratuity
iii. Must be something which promise expected compensation for
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iv. Look for – defect in bargaining process that hides what really is a bargain
b. Webb v. McGowin (p. 227)
i. W diverts block from hitting M, saving his life; M promises to care for W; M dies; W sues – wins
ii. W conferred MB on M
iii. MB, which gives rise to moral duty to pay PLUS subsequent promise to pay = enforceable
iv. Promisor actually made payments!
v. Ex: A’s bull escapes, B finds it and cares for it, A promises to pay B – enforceable
vi. Employee-employer relation
c. Quasi contract
i. Limited recovery – not: officious intermeddler, mistaken conferrer, mere volunteer
ii. Concern – there might not have been a benefit
iii. MBR is a liberal rationalization of the concerns of recovery under quasi contract
d. Is it really a bargain, just with a timing defect?
III. Bargain Context
A. Offer and Acceptance
1. Offer
a. Restatement
i. § 71(1) – to constitute consideration, a performance or a return promise must be bargained for
ii. Must have a bargain – manifestation of mutual assent and a consideration – RSC § 17(1)
iii. Mutual assent is usually manifested by an offer that is accepted (§ 22)
iv. Offer – promise that is conditioned upon a particular response to another party
b. Dyno Construction Company v. McWane (p. 242)
i. Facts – D got quotes from M, D won bid, M faxed notes & prices, D ordered, M Fed-Ex’d purchase
order, D says never received, M faxes forms (but not backside), D signs
ii. Rule – price quotes generally don’t constitute an offer – but they can, if detailed enough
iii. Words like “Estimate” and “please call” give away that this is not an offer
iv. Ambiguous proposals are treated as preliminary negotiations
c. Lefkowitz v. Great Minneapolis Surplus Store, Inc. (p. 246)
i. Facts – store advertised $1 furs; L showed up, but store refused to sell (ad only invitation to offer)
ii. Ruling – ad for stole was valid, but not coat
iii. Court tries to split damage, but gets it wrong
(a) L should get coat for $99 – we don’t have to know precisely what things are worth (Freund)
(b) L shouldn’t get stole, since he knows the house rule
2. Acceptance
a. Ever-Tite Roofing Corp. v. Green (La. App. 1955) (p. 252)
i. Facts – D signed doc for re-roofing, P’s sales rep signed too, D knew would be credit check, men
went to work, but D had hired another company
ii. Ruling – P wins – contract formed by men going to job site
iii. Greens argue that passage of time revoked offer – potentially defended with RSC § 42,43
iv. Appellate court says Ever-Tite commenced performance before reasonable time ran out
v. Commencement of performance – first nail OR loading truck?
(a) Might be very context-dependent
vi. Conduct of commencing performance implies a promise to accept (RSC § 4)
vii. Power of acceptance terminated after reasonable time (§ 41)
(a) Offer doesn’t specify how long is reasonable
(b) Work commenced day after Greens’ credit was approved
viii. Issues: when performance commence AND whether notification was plausible
ix. Notification not required, unless specified
b. Ciaramella v. Reader’s Digest Association, Inc. (p. 255)
i. Facts – C suing RDA, both parties must sign settlement, C doesn’t sign – RDA sues, claiming C’s
attorney accepted by saying “we have a deal”
Flusche 18 of 22
ii. Rule – offer invites acceptance in any reasonable manner, unless otherwise indicated (§ 30(2))
iii. Four part test – whether parties intended to be bound
(a) Expressly reserve right not to be bound in absence of signed writing
(b) Partial performance
(c) All terms agreed upon
(d) Agreement one that would typically be written
iv. Parties’ intentions trump the default rule
c. Mailbox Rule
i. Acceptance by mail takes effect as soon as acceptance is mailed (§ 63) – even if not delivered
ii. Revocation of offer ineffective if received after acceptance was mailed
3. Revocation of Offers
a. Pavel Enterprises, Inc. v. A.S. Johnson Company, Inc. (Mary. 1996) (p. 270)
i. Facts – J bid as sub to P, P accepted, J tried to withdraw, P awarded contract, P had to cover
ii. Baird Rule – general can’t accept sub’s bid until awarded contract
iii. Drennan Rule – sub invites reliance on bid – once general relies on it, bid is irrevocable – PE
(a) If general relies on sub’s bid with typo – unreasonable reliance
iv. Appeals court used D Rule – but P didn’t rely on J’s bid
B. Offer and Counteroffer
1. Dataserv Equipment, Inc. v. Technology Finance Leasing Corp. (Minn. App. 1985) (p. 281)
a. Facts
i. T sends offer to D, D sends form contract to T, T objects to 3 provisions
ii. D changes 2 provisions, later offers to change 3rd
iii. T says “no deal”
iv. D sells the features to another company, but the price had plummeted
v. D sues, trying to recover difference in contract price & market price
b. Ruling – D loses
i. § 39.1 – T’s request to delete 3 provisions constitutes a counteroffer
ii. § 39.2 – offeree’s power of acceptance is terminated when counteroffer is made
iii. D didn’t accept the counteroffer – but counter-counteroffered – got rid of 2 of the 3 provisions
iv. Puts ball back in T’s court – under § 39.2, extinguished D’s ability to accept
v. T didn’t accept the counter-counteroffer – no contract
vi. Fundamentally, you could say that T’s reply w/ 3 provisional changes is acceptance (2-207)
2. Common Law
a. Mirror image rule – unless an acceptance reflects mirror image of the deal, it is counteroffer
i. If parties are sitting down together, this makes sense
ii. If parties are exchanging forms, they might not realize boilerplate provisions conflict
b. Last shot doctrine – terms of contract are last terms that were put forth before acceptance
i. Ok for face-to-face bargains
ii. But doesn’t work in other situations – mail contract – could shoot back better terms, then perform
3. UCC 2-207
a. Repudiates the mirror image rule and last shot doctrine
b. Makes it possible to both accept an offer AND allow a proposal for new or additional terms
c. Offeree can: counteroffer OR accept w/ proposal for different terms
d. Section 1 – either in:
i. Pre-comma-land – answer in 2-207(2)
(a) “I accept, but put a mint on my pillow” – I have to pay, but hotel doesn’t have to give me mint
(b) Repudiates mirror image rule
(c) Additional or different terms don’t mean we can’t characterize response as acceptance
(d) When offer accepted, you have contract and must figure out if terms are part of contract
(e) Additional terms construed as proposals for addition to contract
(f) Terms become part of the contract if they are between merchants, unless:
Flusche 19 of 22
(1) Offer expressly limits acceptance to terms of offer
(2) Terms materially alter offer
(3) Notification of objection to them has been given or within reasonable time
ii. Post-comma-land – answer in 2-207(3)
(a) “I accept, but only if you give me a mint”
(b) Must expressly resurrect mirror image rule
(c) Knock-out rule
(1) Conflicting terms are knocked out
(2) Default rule takes over – no implied term that I should have a mint\
e. Ionics, Inc. v. Elmwood Sensors, Inc. (5th Cir. 1997) (p. 285)
i. Facts
(a) Ionics buys thermostats from E – sent PO each time saying contract terms exclusively defined
(b) E responded – contract is governed exclusively by the acknowledgment
(c) Forms contained opposing terms, but E shipping and I paid
ii. Ruling
(a) Roto-Lith
(1) Involved acknowledgment to limit seller’s liability
(2) Response with proposal for different terms is an acceptance expressly condition on assent
to different terms
(3) Any time there is an additional term, we’ll imply you are post-comma
(4) They are just saying “screw you” to legislature – we like mirror image rule
(5) Court is saying that the parties make sense, so UCC doesn’t
(6) UCC embodies the reality that some people act as though they have a contract, even though
they don’t agree on all terms
(7) Court – because RL didn’t object to clause limiting B’s liability, they accepted the
counteroffer
(b) Ionics overrules Roto-Lith
(c) Because E’s acknowledgment contained additional terms, consent to which was explicit – no
contract was formed under 2-207(1)
(d) Since parties don’t agree about E’s liability, default rule applies
C. Contracts in Internet Age
1. Step-Saver Data Systems, Inc. v. Wyse Technology, Inc. (3rd Cir. 1991) (p. 296)
a. Facts – S-S buys terminals, malfunction, sellers can’t fix it; sellers claim box-top license governs
b. Box-top license stipulated that opening package constituted acceptance of terms
c. Conduct of parties is evidence that they have a contract
i. Terms – terms upon which parties agreed, UCC default rules fill in the rest
ii. Box-top terms are knocked out
d. Terms fall under pre-comma-land of 2-207(1) – answer in 2-207(2)
e. Terms excluded under 2-207(2)(b)
2. Hill v. Gateway 2000, Inc. (7th cir. 1997) (p. 303)
a. Facts – H gets computer mail order, failing to return box terms = acceptance, H has problem after 30
days & sues – Gateway seeks enforcement of arbitration clause
b. Ruling – contract formed when H failed to return computer within 30 days – arbitration clause counts
i. Unreasonable that Gateway should’ve read terms over the phone
ii. Box contains terms of contract
iii. 2-207 doesn’t apply – only one form
3. Reconcile
a. Question – do we want the details to be in or out?
b. § 2-102 – UCC applies to transactions in goods (all things movable)
c. Is a computer a good? – maybe not
i. If computers are cheap to manufacture, but break down a lot - $400 for comp, $600 for warranty
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ii. Computer sale is predominantly a service transaction
d. Mixed transactions – two tests
i. Divisibility – if transaction can be separated into goods and non-goods, do it
ii. Predominate feature – which component predominates?
IV. Relationships and Conduct
A. Introduction
1. Planning – if parties intending long-term relationship, what terms should they have to guide them?
2. One solution – write simple contract for first term, then anticipate re-negotiate before second term
3. Can’t write a contract that is too vague
B. Exclusive Dealings
1. Wood v. Lucy, Lady Duff-Gordon (NY 1917) (p. 347)
a. Facts
i. W got exclusive right to market Lucy’s name, Lucy allows Sears to use her name
ii. W sues – Lucy claims no consideration
b. Ruling – W implied a promise that he would use reasonable efforts to market her name
i. If this promise isn’t implied, Lucy is at the mercy of Wood
c. Why does judge imply the promise from Wood?
i. Lucy hopes to incentivize Wood – exclusive right – no one can profit from his efforts
ii. Lucy is at disadvantage – Wood promotes other products – he must put effort behind Lucy
d. Implied promise to use reasonable efforts (§ 2-306 – best efforts)
e. Does “reasonable efforts” add anything to Wood’s incentives? – not really
2. Bloor v. Falstaff Brewing Corp. (2d Cir. 1979) (p. 348)
a. Facts – B sells to F, royalties of $.5 per barrel – F must use “best efforts” to sell beer – B sues F
b. Ruling – F didn’t treat Ballantine beer as good as its own brands
i. It’s enough to show that F only wanted to increase overall profits
ii. Then F must show that there was nothing good it could’ve done to promote Ballantine sales
C. Modification of Existing Agreements
1. Rules
a. Common law = pre-existing duty rule
b. UCC 2-209 – standard
2. Alaska Packers’ Association v. Domenico (p. 385)
a. Facts – after Ps got to A, demand raise; foreman raises base salary; Ps sue when home office won’t pay
b. Ruling – did fishermen give consideration? – no
i. Fishermen argue that their labor is consideration
ii. Pre-existing duty – contract can’t be modified unless fresh consideration given
(a) No additional consideration offered – modification not enforceable
iii. 2-209 – modification without fresh consideration is enforceable, if done in good faith
(a) If fishermen are responding to unanticipated circumstances, it’s ok
3. Ralston Purina Co. v. McNabb (p. 388)
a. Facts
i. M was to provide soybeans, storms damaged crops, P sent letters offering extension to M
ii. P covers on 3/8, M defends: impossibility, contract was breach on 11/30
b. Ruling – damages awarded as of 11/30
i. Impossibility fails – contract was for soybeans, not soybeans from certain field
ii. As early as 11/30, P knew M couldn’t fulfill contract – couldn’t extend in good faith
V. Regulating Bargaining Process
A. Duress
1. § 174 – if conduct that manifests assent was physically compelled by duress, no assent given
2. Wolf v. Marlton Corp. (p. 404)
a. Facts
i. Ws get M to build house, want out of contract
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ii. W denies that they received notice that payment was due
iii. W threatens to sell to undesirable purchaser
b. Ruling – act must be wrongful – it was
i. Kroop – extended to threat of physical harm
ii. Rubenstein – think about state of mind induced in victim – wrongful != illegal
iii. Hochman – wrongful if underlying act wrongful OR threat is made for immoral purpose
3. Austin Instrument, Inc. v. Loral Corp. (p. 410)
a. Facts
i. A provides parts to L to supply radars to Navy; L won another govt. contract
ii. A bid for new contract, says L must agree to price increase & award new contract
iii. L unable to cover without breach – agrees to A’s demands – after performance, L sues
b. Ruling
i. Duress – if no alternative supply & ordinary remedy isn’t adequate
ii. It’s not viable for Loral to allow Austin to breach – damages won’t be fully compensatory
iii. Austin’s threat is modification in bad faith
iv. Duress draws a line between legitimate threats because of changed circumstances AND strategic,
opportunistic attempts
4. Post v. Jones (US 1856) (p. 413)
a. Facts – whaling ship ran aground; three other ships salvage oil & save crew, auctioned oil cheaply
b. Ruling – duress
i. Ds took advantage of the situation to force an unreasonable bargain on Richmond
ii. Ex post – what price would competitive bidders have paid for whale oil?
iii. Ex ante – should make price low enough that salvage mildly preferable to whaling
B. Disclosure and Concealment
1. Obde v. Schlemeyer (Wash. 1960) (p. 461)
a. Facts – Ps (O) bought apt from S – assert it was infested with termites, S knew it, and they concealed it
b. Ruling – sellers were wrong to affirmatively conceal termites (but really under broad duty to disclose)
c. Kronman – must disclose casually acquired information
i. Disclose casually acquired information – you didn’t expend cost to acquire it
ii. Don’t disclose deliberately acquired information – people need incentive to acquire info – must
allow return on investment of being an expert
iii. But must disclose if someone asks
d. Big picture – courts unwilling to say there is general duty to disclose in real estate sales
i. Court emphasizes facts to show it isn’t a general disclosure problem
(a) Obde – cover-up of termite damage made it where potential buyer couldn’t see problem
(b) Reed – information not readily ascertainable to buyers
ii. Alternative view – disclose material facts (to most people) that aren’t obvious
2. Reed v. King (Cal. 1983) (p. 464)
a. Facts – woman bought house, with seller covering up 5 murders that took place there
b. Ruling – woman has a cause of action
c. Conflict – this is material, but it’s not readily ascertainable
i. Information that affects price should be ascertainable to buyer
ii. But information that isn’t ascertainable to buyer wouldn’t affect price
d. KK need rational check on majoritarian standard
3. Concern – requiring disclosure – bad faith buyers can get rescission, if non-disclosure of material facts
a. Might impose burden on party seeking rescission – other party knew & didn’t disclose
b. Might expect buyer to require seller to sign a disclosure document
4. L & N Grove v. Chapman (D.C. F.L. 1974) (p. 467)
a. Facts – Ch sold land to Cu, land became worth a lot, Ch alleges Cu didn’t disclose Disney World
b. Ruling – no duty to disclose – speculation based on publicly available information – both are realtors
C. Statute of Frauds
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1. Introduction – point out potential defense – don’t get obsessed
a. Limits the enforceability of certain kinds of oral contracts (esp. for sale of land and goods, suretyship
contracts, and contracts with performance that requires more than one year)
b. Requires parties to make a written note of the agreement – creates reliable evidence
c. UCC 2-201 – statute of frauds
2. Possible Justification
a. If don’t enter negotiations, payoff is 0,0
b. There is a chance that buyer can exit negotiations and sue based on PE – payoff is 3,-3
c. If negotiations continue, seller could exit & buyer would pay damages – payoff is -3,3
d. If no one exits, they get to a contract – payoff is 2,2
e. SoF makes opportunistic exit payoff be 0,0
3. McIntosh v. Murphy (Haw. 1970) (p. 570)
a. As a tandard – take all circumstances into account
b. Facts – Mc moved, worked for 2.5 months; Mu fired him, Mc sues
c. Ruling – in favor of McIntosh – reliance on Murphy’s promise was foreseeable, justice requires enforce
4. Mercer v. C.A. Roberts Co. (5th Cir. 1978) (p. 575)
a. As a rule – doesn’t matter what circumstances are
b. Facts – P hired D to start Dallas office, D altered P’s bonus rate, P sues
c. Ruling – agreement not enforceable – enforces SoF
i. Not performable within one year, not in writing
5. Schwedes v. Romain (Mont. 1978) (p. 580)
a. Facts
i. P agreed to buy land, D took land off market, P secured financing
ii. D’s attorney said didn’t need to send payment
iii. D sold to third party, raised SoF in his defense
b. Ruling – not enforceable
i. S never signed anything, attorney couldn’t bind R to transaction, R would’ve sold had S paid, S
didn’t rely on promise
ii. Even if contract existed, no partial performance or estoppel to remove SoF
iii. Lining up financing is only preparation for performance
6. Monetti v. Anchor Hocking Corp. (7th Cir. 1991) (p. 586)
a. Facts – P made D distributor, turned over assets
b. Ruling
i. Under common law, contract is enforceable (despite SoF) – partial performance exception
ii. Under UCC, second writing (internal memo) satisfies SoF
(a) First writing isn’t sufficient – “has been” – writing can’t be before agreement was reached
VI. Parol Evidence Rule
A. Three kinds of writings
1. Un-integrated (some evidence)
a. Evidence of intent of parties, but not final agreement
b. Since this is only some evidence of terms, we’ll hear other evidence
2. Partially integrated (final agreement)
a. Final statement of contract, only regarding terms included in the writing
b. Can’t bring in evidence about terms in the writing, but can bring in evidence about additional terms
3. Fully integrated (final and complete agreement)
a. Provides final statement of terms & also exclusive and complete statement of terms
b. No evidence outside four corners is admissible
B. Whether writing is complete or not
1. Four corners test – consider document on its face
2. Natural omission test – a writing is complete if the additional terms would be naturally omitted
3. Merger clause – when parties specify that the writing is a complete expression of the terms