CONTRACTS

I. ENFORCING PROMISES: BASES OF LEGAL OBLIGATION

A. Intention to be Bound: The Objective Theory of Contract
Objective Test-Manifestations of intent are interpreted, not in light of what
the utterer actually meant or the other party actually understood, but from
the standpoint of a reasonable person in the position of the party to whom
the manifestation was made.
(+) certainty (-) people may intend to be bound, but legally they are not, contracts imposed,
favors party with stronger bargaining power
B. Consideration
1. Is there a contract?
a. Promise
i) Promise: 2 A manifestation of intention to act or refrain from acting a
specified way, so made as to justify a promisee in understanding that a
commitment has been made. [e.g. stating that you plan or intent to do something is
not a promise b/c no indication of assurance]
ii) Illusory and Alternative Promises 77- A promise or apparent promise is not
consideration if promisor reserves a choice of alternatives
iii) Example: An actress promises to pay an agent a fee for his work for three years and that she can
terminate at any time without any notice. Not consideration since actress has not bound herself to
anything.

b. Consideration
i) Classic Definition [see Hamer]
A) Benefit to the Promisor or
B) Detriment to Promisee- Give up a legal right. One doesnt suffer
a detriment by doing something that one is already obligated to
do or by forbearing something that is already forbidden
(e.g. giving up an illegal act is not consideration)
C) Some courts look for an exchange when applying the benefit/detriment test see
Plowman)
ii) Restatements Definition 71 Bargain- Action is sought by
promisor in exchange for his promise and action is given by
promisee in exchange for that promise.
--Promisee must be aware of promise. If promisee is unaware,
then there couldnt have been a bargain
--Action may be given to promisor or some other person and
performance may be given by the promisee or by some other
person
2. Aspects of Consideration
a. Gifts Dougherty
i) Executed Gifts- too late to challenge on lack of consideration
ii) Consideration v. Conditional Gift Ask whether occurrence of the condition is of
benefit to promisor. If promisee must meet certain conditions, but if conditions
are not bargained for, then no consideration. If value of act is 0 to promisor,
then conditional gift.
b. Adequacy of Consideration Batsakis
c. Past Consideration Plowman
d. Conditional Gift-picking up checks because company didnt seek act of picking
up checks
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Ray v. William Eurice & Bros., Inc. , signed a contract with P, Ray, to build a house. 1/9 Plans & Specs (7 pages).
2/14 D submits a proposed contract (3 pages). 2/22 Contract written by P signed (5 pages of plans and specs). D
claimed that they never intended to enter contract w/ those specs shouldnt be held to it. Court found that
manifested intent (objectively) to enter contract w/ 5 pages specs and should be liable for breach.
Park 100 v. Kartes Kartes, , were mislead by into signing a personal guaranty of a lease. Court found that if a
contract was induced by fraud, then it is not enforceable. Elements of Fraud (1) a material misrepresentation of
past or existing fact by the party to be charged, which (2) was false, (3) was made with knowledge or in reckless
ignorance of the falsity, (4) [reasonable] reliance, (5) proximately caused injury.
Batsakis v. Demotsis: During WWII, Batsamis/P, a Greek resident lends Demotsis/D, also a Greek resident 500,000
drachmae, at the time worth $25. In return for loan, P requires D to sign a promissory note for $2000 payable at end
of war. After war, P sues D to collect $. D claims that there was no consideration. P, knowing Ds financial distress
and desire to return to US, extracted of her the written instrument P sues upon, which was a promise to pay him
$2000. Court looks at actual bargain, the fact that recited consideration is not the actual consideration is not
relevant. Courts also dont concern themselves with the relative values of things being exchanged.
Doughety v. Salt: P, Dougherty age 8, received from his aunt, Salt a promissory note for $3000 payable at her death
or before. Note was on a printed form, which contained the words value received. D handed P note with these
words You have always done for me, and I have signed this note for you. P sued Ds estate for payment. A formal
document stating consideration received doesnt, in absence of consideration, turn a gift into a contract.
Plowman v. Indian Refining Co.: Indian Refining Co, D, promised to pay 18 employees a monthly sum equal to of
their working wages for life + health insurance. P, Plowman et. al., were retained on pay roll, but their didnt render
any further services and their only obligation was calling for checks. Held, no consideration since D didnt seek act
of picking up checks from D, there was no bargain and act had 0 value for D.
Hamer v. Sidway Uncle promised his nephew $5000 in exchange for his giving up alcohol, smoking, and gambling.
Nephew refrained from these activities as agreed. Later, P=assignee of Nephew sued D = Uncles estate for $.
Court used older definition of consideration: its a benefit to the promisor or a detriment to promisee. Doesnt
matter if benefit to promisor is of value to anyone.
Baher v. Penn-O-Tex Oil Corp: P, Baehr, leased gas filling stations to Kemp. Kemp was buying Webb Oil and other
things from D, Penn-O-Tex Oil. Kemp became indebted to D and gave D assignment of accounts receivable. D
collected rents paid by operators of filling stations. P called D asking for rent and threatening to sue. D promised to
pay rent, but didnt so P sued. There was no bargain, D didnt promise to pay in exchange for Ps promise to
forebear from suing. No consideration and no contract.

C. Promissory Estoppel 90
1. Elements of Promissory Estoppel
a. Promise see 2
b. Promissor should reasonably expect reliance
i) Is the reliance reasonable?
ii) Does promissor benefit from reliance? Did she want reliance?
c. Reliance
i) Show a change in position b/c of promise
d. Injustice
i) Try to find an injustice not based on reliance
ii) Find injustice to promisor to argue other side
2. Promises Within the Family Kirksey, Griener
2 Promise Defined
90(1) Promissory Estoppel
3. Charitable Subscriptions Allegheny, King
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2
Promise Defined
90(1) Promissory Estoppel
90(2) Charitable Subscriptions-not widely followed, weak argument
4. Promises in a Commercial Context Katz, Vastoler, Shoemaker
2 Promise Defined
90 Promissory Estoppel
Kirksey v. Kirksey D wrote P a letter that said If you will come down and see me, I will let you have a place to raise
your family, and I have more open land than I can tend. P moved, giving up her belongings that she could have
secured if she had remained. D gave P a place for 2 years, then required her to leave. Held, no bargain and no
consideration.
Greiner v. Greiner P/mother sued to kick D/son off 80 acres that he was living on. D responded that she had
promised him the land. P told D that she would give him land if he moved to Mitchell country. D gave up his home in
Logan country, moved to Mitchell country, made improvements on land, lived there for nearly a year, relying on Ps
promise. P, at another sons insistence, backed out of agreement. Court gave D the land based on Promissory
Estoppel. Case used old definition of promissory estoppel, which required the reliance to be definite and
substantial.
Wright v. Newman D, knowing that he was not the father of the child, put his name on the birth certificate and gave
the child his last name. D raised son for three years. 7 years later, P/mother sued for child support. Court ruled in
favor of P. Ds act of putting his name on the birth certificate induced Ps reliance-P didnt seek out birth father for
support. Court seemly misapplied the injustice requirement, applying it to the son, not P. DISSENT-questions
reliance/detriment because ties had been severed and several years passed by without any support.
Allegheny v. Chautauqua Bank: = Allegheny College = promisee and = National Chautauqua Country Bank =
estate of promisor. Mary Johnston pledged $5,000 to college on condition that the fund be named after her and
used to educate students preparing for the ministry. Promissory note stated that payment was due after her death,
but she paid $1000 while alive. The college set $ aside for a scholarship fund, but did nothing else in reliance of
promise. Johnston repudiated (took back) promise. After she died, college sued her estate. Held, Johnston sought
to have fund named after her and gave $1000 + promised $4000 in exchange for schools promise to name fund
after her. DISSENT-gift stated that consideration was her interest in Christian education. Even if her gift had the
condition that the fund be named after her, not acceptance b/c these acts were not performed.
King v. BU: P = King = Promisor. D = BU = promisee. In a letter to BU, Dr. King wrote I name the BU Library the
Repository of my correspondence, manuscripts, and other papers. He also wrote In the event of my death, all
such material deposited with the University shall become from that date the absolute property of BU. Court ruled for
BU using promissory estoppel. BU hired staff, cataloged papers, etc. in reliance of promise.
Katz v. Danny Dare, Inc. P/Katz = Promisee worked for D/Dare = Promisor for 25 yrs. P was injured on the job and
could no longer work effectively, so D wanted P to retire. After 13 months, he talked him into retiring w/ a $13,000/yr
pension & included it in a letter. After three years, pension was cut off and P sued. Court applied promissory
estoppel since evidence suggested that P would not have been fired, so he did rely on promise by retiring.
Professor suggested that a contract was made. Katz sought reliance.
Katz vs. Plowman. In Plowman, employees were fired before pension was offered.
Vastoler (note case): Vastoler accepted a promotion to a supervisory position b/c of promise of pension. Employer
then revoked promise. Held, although Vastoler benefited from reliance (by getting a promotion) court should
consider possible detrimental reliance (e.g. worse work conditions). Professor suggested that an argument for a
contract could be made since employer was seeking Vastolers acceptance of job. Promissory estoppel harder
argument since not much injustice. [Best injustice arguments dont involve reliance].
Shoemaker v. Commonwealth Bank: P/Shoemaker = promisee obtained a $25,000 mortgage from Commonwealth
Bank/ D. The mortgage agreement provided that P was required to carry insurance on the property. In 1/1994, the
insurance was allowed to expire, and in 1995 the house was destroyed by fire. P claims that D told them that they
might be forced to purchase insurance and add the premium to the loan balance. P asserts, that based on a letter

and phone conversion, they assumed that D obtained insurance on the home. D claims that it obtained insurance
for a year and then notified P that they allowed it to expire. P claims that they never saw the letter. Court ruled in
favor of P.

D. Restitution
1. Restitution in absence of promise
a. 116 Preservation of anothers life or health (Credit Bureau)
Necessary Elements of Claim: (see Restatements of Restitution)
i) Party acted unofficiously with the intent to charge
ii) Things or services were necessary to prevent the other from
suffering serious bodily harm or pain
iii) No reason to know that the other would not consent to
receiving them, if mentally competent;
iv) Impossible to obtain consent
b. 117 Preservation of anothers things or credit
(see Restatements of Restitution)
c. Contracts implied in Law (Quasi Contracts)- Mainly Applies to
Subcontractor/Contractor cases? (Commerce Partnership)
Not an actual contract, a legal fiction.
Elements of Claim
i) conferred a benefit on
ii) has knowledge of benefit
iii) accepted or retained benefit
iv) inequitable for to retain benefit without paying fair value for it
d. Contract implied in fact: is based on a tacit promise, one that is inferred in whole or in
part from the parties conduct [actual contract w/ implied bargain]
e. Contract implied in law: one party was unjustly enriched, that party received a
benefit under circumstances that made it unjust to retain it without compensation.
[quasi-contract]
2. Promissory Restitution
a. Restatement 86 Promise for Benefit Received
A promise is made in recognition of a benefit previously received by the promisor
from the promisee is binding to the extent necessary to prevent injustice unless: (a)
the promisee conferred the benefit as a gift or (b) the promisor has not been unjustly
enriched (c) to the extent its value is disproportionate to the benefit.
b. Moral Obligation/Material Benefit Theory Mills, Webb
Courts will enforce promises based on prior consideration if:
i) At one point there was consideration
A) Debts discharged in bankruptcy ( 83)
B) Debts barred by statues of limitations ( 82)
C) Promise to pay debt incurred as a minor
ii) Material Benefit: if a person receives at material benefit from
another, other than gratuitously, a subsequent promise to
compensate the person for rendering such a benefit is enforceable.
(Webb)

Credit Bureau Enterprises, Inc. v. Pelo: Pelo/ telephoned his wife making threats of self-harm and purchased a
shot gun and was taken to a mental hospital by the police who had been advised of his threats. While hospitalized,
was pressured to sign a release form, agreeing to pay for his hospitalization. Hospital sought payment from , but
he refused. Hospital turned account over to Credit Bureau Enterprises/, who sues. Court held liable for medical
bills based on Restitution 116.
Commerce Partnership v. Equity Contracting Co.: Commerce/ owns a building and contracted w/ World Properties
for improvements. World Properties contracted w/ Equity/ for stucco and surfacing work. claims that it did
$17,100 and was not paid by World Properties since never paid them. Court remanded case and held that if
paid sub-contractor it was not liable.
Mills v. Wyman: /Mills nursed /Wymans sick 25 year-old son, but son died.
promised to pay for care, but later refused to pay. didnt have to pay because promise was based on prior
consideration and was never legally bound to pay.
Webb v. McGowin: /Webb saved McGowins (Wyman = estate =) life, but sustained bodily injury, crippling
himself for life. In consideration of the services, promised to pay him $15 every two weeks for life. paid for 8
years and then died. Court enforced promised based on past consideration since a material (life-saving) benefit
was received.

II. REACHING AGREEMENT: THE PROCESS OF CONTRCT FORMATION

A. Offer and Acceptance: General Considerations
1. When to apply offer/acceptance
a. Contract formation is in dispute
b. When terms included in contract are in dispute
2. Offers Lonergan
a. Offer Defined 24
i) Must be communicated
ii) Indicate a desire to enter into contract
iii) Must be directed at some person or group
iv) Invite acceptance
v) Offer must create the reasonable understanding that a contract will arise on
acceptance without any further approval
vi) Newspaper ads are generally NOT considered offers
Because parties understand its first-come, first served, seller doesnt have
enough goods to sell to everyone. Exeception: deceptive (reasonable person
interpretation used) Izadi
b. Termination of an Offer
i) Rejection or counter-offer
ii) Lapse of time- offer must be accepted within a reasonable time
A) Nature of transaction
B) Relationship of parties
C) Course of dealing, custom, or trade usage
D) Means of communication
E) Stability of the market
iii) Revocation by offeror (even if offer states that it will be open
longer)
iv) Death or incapacity of offeror or offeree
v) Occurrence of any condition set forth in offer
3. Counter-Offer 39 a substituted bargain differing from that proposed
original offer
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4. Timing Issues-The mailbox rule

a. Revocation becomes effective when communicated
i) Direct-notice becomes available so offeree if acting reasonably,
would be aware of its contents (or offerees agent)
ii) Indirect-valid as long as offeree obtains reliable information
b. Acceptance-in effect as soon as its out of offerees position,
provided that acceptance is made in a manner ok w/ offerer
Normile v. Miller. s home was listed with a realtor. filled out a document offering to purchase home. signed it
making numerous changes, rejecting the offer and making a counter-offer. sold the house to someone else.
heard about this via the realtor, but still tried to accept offer. Court ruled in favor of .
Lonergan v. Scolnick. placed an ad in the newspaper, selling land. In response to s inquiry, he mailed him a
form letter. wrote back w/ questions about property. wrote back, answered questions, and told him to act fast.
Held, s final letter was not an offer, so no contract arose.
Izadi v. Machado (Gus) Ford, Inc. placed a newspaper ad selling Fords, intending the ad to be deceptive. was
mislead by ad and sued for a car under conditions of ad. Court interpreted ad as an offer b/c it was misleading and
b/c reasonable person would share s interpretation.

B. Offer and Acceptance: Unilateral Contracts

1. Bilateral vs. Unilateral
Almost all contracts are bilateral. Assume that a contract is bilateral
unless there is a reason to believe otherwise (i.e. offeree doesnt want to
be bound to perform)
a. Bilateral Contract-promisor is seeking a promise, if promise is not
fulfilled, she can sue for damage), contract arises from mutual
promises
b. Unilateral Contract-acceptance arises from performance
c. Hamer v. Sidway revisited-Unilateral
i) Exchange of promises (Yes)
ii) Would uncle sue nephew for breach? (doesnt make sense,
therefore contract is unilateral)
2. Unilateral Contracts
a. Acceptance 50(2)-acceptance by performance requires at least part of what the
offer requests to be performed or tendered. Performance has to be acts offeror
sought.
b. Option Contract Created by Part Performance 45-once a beginning of
requested performance performed offeror is bound (but not offeree)
c. In Cook, the court required substantial performance-this differs from
45 which requires only the beginning of performance
Petterson v. Pattberg has a $5450 mortgage. made an offer-pay mortgage by May 31and save $780.
showed up at s house and knocked on door. said that he was there to pay off mortgage. Without opening
door, said that he had sold it to someone else. then opened door. tried to hand over money but refused
to accept it. Court found for , holding that contract was unilateral and could only be accepted by performance.
Gathering up $ is only a preparation, not performance. DISSENT: if made performance impossible by
interfering with it, he cannot take advantage of the failure (should count as an acceptance). did everything
necessary to accept, was only interfering with performance.

Cook v. Coldwell Banker. announced a bonus program running from Jan 1991-Dec. 1991. made enough
sales to qualify for bonuses. In Sept, told that she wouldnt be paid until Mar. 1992. stayed with company
until Dec. wouldnt pay bonus stating that had to stay with company until Mar to receive it. Court found for
holding that offeror was found when offeree rendered substantial performance.

C. Pre-acceptance Reliance
1. Contractor/Subcontractor Context
a. 90 Promissory Estoppel
i) Promise
A) Offer is a promise, subcontractor guaranteed bid (Drennan)
B) An offer is not a promise until its accepted (Baird)
ii) Promisor expected reliance
A) Subcontractor expected party to use its bid when maker an
offer. Subcontractor wanted Reliance.
B) Subcontract doesnt care if this particular contractor relies. It
wants any contractor to win. If an error in subcontractors
bid was obvious, then an argument can be made that
reliance was not expected (or no injustice).
iii) Reliance
A) Contractor used bid when bidding on the contract
B)
iv) Injustice
A) Yes, contractor has a contract to do work and will lose
money as a result of the subcontractors error.
Subcontractor was in better position to prevent mistake.
B) No, should have entered into an conditional/options
contract with subcontractor. Contractor itself didnt want to be bound in case
it found cheaper work later (is there evidence of contractor shopping
around?) May be unreasonable for contractor to rely. Money contractor is
losing is small compared to total bid. Subcontractors mistake allowed
contractor to win contract b/c of low bid
b. 87(2) Reliance Creates an Option Contract
i) Offer
ii) Offeror reasonably expects reliance
iii) Reliance before acceptance
iv) Reliance is substantial
v) Injustice
b. Even if involves sale of goods 2-205 isnt used by courts
c.
Baird
Drennan
Offer is not a promise
Offer is a promise because no
language saying that it is revocable at
any time or implied promise to keep
offer open
Contractor knew of mistake before
Contractor did not know of mistake until
contract (however it would lose deposit after contract was formed
and chance to win project if it withdrew)
2. Non-construction Situations
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a. Promissory Estoppel 90 Pops Cones

b. Option Contract-promise to keep offer open in exchange for
consideration (use contract analysis)
James Baird Co. v. Gimbel Bros. Inc sent a letter to 20-30 contractors offering its subcontracting services at a
listed price to the party that won a bid. used s quote in its bid and submitted the bid. withdrew its offer. won
the contract and accepted offer. Court held that offer was not a promise, so 90 does not apply (not followed
today).
Drennan v. Star Paving Co. , a contractor, was preparing a bid. , a subcontractor placed a bid for the paving.
placed a bid with s name and figure. told that he couldnt do job at quoted price before could accept offer,
but after was awarded contract. Court allowed to recover under 90.
Pops Cones v. Resorts International Hotel, Inc. Court allowed to recover under 90. Resort intended to be
bound because they said that just the signature was needed to finish the deal. Resort expected reliance because it
told Pops Cones not to renew its lease and to pack up. Pops didnt renew the lease and put its stuff in storage in
reliance. In this jurisdiction a definite and seasonal promise was needed, but court relaxed this requirement.
Berryman v. Kmoch-analyzed under 90 and as an option contract. Real estate agent and seller signed an
agreement stating for $10 and other valuable consideration, I grant an option. Court found that it was not an
option contract because of lack of consideration. Agent didnt pay $10 and seller didnt seek his act of rounding up
funds to purchase land. No recovery under promissory estoppel either. Agent knew that there was no consideration
and that offer could be revoked and his reliance is not what promisor expected.

D. The Firm Offer UCC 2-205

1. When does this Section Apply?
a. Offer ( 24)
b. By a merchant ( 2-104, pg. 17)
c. Sale of goods ( 2-105, pg. 19)
Test used to determine if contract involves sale of goods (Princess)
A) Did dispute arise over goods or services?
B) What is the predominate factor, thrust, or purpose?
C) Fourth Circuits factors (1) language of contract (2) nature of
business of supplier (3) intrinsic worth of materials
d. Signed writing ( 1-201, pg. 11, 12)
e. gives assurance that it will be held open
f. stated time or reasonable time but in event > 3 months, time = 3
months ( 2-205)
2. If 2-205 doesnt apply then try to find an option contract
E. Battle of the Forms UCC 2-207
1. When does this Section Apply?
a. Transaction involves one or more printed forms
b. Transaction involves sale of goods
2. Battle of the Forms
a. Common Law Principles Princess Cruises
i) Mirror Image Rule-if forms arent identical, then second form is a
counter-offer not an acceptance
ii) Last Shot Rule-contract is on terms of party that send last document-usually the
seller
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b. UCC involving Merchants

i) Additional Terms
A) Express Assent
B) Not Material (e.g. no surprise or hardship Falconer)
1) Surprise
a) Custom in industry/ trade usage
b) Previous dealing between parties
c) Subjective knowledge (e.g. did party read contract?)
2) Hardship
3) Examples
a) Indemnification Clauses (Material Brown Machine)
b) Sellers attempt to limit warranty (Material Falconer Glass
and Comment 4)
c) Consequential Damages (Not material Comment 5, but
see Falconer Glass-Material)
d) Arbitration Clauses (not material, as a manner of policy)
e) Forum-selection clauses
ii) Different Terms: Three Possible Outcomes
A) Never become part of agreement
B) Knockout Rule, terms cancel and default UCC term is used
C) Same analysis as Additional Terms
c. UCC in consumer transactions-additional terms cannot be added unless buyer
expressly assents to them
Princess Cruises v. General Electric-Court found that contract involved services not sale of goods and applied
common law. Princess gave GE a purchase order for work to be done. GEs sent a quotation, which was
considered a counter-offer because some of the terms were different. Princess accepted the counter-offer by
authorizing the work to be done. Because GE had the last-shot, the contract was on its terms.
Brown Machine v. Hercules- Hercules sent a purchase order. Brown sent back an order acknowledgment with
different terms. Hercules responded by correcting the reverse trim and stated that all of specifications are correct.
Court didnt interpret this as assent to all of Browns different terms. Sellers Indemnification was not part of the
contract.
Dale Horning v. Falconer Glass- /buyer ordered glass from over phone, the issue of remedies/warranties was
not discussed. /buyer sent a confirmation order form (no remedy/warranty information). /seller sent a form
instead of responding to s form. On the back, the form stated that buyers sale remedy would be limited to
replacement and no liability for other damages. Glass was shipped, received, and defective. lost money b/c it
had to meet its subcontract. Testimony indicated that seller/ adhered to industry custom. Under UCC 2-207, the
different term could not be added if it would result in surprise or hardship. Court found that should not have been
surprised by the term b/c its custom in the glass industry. Court found hardship, however because of the loss
incurred because of the defective glass. Therefore, court held that terms were not added to contract and seller had
to pay.
Hill v. Gateway- purchased a computer from over the phone. sent computer to , along with documents listing
terms of agreement. Court held that 2-207 didnt apply in transactions with only one form (doesnt make sense
because under this analysis 2-207 wouldnt apply to consumer transactions). Court decided that Gateway made
an offer by mailing the computer and consumer accepted it by keeping the computer.
Klocek v. Gateway-same facts as Hill. The court held that 2-207 applied and that the consumer was the offeror.
The court found that the contract was formed over the phone when the computer was purchased.

Caspi v. Microsoft-court held consumer to a forum-selection clause because he clicked on I agree at the end of an
electronic document.

D. Postponed Bargaining-The Agreement to Agree

1. Open Price Term
a. Formalist View Walker
b. 2-305 (sale of goods)
2. Did parties intend agreement to be binding or were they intending to
reduce their agreement to writing later?
a. Restatement 27-agreement if parties manifest an intent to be bound,
but no agreement if preliminary negotiations. Quake factors may be
helpful.
b. Factors to consider [Quake]
i) Type of agreement usually in writing?
ii) Number of Details
iii) Amount of $ involved
iv) Formal writing needed to fully express covenants?
v) Negotiations indicate that a formal writing was contemplated?
vi) Where in negotiation process agreement was abandoned
vii) Reasons for abandonment
viii) Extent of assurances given by party that now disclaims contract
ix) Reliance
c. UCC 2-204
Walker v. Keith- was leased a lot for $100/month for a 10-year term with an option to extend for an additional 10year term with same terms and conditions except rental will be fixed in such amount as shall actually be agreed
upon by the lessors and lessee with the monthly rental fixed on the comparative basis of rental values as of the
date of the renewal with rental values at this time reflected by the comparative business conditions of the two
periods. Court found that option was ambiguous and didnt give a definite, objective standard for setting the price
and, therefore, it wouldnt enforce the agreement. (formalist view)
Quake v. American Airlines- bid on a project for , AA. was told verbally that it won the contract and received a
letter stating we have decided to award you the contracta contract agreementis being prepared and
containing a disclaimer reserving the right to cancel this letter of intent if the parties cannot agree on a fully
executed subcontract agreement. Court found that letter was ambiguous. Quake argued that it was binding b/c (1)
work was to start soon, (2) letter stated that contract had been awarded, (3) letter contained a cancellation
statement which suggested that letter was intended to be binding. AA argued that letter was not binding b/c (1)
cancellation clause, (2) mention of a formal contract that needed to be written, (3) lack of sufficient detail. Court
held that letter was ambiguous and remanded the case.

III. THE MEANING OF THE AGREEMENT

A. Principles of Interpretation
1. Look at Language of the Contract
a. Whose Meaning Prevails? 201 Joyner
i) Neither party knew or had reason to know of the others meaning:
No contract b/c no mutual assent
ii) If both parties either knew or both had reason to know of the
others meaning: No contract
iii) If one party knew or had reason to know of others meaning and
other did not know, then agreement uses others meaning
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b. Clarifying the Language

i) 202, 203
ii) Maxims given in text [pg. 358]
A) Construction against the drafter 206 (especially applicable
if one party was responsible for writing the document and has greater
bargaining power)
B) Words in a series are affected by each other (e.g. a general
terms joined with a specific one only include things like the specific term or if
one or more specific items are listed without general or inclusive terms,
others are excluded)
C) Purpose of the parties
D) Specific provision exception to a more general one
E) Handwritten or typed provisions control printed provisions
F) A reasonable interpretation is preferred to unreasonable one
2. Standardized Agreements C&J Fertilizer
a. 211 (applies all standard form contracts, not just adhesion ones)
b. Is it an adhesion contract?
i) Adhesion Contract-imbalance of bargaining power, pre-printed
form, take it or leave it, most terms not negotiable (pg. 381)
A) Printed form
B) Drafted by one party
C) Drafting party routinely enters into similar transactions
D) Form presented on take it or leave it basis
E) Adhering party enters in few transactions of this type
F) Principal obligation of adhering party is to pay $
ii) If an adhesion contract, apply Reasonable Expectations Doctrinecustomer is not bound to unknown terms which are beyond the
range of reasonable expectations. Factors to consider:
A) Other party has reason to believe that would not except
contract if she knew term
B) Terms eliminates dominant purposes of transaction
C) Term bizarre or oppressive
D) It eviscerates standard (or more prominent) terms
E) Party never had an opportunity to read them, or if term is illegible or
otherwise hidden from view.
F) Look at circumstances
Joyner v. Adams owned Waters Edge Office Park. agreed to prepare land for the execution of lot leases. In
order for these lot leases to be executed, the land had to be developed. argued developed meant buildings,
and gave evidence showing she communicated this belief to . argued that developed meant installation of
water and sewer lines. presented evidence of local custom. The trial court held that the ambiguity should be
resolved against the party that drafted the agreement. The court of appeals reversed arguing that this doctrine
shouldnt apply b/c there was no disparity of bargaining power and there was evidence that both parties were
responsible for language. Instead, this court held that 201 should be followed and if the court finds that the
knew or had reason to know of s meaning and she didnt know or have reason to know of s, she should
recover.
Frigaliment Importing Co v. International Sales Corp.Buyer and seller disagreed over the meaning of chicken. In
analyzing the agreement, the court (1) rejected argument that a size that includes a size that refers to only young
chicken means all of contract referred young chicken, (2) German usage of word, (3) trade usage, (4) legal and
Dept. of Agriculture meanings, (5) preferred reasonable over unreasonable (cost would be unreasonable if K

11

referred to young chickens), (6) course of performance. Court rule for because couldnt meet its burden of
proof.
C&J Fertilizer v. Allied Mutual Insurance Co. purchased theft insurance, expecting it to cover burglary and knew
that it excluded inside jobs. Chemicals were stolen from , but there were no marks outside the building (just tire
treads), inside, the door to the room where the chemicals were located there were signs of forced entry. Court held
that because it was a contract of adhesion, the reasonable expectations rule would apply. This rule enforces the
objectively reasonable expectations of the party.
DISSENT: Court should have started out with a determination if language was ambiguous, no evidence of
deception or fraud, text was not fine print, courts should not meddle with contracts which clearly and plainly state
their meaning even it dislikes the meaning.

B. The Parol Evidence Rule- evidence of an oral or written agreement that

took place before a written contract was formed is parol evidence
1. Degree of Finality of the Writing
a. Complete Integration-a writing that is intended to be a final and
exclusive expression of the agreement 210
b. Partial Integration-writing that is intended to be final but not complete
because it deals with some but not all aspects of a transaction

Complete or Partial
Integration ?
1. Classic Test-looks only at written document and unless document itself states that it is
incomplete or matters were left open for negotiation document will be considered
complete. Merger clause conclusive
2. Modern Approach-circumstances bearing on the intention of parties is considered,
merger clause does not necessarily mean K is complete

Complete

Partial
Interpretation

Interpretation

Supplemental

Supplemental

Only allowed if
collateral
(a separate agreement)

1. Formalistonly if document is
ambiguous on its face is consistent
evidence OK
2. Modernif parties have consistent
evidence relevant to intent its OK

1. RS s. 216(2)OK
if such a term as in the
circumstances might
naturally be omitted from
writing
2. UCC s. 2-203OK
unless terms would have
certainly be included

2. Exceptions
a. Fraud, Duress, Incapacity, Mistake, Undue Influence
b. Agreement was subject to a verbally expressed condition
12

c. Oral or written agreements made after the execution of the writing

d. Agreement was invalid or no agreement
e. No mutual assent
f. No consideration
g. Collateral Agreement
h. Equitable remedy (seeking something other than damages)
i. Evidence to explain ambiguity
Thompson v. LibbyThompson sold logs to Libby and they signed an agreement that didnt mention a warranty.
Using a classical approach, the court held that the warranty could not be added to the agreement because it was
complete and the warranty wasnt a separate agreement [therefore collateral exception N/A here]
Taylor v. State Farm was involved in a car accident with two other motorists, Ring and Wistrom. Ring sued
and recovered $2.5 million in excess of s policy limit. Wistrom was an uninsured motorist, so had to rely on his
State Farm uninsured motorist coverage to recover from him. After his suit w/ Ring, and signed a waiver.
received $15,000 in uninsured motorist coverage and agreed in return to release all contractual rights, claims, and
causes of action he had or may have against State Farm. sued for bad faith, which might be considered a tort
claim rather than a contractual claim. Court held that this clause was ambiguous so the Parol evidence rule doesnt
exclude evidence.

Nanakuli Paving v. Shell

IV. SUPPLEMENTING THE AGREEMENT: GOOD FAITH & OTHER IMPLIED TERMS
A. Implied Terms Wood, Leibel, Locke
1. Rationale
a. Meets expectation of parties
b. Penalize parties
2. Types of Implied Terms
a. Tailored Default: term that parties would have agreed to if term had been
discussed
b. Untailored Default: UCC gap fillers (terms that most parties would expect to be
in K)
3. Implied promise to use Reasonable Efforts Wood
a. Courts often apply an obligation to use reasonable efforts (e.g. to make a sale)
to prevent an indefinite promise from being illusory
b. Rationale: parties expected to be bound by contract and for each party to be
obligated to do something
c. Counter-argument: parties may sometimes bargain for a chance that the other
will do something
d. What constitutes reasonable efforts? not clear
e. Sale of Goods: UCC 2-306 requires best efforts
4. Implied promise to give Reasonable Notice of Termination Leibel, 2-309
a. UCC 2-309 states that reasonable notice must be given, this relates not to
how notice is given, but when its given Leibel
b. Assessing what is reasonable notice
i) Needs of parties (e.g. Leibel had to sell off inventory, and it invested in K)
ii) Sufficient time to find a substitute arrangement
iii) Custom, course of dealings
5. Implied Obligation of Good Faith Locke, 205, UCC 1-304
a. Every contract has a duty of good faith and fair dealing
13

b. No obligation of good faith implied in K formation

c. What constitutes good faith and fair dealing? see pg. 442
d. Doctrine prohibits a party from violating the essence of a transaction, while
technically complying with terms, motive can show bad faith even if prices
reasonable
e. Subjective Satisfaction Locke
i) Honesty in fact (e.g. if Warner Bros rejected projects saying it didnt like them,
then they actually have to been dissatisfied with projects). Bad faith can be
shown if it never gave projects a chance or it liked them but rejected them
anyway.
ii) Objective: showing other people liked products is not required, may be helpful
to make other parties credibility questioned
B. Warranties
1. Express Warranties UCC 2-313
a. Basis for warranty may be: words, description, sample, or model
b. Sales talk or puffery is not the basis for a binding commitment-affirmation of
fact must be objective and capable of being proven true or false (e.g.
statement that product is best in its class not an express warranty)
c. Not clear of buyer must rely on express warranty or not
2. Implied Warranty: Merchantability UCC 2-314
a. Test 1: Whether goods would pass without objection in the
trade. A product would fail this test if a significant segment of the buying
public would object to the product
b. Test 2: Whether goods are fit for the ordinary purpose for
which the goods are used. A product would fail this test if the
goods are [not] reasonably capable of performing their ordinary
functions.
c. In order to prove that a product is not merchantable, first
must establish the standard of merchantable in the trade
d. Seller must be a MERCHANT in order for this warranty to apply
3. Implied Warranty: Fitness for Particular Purpose UCC 2-315
a. Warranty only created when the buyer relies on the sellers skill or judgment to
select suitable goods for the buyers purpose and the seller has reason to know
of this reliance
b. Breach of warranty doesnt require showing that the goods are defective,
merely that they arent fit for the buyers particular purpose
c. Most courts require that the buyers particular purpose must be one other than
the ordinary use of the goods (not addressed in Bayliner)
4. Exclusion or Modification of Warranties UCC 2-316
a. Disclaimer must be conspicuous. Test is whether a reasonable person ought to
have noticed it. (as is and such sufficient is noticeable)
Wood v. Lucy, Lady Duff-Gordon: Lucy (a fashion-designer) entered into an exclusive contract with Wood. Wood
promised to market Lucys products and would get a share of the profits in return. Lucy wanted to get out of
agreement. She argued that there wasnt a K to begin with Because Woods promise is illusory b/c he didnt
promise to do anything. He wasnt bound to market her clothes. The court implies a term into agreement that makes
promise not illusory. Court decided that Wood promised to make a reasonable effort to market product. Court used
a tailored default b/c these parties intended to have an enforceable K. Rational to imply term b/c of exclusive nature
of agreement. Lucy wouldnt agree if Wood not bound.

14

Leibel v. Raynor Manufacturing Co: /manufacturer agreed to sell garage doors exclusively to . would sell,
install, and service garage doors. After two years of decreasing sales, terminated the relationship. argued that K
was for an indefinite duration and that it could be terminated at will by either party. argued that he was entitled to
a reasonable notice. Court held that UCC 2-309 applied to case, and 2-309(3) provides that reasonable notice
must be given. Reasonable notice doesnt apply to the method of noticed, but rather extent of advanced notification
of the termination it gives.
Locke v. Warner Bros: Locke entered into a contract in which she would submit scripts to Warner Bros and WB
would review them. If WB liked any scripts it would hire her to direct project, if it rejected them it would pay her a
sum. Court implied an obligation of good faith into contract. This means that WB must have actually reviewed
scripts, given them and chance, and rejected them because they didnt like the materialnot because they didnt
want to work with Locke. Just because WB could exercise its discretion and didnt have to accept any projects
doesnt mean that it didnt have to consider the projects before rejecting them. The court distinguished a case in
which party had the right to at our election refrain from here WB didnt have that right.
Bayliner Marine Corp. v. Crow: buys a boat for off-shore fishing, desiring that it be capable of traveling 30 mph.
sees a prop matrix that lists boats will less weight and larger propellers that can reach 30 mph. discusses his
desire to use the boat in off-shore fishing with /seller but doesnt mention the 30 mph figure. buys a boat and it
cannot reach 30 mph. sues for breach of (A) express warranty (UCC 2-313), (B) implied warranty of
merchantability (UCC 2-314), and (C) implied warranty of fitness for a particular purpose (UCC 2-315). loses
on all three claims on appeal.
(A) Prop matrixes not a warranty because they referred to boats with different sized propellers and carried
equipment weighing substantially less than s boat. s sales brochure statement that boat delivers the kind of
performance you need to get to the prime offshore fishing grounds is merely the sellers opinion and did not create
an express warranty that boat was capable of traveling 30 mph. (B) could not prove a violation of warranty
because he could not show the standard for the trade, nor that a significant portion of the boat-buying public would
object to the boats speed. Although the testifies that he believes that the boat is unacceptable as an offshore
fishing boat, he fails to show that the boat was not fit of the ordinary purpose for which it was intended. In order to
prove that a product is not merchantable, first must establish the standard of merchantable in the trade. (C) Court
rejects s argument because there is no evidence that he informed of his particular purpose and that the seller
knew that selling a boat incapable of traveling 30 mph would be unacceptable to buyer.
Caeci v. Di Canio Construction Corp: entered into a contract with for the construction of a home. Four years
after the home was completed, noticed a dip in the floor. found out that floor was sinking because the
foundation of the home was placed on top of soil containing tree trunks, wood, and other biodegradable materials.
Court recognized a Housing Merchant warrantythat is an implied term in the contract that the home would be
built in a skillful manner and be free of defects. Whether the buyer/seller is aware of the defect or not is irrelevant in
the analysis. The builder must construct a home free from material defects and in a skillful manner and the home
must be a habitable place
There is an implied warranty of (1) skillful or sound construction and (2) habitability. [only applies when builder =
merchant or professional builder-vendor]
(1) skillful or sound construction: focuses on the manner in which the work is performed, may include defects that
do not render the house uninhabitable
(2) habitability: the end result expectation that the home will not have any major defects which render it unsuitable
for habitation

V. AVOIDING ENFORCEMENT: INCAPACITY, BARGAINING MISCONDUCT &

UNCONSCIONABLITY
A. Incapacity
1. Minor Dodson, 14
a. Traditional Rule: minor can void K and is not required to pay adult
restitution absent a showing of a misrepresentation of age
i) Exceptions
15

A) Necessities: in contracts involving food, clothing, & shelter, minor is liable for
the reasonable value based on quasi-contractual relief rather than
enforcement of K
B) Ratification upon reaching majority: if minor doesnt disaffirm contract within a
reasonable period of reaching majority, they are bound
C) Fraud or misrepresentation on behalf of minor
D) Benefit Rule: money can be returned but refund is deducted by the value of
minors use
E) Use Rule: refund lowered by depreciation
b. Dodson adopts the Use Rule
i) If contract is fair and minor has not been overreached in any way, minors
recovery is deducted for use and depreciation of good
ii) Exceptions
A) Fraud or imposition
B) Adult took unfair advantage of minor
iii) Court distinguished between minor using age as a sword and shield. If adult is
trying to enforce contract requiring a minor to perform, courts more likely to take
a traditional approach
2. Mental Hauer, 15
a. Common Law (Hauer): Test is whether person had sufficient mental ability to know
what he/she was doing and consequences of the transaction
b. Restatement 15
i) Cognitive 15(1)(a) (followed by Hauer and most courts)
A) Defect if person is unable to understand in a reasonable manner the nature
and consequences of transaction
ii) Volitional 15(1)(b) (more controversial section
A) Defect if person is unable to act in a reasonable manner in relation to the
transaction (person could understand transaction, but not able to act
reasonably) and
B) Other party has reason to know of defect
c. Relief
i) General rule is to put parties back to their initial position
ii) If other party knows/has reason to know of defect, then contract can be voided
even though parties cannot be restored to their initial positions. Hauer
iii) If terms are unfair, 15(2) implies restoration to initial positions not needed
B. Duress and Undue Influence
1. Duress 175/Totem Marine
a. Wrongful or improper
i) See 176 for a list
ii) Threat to breach K (usually requires bad faith)
iii) To withhold payment of an admitted debt (Totem)
iv) Threatening consequences is not duress (even if they are dire) if
they can be lawfully and properly pursued in absence of
agreement
b. Threat
i) explicit
ii) implicit
A) subtle, unspoken threats
B) awareness that the other party will suffer undesirable
consequences if the contract is not made and use of this to
16

take unfair advantage of others need

c. Lack of a reasonable alternative such as:
i) Availability of legal action
ii) Alternative source of goods, services, or funds when threat is to
withhold such things
iii) Toleration if threat is minor
d. Threat must cause person to enter into contract
i) Threat must substantially contribute
ii) Was person induced by threat? (subjective standard)
A) Age
B) Background of parties
C) Relationship between parties
D) Other attendant circumstances
e. In economic duress cases, most courts require that inducing party
must have been the source of the economic hardship
2. Undue Influence (177/Odorizzi)
a. Undue susceptibility
i) Weakness need not be long-lasting nor wholly incapacitating but
may be lack of a full vigor due to age, physical condition, emotional
anguish or a combination of such factors
b. Excessive Pressure by dominant subject (party abused his position
by unfairly persuading to enter in a contract adverse to his interests) Factors
suggestive of this abuse:
i) discussion of transaction at an unusual/inappropriate time
ii) consummation of transaction in an unusual place
iii) insistent demand that business be finished at once
iv) extreme emphasis on untoward consequences of delay
v) use of multiple persuaders against a single
vi) absence of third-party advisors to
vii) statements that there is no time to consult financial advisors or
attorneys
c. Special Relationship (not required)
i) Dominant Subject (e.g. Employer/employee in Odorizzi) OR
ii) Confidential Relationship: had relationship of dependence& trust
that gave party dominance over him and justified him in believing
that the dominant party would not act contrary to the victims
interest. Special relationship not required, but helpful in establishing
case
C. Misrepresentation and Nondisclosure
1. Affirmative Misrepresentations 164 Syester
a. Misrepresentation of fact 168(1) (see C is opinion)
b. Fraudulent 162(1) or Material 162(2)
c. Reasonably relied on
d. Induced assent (e.g. did buyer have notice)
2. Opinions 168, 169
a. Misrepresentation
i) Opinion is not actual belief 159 or
ii) Person is aware of facts that would make it false or doesnt know
sufficient facts to form opinion 168(2)
17

b. Fraudulent 162(1) or Material 162(2)

c. Reasonably relied on 168, 169
d. Induced assent
2. Nondisclosure 161, 162, 164 Hill
a. Failure to disclosure a known fact when a condition under 161 is met. Factors to
consider include (not from a case):
i)
Knowledge of parties
ii) Relationship between parties
iii) Manner in which information is required
iv) Nature of fact not disclosed. How easy is it to discovery fact
v) General class to which person belongs to (more likely that seller would have
to disclose than buyer)
vi) Nature of K and importance of fact
vii) Conduct taken to conceal
b. Fraudulent 162(1) or Material 162(2)
c. Reasonably relied on
d. Induced assent
Affirmative Statement or Failure to Disclose?

Affirmative Statement

Failure to Disclose

Fact or Opinion?
168(1)

Is it equivalent to an assertion?
161

Fact

Opinion

Yes
Opinion a Misrepresentation?
(a) Not actual belief 159 or
(b) Recipient unaware of contrary
facts 168(2)

Is it Fraudulent 162(1)
or Material 162(2) ?
Yes

Yes
No

Plaintiff
Loses

Was party justified

in relying?

Was party justified

in relying? 169

No

No

Yes

No

Yes
Plaintiff
Wins

D. Unconscionability
1. Procedural: Absence of a meaningful choice (Williams)
18

Plaintiff
loses

a. Gross inequality of bargaining power/ use of form documents

b. Unfairness in bargaining process/ manner in which K was entered into
(Odorizzi factors apply)
c. Did party have a reasonable opportunity to understand the terms of
the contract, considering his obvious education or lack of it; were
terms unreasonably difficult to understand
d. Were important terms hidden in a maze of fine print and minimized by
deceptive sales practices
e. Did party knowingly take advantage of bargaining impairment due to
mental impairment, lack of education, or similar factors
2. Substantive: terms unreasonable favorable to one party
a. Terms in light of the circumstances existing when K was made
b. Gross disparity between the contract and market price (e.g. if price is
twice what is should, may be unconscionable)
c. Limitations of available remedies for breach
Dodson v. Shrader: at age 16 purchased a truck from for $4,900. 9 months after the purchase, the truck
developed mechanical problems. didnt repair the truck and drove it until the engine blew up. then filed suit
seeking to get out of K. Before the suit was complete, the truck was hit by a hit-and-run driver and is now worth only
$500. The lower courts found for because the rule at the time was that a minor could void a K. The state supreme
court reversed and developed a new rule for minors. This rule states when the minor has actually paid money on
the purchase price, has not been taken advantage of, and the K is fair, when voiding a contract, the minor is not
permitted to recover the amount actually paid. The amount that the minor recovers is reduced for the use of,
depreciation, and willful or negligent damage to the article purchased. This rule does not apply if there has been
any fraud or imposition by the seller or the contract is unfair, or an unfair advantage has been taken by the seller in
inducing the minor into the contract.
Hauer v. Union State Bank of Wautoma: /Hauer suffered a brain injury in a motorcycle accident. She was
adjudicated to be incompetent and a guardian was appointed by the court. Later the guardianship was terminated
based on a letter from her physician. Elibes, who was in debt, convinced Hauer to take out a loan and give the
money to him. RS 15 states that if a party knows or has reason to know of the other partys incompetency and
enters into a contract anyway, the contract is voidable by the incompetent party. A party exposes itself to a voidable
contract if a reasonably prudent person would suspect the others parties incompetence and decide that an inquiry
should be made. Here, the court found that Bank had knowledge of facts that created a suspicion that it should not
have entered into the loan because: the Bank knew that Eilbes was in default on his loan and arranged for
someone that the Bank didnt know to get a loan, Eilbes told the bank that he would pay off his loan with Hauers
loan, the Bank was told by Hauers stockbroker not use Hauers fund as collateral b/c she needed the money to live
on, the Bank stated that it was possible that the stockbroker told them of Hauers brain injury, and Hauers banking
expert stated that the bank should have not made the loan.
Incompetent Rule/RS 15: If the party knew or had reason to know of the incompetency or took unfair advantage
of the incompetent, consideration dissipated without benefit to the incompetent need not be restored. If the party did
not know or have reason to know of the incompetency, however, the contract ceases to be voidable when the
situation is such that the parties cannot be restored to their previous positions. (finish by reading RS 15 and
NOTES)
Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.: Totem/ entered into a contract with /Alyeska to
deliver pipes to Alaska. gave more pipe to carry than expected causing delays, boats traveled slower b/c of
load, hurricane cause Totem not to deliver goods on time. When reached CA, canceled the contract. then
submitted invoices and began pressing for paymentthis was first contract and without the money it would go
bankrupt. said that it wasnt sure how long it would be before it paid. received a settlement offer for $97,500
(the amount owed was between $260,000 and $300,000).Court reversed a summary judgment and remanded the
case for a trial. Duress could be shown. (a) withheld payment its payment of debts, knowing that was facing

19

bankruptcy (b) was facing impending bankruptcy and had to accept the cash offered (c) Totem had to agree or go
bankrupt (d) caused duress because it hadnt yet paid the money it owed to .
Odorizzi v. Bloomfield School District: was employed as a school teacher. He was arrested for homosexual
activity. After completing the process of arrest, being questioned by the police, booking, release on bail, and not
having slept for 40 hours he was approached by his principal/superintendent at his apartment. said that he was
trying to help, that there was not time to consult an attorney, that he should immediately resign and if he did not
school would suspend and dismiss him and cause him to suffer public embarrassment. Court held that the evidence
supported a claim of undue influence but not duress, menace, fraud, or mistake. (1) Duress: no unlawful
confinement or threat to people, property. Under RS, this could come out differently b/c suspension and publication
of proceedings could be improper if in bad faith (2) Fraud: no misrepresentation. Constructive Fraud: no confidential
or fiduciary relationship. (3) Mistake: neither party had a mistake of fact or law (4) Undue Influence could be shown:
(a) Undue susceptibility: had just been released on bail hadnt slept for 40 hours (b) Excessive strength: apply
seven factors e.g. transaction occurred at apartment not office, insistent that time was limited, absence of advisors,
and no time to consult an attorney etc.
Syester v. Banta: , an elderly woman, signed up for classes at s dance studio. Studio made misrepresentations
such as telling her that she could be a professional dancer, that they were her friends, and that she didnt need an
attorney. The dance instructors statements of opinion were misrepresentations because he didnt believe what he
was saying (168). The statements induced to enter into several lifetime membership contracts. It is questionable
whether she was reasonable in being induced by statements but 169(c) states that recipient is justified in relying if
she is particularly susceptible. Court found for and allowed her to rescind.
Hill v. Jones: Seller knew has had termites but failed to tell buyers of this. Court found that sellers failure to disclose
was equivalent to an assertion under RS 161(b) buyer was assuming that house didnt have terminates and seller
acted in bad faith in not revealing it. The court also applied 162 and found that terminates could be material. The
court also stated that there could be inducement because buyers would not have purchased home had they known.
Laidlaw v. Organ (note case): seller asked buyer if there was any news calculated to raise or lower price of tobacco.
Even though seller knew that a war just ended, he was silent. Court found that seller had no duty to disclose. Note
that here information was equally accessible to both parties unlike in Hill.
Williams v. Walker-Thomas Furniture Co.: bought furniture from . The loan contract had a clause that divided up
payments among all purchases, leaving the prior purchases unpaid until the balance was paid in full. defaulted
on a payment and tried to take back all furniture. Court held that it was possible the contract was unconscionable
and remanded case. Procedural (): contract of adhesion, inequality of bargaining power, door-to-door
salesperson, less sophisticated, clause difficult to understand. (): an adult and knew what she was getting
into, terms were not hidden in fine print, assumed risk by signing K. Substantive (): clause difficult to
understand, cross-colaterization allows company to keep lien longer, clause used to threaten consumer. ():
wouldnt be able to make loan to high-risk customers w/o clause, not illegal, collateral not disproportionate to loan
(used furniture not worth much).
Adkins v. Labor Ready: was a day-laborer working for . wanted to sue for violations of fair labor laws, but
was unable to do so because of an arbitration clause in his employment application. tried to argue that the
arbitration clause was unconscionable, but court rejected his argument b/c of the policy of enforcing arbitration
clauses. Procedural (): form document, paid minimum wage, didnt complete high school, large difference in
bargaining power, didnt know what arbitration was (): adult and freely signed K, contracts of adhesion are
entered into all the time and upheld, no improper bargaining or deception on party of Substantive (): arbitration
is too expense effectively denying him of his day in court, arbitration doesnt allow class actions (): federal policy
of enforcing arbitration clauses, no evidence of cost to or a cost/benefit analysis, arbitration is not an inferior or
less reliable means of resolving disputes according to federal statute, no allegation of specific bias to b/c of
arbitration
NOTE CASE Ahern v. Knecht: During a heat wave, s AC broke so she looked in phone book and called .
came over and asked for $762 to fix AC. paid him and left for doctor appointment. When she returned AC was
broken and gone. sued to get out of K b/c unconscionability. Procedural (): heat wave, $150 service fee, no

20

knowledge about AC, pressure by . (): initiated transaction, plenty of listing in phone book, should have gotten
other estimates, not unusual for transaction to take place at home. Substantive: other person fixed AC for $72
rather than $762.

VI. JUSTIFICATION FOR NONPERFORMANCE

A. Mistake
1. Mutual Mistake 152, 154, Messerly
a. Mistake of a fact in existence at time by both parties
i) Conscious ignorance of facts before entering into transaction is not
an excuse (e.g. seller of $60 painting that was worth $1 million)
b. Fact is a basic assumption
c. Mistake has a material effect on K
d. K voidable unless party assumed a risk under 154
2. Unilateral Mistake 153
a. Restatement Version 153
i) Mistake of a fact in existence at time by 1 party
ii) Fact is a basic assumption
A) Messerly-building was suitable for human habitation
iii) Mistake has a material effect on K
iv) Party didnt assume risk under 154
v) Enforcement is unconscionable (means severe enough to cause
substantial loss) or
Other party had reason to know of mistake or it was his fault
b. Wil-Freds Version (pg. 646)
i) Material Mistake (courts more likely to enforce clerical mistakes
than mistakes of judgment)
ii) Reasonable Care
iii) Unconscionable to enforce K (means severe enough to cause
substantial loss)
iv) Other party can be placed at status quo
B. Changed Circumstances
1. Impossibility 262, 263, 264
Performance must be objectively impossible b/c
a. Death or Incapacity 262 or
b. Destruction of thing necessary for performance 263
c. Government order 264
2. Impracticability 261 (What is partys performance? Is it harder to perform?)
a. Performance is impracticable [substantial reduction in value of K]
i) Requires extreme & unreasonable difficulty, expense, injury &
loss. War, embargo, local crop failure, unforeseen shutdown of
major sources of supply may be enough.
ii) Mere lack of profit under K is insufficient. A change in degree of
difficulty or expense due to changes such as increased wages,
prices of raw material, etc. is not sufficient.
b. Because of the occurrence of an event, which
i) Market Change = insufficient Wendt
ii) War, Embargo, Terrorism, Crop Failure, Natural Disaster = courts
not that willing to accept
iii) Government Action = sufficient in Di-Chem
21

c. Non-occurrence of was a basic assumption

i) Continuation of existing market conditions and the financial
situation of one of the parties are not such assumptions
ii) Foreseeability is a factor, but foreseeability doesnt compel the
conclusion that non-occurrence was a basic assumption. However, if an event is
foreseeable then non-occurrence of it cannot be a basic assumption
iii) Parties need not have been conscious of alternatives for them to
have had a basic assumption (eg artist dies is a basic assumption
even though parties never contemplated his death) Di-Chem
d. With-out parties fault
e. Party seeking relief didnt bear risk under K
3. Frustration of Purpose 265 (Is contract now pointless?)
a. Principal purpose-not enough that a party had in mind a specific
object without which he would not have entered contract. The object
must be so completely the basis of the K that, as both parties
understand, without it the transaction would matter little sense.
b. Substantially Frustrated
i) Not enough that transaction becomes less profitable or that party
will sustain a loss, frustration must be so severe that it is not fairly
regarded as within the risks that he assumed under K Wendt
ii) Lease not substantially frustrated if one use is gone as long as
tenant has other uses (some of initial uses are still OK) Di-Chem
c. Because of the occurrence of an event, which see impracticability
d. Non-occurrence of was a basic assumption see impracticability
e. With-out parties fault: see impracticability
f. Party seeking relief didnt bear risk under K: see impracticability
C. Modification Alaska Packers, Kelsey-Hayes
1. Modification & Consideration
a. Traditional Rule: consideration required Alaska Packers
b. RS 89: modification without consideration allowed: (not influential)
i) Unforeseen Circumstances or
ii) Statute (e.g. sale of goods) or
iii) Reliance on the agreement to modify K
c. UCC 2-209: no consideration required, but request for modification must be made
in good faith
d. Requirement for new consideration: slight change in performance or nominal
consideration usually accepted (see 73)
e. Mutual Release/Forming a New Contract is another way to avoid consideration
requirement
2. Modification & Duress Kelsey-Hayes
a. Improper Threat (Kelsey-Hayes stated that threat not to deliver goods is improper)
b. Threat induced party to agree to modification
c. No reasonable alternative
d. Coerced party must display protest, informing the other party that modification was
not freely agreed to (requirement for modification cases)
Lenawee County Board of Health v. Messerly: Pickles bought apartment building from Messerlys as a rental
investment. Unknown to both parties at time of contracting, the septic system had been installed in violation of
health code. When Pickles went to inspect land (after purchase), the noticed sewage seeping from ground. Health

22

department condemned building and it was impossible to fix sewage problem at reasonable cost because lot was
too small. Court made the Pickles accept responsibility for mistake because of an as is clause in the contract. (a)
Mistake of a fact in existence at time by both parties: septic system; (b) Fact is a basic assumption: parties were
mistaken about whether people could live in apartment; (c) Mistake has a material effect on K: yes b/c land can
generate no income; (d) K voidable unless party assumed a risk under 154what case turned on.
Wil-Freds Inc. v. Metropolitan Sanitary District: Wil-Freds placed a bid on Governments project. Before its bid was
accepted, Wil-Fred tried to withdraw bid, but wasnt allowed. Wil-Freds realized that its subcontractor had made a
mistake in its estimate b/c it thought that it could drive its equipment over pipes. This mistake was based on
language in governments ad that stated that the pipes were to be able to withstand construction machinery. WilFreds hadnt realized that its bid was off initially b/c the estimate for gravel changed when government amended its
specifications. Could allowed rescission based on unilateral mistake. (i) material mistake because value was 17%
of total bid, (iii) unconscionable/grave harm would result from enforcement--subcontractor would go out of business
if forced to perform and Wil-Freds would lose $2-3 million in bonding capacity. (ii) Wil-Freds exercised reasonable
care because it had worked with contractor several times in the past without problems, contractor experienced, and
Wil-Freds checked bid. Govt argued that it didnt b/c it should have double-checked with subcontractor before
submitting bid once it realized its estimate was so low. Wil-Freds thought estimate was low because of change in
specifications. Government would get a wind-fall based on mistake (iv) government can be placed at status quo b/c
it can accept the next bid which is close to its estimate of cost.
Karl Wendt Farm Equipment Co. v. International Harvester Co: Wendt was a dealer of I.H.s farm equipment. The
farming market underwent a recession, so I.H. sold its division to Case. As a result of this sale, I.H. breached its
contract with Wendt. Wendt sued. Court held that changes in profitability and in the market cannot be used to
establish impractibility or frustration of purpose.
(A) Impractibility: (a/b) IH argued impractibility b/c of market shift, daily losses, and that it might declare bankruptcy.
Court rejected this b/c change in profits and market insufficient (c) court holds that as a matter of law, the state of
the market is not a basic assumption under K. IH tried to argue that it was because parties entered K to make profit
and assumed K would end when they no longer could (d) although market turn was not parties fault, court noted
that IH had a way to exit contract and didnt have to sell itself to Case.
(B) Frustration of Purpose: (a) court rejected the argument that mutual profitability was principal purpose, saying
that this would defeat the purpose of this part of the frustration of purpose test. Court relied on language of K which
stated that the purpose was to sell farm goods; (b) primary purpose was not substantially frustrated b/c IH could sell
goods at reduced profits, still a market for goods, still reasons to sell them (c) the event was the dramatic downturn
in the market for farm goods; (d) court rejects that the state of the market can be a basic assumption; (e) although
IH didnt cause the downturn, the court found fault b/c IH could have included the dealers in the sell-out. IH will
argue that it had to do this to prevent bankruptcy; (f) not mentioned by court
(C) Clause in Contract: IH argues that there was a clause that allowed it to withdraw from K b/c the clause allowed
it to discontinue product lines. Court rejected argument that IH could use this clause to discontinue all of its
products b/c there was already a means to terminate agreement and this wasnt intended to be an alternative and
court read this clause to allow IH to change products but not to eliminate sales altogether.
(D) Implied term that allows manufacturer to go out of business: court held that it might imply this term if there was
no termination clause, not here.
Mel Frank Tool & Supply v. Di-Chem Co.: Di-Chem leased a building from Frank to store chemicals. The local
government changed the fire code, and Di-Chem was found to be in violation of it. Di-Chem moved out, stating that
the structure was useless to it as a chemical warehouse. Court didnt find a frustration of purpose because Di-Chem
had some non-hazardous chemicals that it could still store in the building.
(A) Mutual Mistake: not applicable because new code was not yet in existence
(B) Fraud: landlord didnt know or have reason to know that Di-Chem was storing harzardous. (C) Frustration of
Purpose: (a) Principal purpose is: storing and distributing chemicals; (b) Substantially frustrated: Di-Chem argued
that it could no longer store many of its chemicals b/c of fire code violations. Court didnt find substantial frustration
b/c not all of Di-Chems chemicals were hazardous (e.g. its food additives), so it still could do some storing in
building. Di-Chem however, will have to find another building to store hazardous chemicals, so inefficient; (c)
Because of the occurrence of an event: change in law; (d) Non-occurrence of was a basic assumption: court
seemed to accept the government law as sufficient, using artist death illustration; (e) With out parties fault: neither
party had control over the passing of the ordinance; (f) Party seeking relief didnt bear risk under K: no language of
this in contract, Di-Chem tries to use destruction clause to get out. (D) Impracticability: doesnt apply really because
it is not harder for Di-Chem to perform (e.g. pay rent), just pointless for them to do so.

23

Alaska Packers Association v. Domenico: Fisherman agreed to work on boat for $50/season. Once boat reached
Alaskan fishing waters, workers refused to fish citing bad nets. Employer agreed to pay $100/season, but once boat
returned home, employer refused to pay higher wage. Court held that wage increase was not enforceable due to
lack of consideration. Today, the employer could have made a duress argument because employees waited until
boat was far from home, then threatened not to perform. Employer lacked reasonable alternative because season
was short and it had expended large amount of money on processing plant.
Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.: and signed a contract in which agreed to purchase
castings from . used the castings to make breaks that it sold to Ford and Chrysler. requested a 30% price
increase, because it was losing money. Most of s customers found supplies of castings from others. was only
customer left when demanded second 30% increase. had to agreed to increases because it had no other
suppliers and Ford would have to shut down its production lines if delayed in producing castings. Court found that
K could be voidable under duress (it remanded case for trial) because s threat to breach was improper, there was
no reasonable alternative because Ford needed the parts and couldnt find an alternative supplier, threat induced
agreement to 30% increases. The court had an additional requirement: that party coerced into modification at least
display some protest against the higher price in order to put the seller on notice that modification is not freely
entered into.

VII. RIGHTS AND DUTIES OF THIRD PARTIES

A. Third-Party Beneficiaries Vogan, Zigas 302, 304
1. Third Parties that have traditionally had standing
a. Creditor Beneficiary (e.g. A loans $ to B. B loans $ to C. C promises B to pay A. A
is the creditor beneficiary)
b. Donee Beneficiary (based on close relationship between third party and promisee
(e.g. husband promises wife to leave money to niece, niece is donee beneficiary)
2. Third-Party Standing in RS 302
a. Intent requirement 302(1): Both promisor and promisee must intend to give third
party rights [supported by the fact that section starts of unless otherwise agreed
between promisor and promisee , and refers to intention of the parties]
i)
The intent requirement may be different for each party. For example in a
contract for a will that omits an intended beneficiary:
ii)
Client = Promisee, intended to benefit beneficiary (clear)
iii)
Lawyer = Promisor, hard to argue that lawyer cared about clients friend but
lawyer intended to draw up will as client intended to benefit friend. Make
arguments about which intent of lawyer is needed.
iv) How is intent determined? Look at contract language and provisions, the
background of K, and considerations of fairness and practicality. Some courts
have a presumption against third party standing and require clear evidence in
K to hold otherwise
b. Benefit to third party 302
i) 302(1)(a): Performance will satisfy an obligation of the promisee to pay money
to beneficiary or
A) Vogan require performance to be of pecuniary benefit to third party
B) Comment: Third party is intended if it would be reasonable for her to rely on
the promise as manifesting an intention to confer a right
ii) 302(1)(b): circumstances indicate that promisee intends to give the beneficiary
the benefit of the performance (this section implies that the intent requirement is
not very strict)
3. Other Approaches to Third Party Standing
a. Both promisor and promisee must intent to give the third party rights under K
b. Intention of the promisee controls
24

c. Promisor must know or have reason to know of the promisees intent to benefit the
third party, even if the promisor has no particular desire to confer a benefit on or
create an obligation to the third person (See Vogan)
4. Third Party Standing in Government Contracts 313
a. Contract must have been made for the benefit of a third party. The court in Zigas
considered 5 factors:
i)
Who lost $ as a result of the breach: govt or third party?
ii) Is there a government procedure to resolve the issue?
iii) Is liability limited? (a few tenants v. general public)
iv) Broad purpose in contract or a narrow goal
v) Does agreement manifest an intent to make third party a direct beneficiary?
B. Can Third Party Sue Parties For Mutually Agreeing to Change the Contract? 311
1. General Rule is No
2. Exceptions to General Rule given in 311(3)
a. 311(3): Beneficiary materially changes his position in justifiable reliance on the
original duty
b. 311(3): Beneficiary brings suit to enforce original duty
c. 311(3): Beneficiary assents to original K at request of promisor or promisee
C. Assignment and Delegation
1. Assignment 317
a. General Rule is that rights can be assigned.
b. A right cannot be assigned if:
i)
Substitution materially changes the duty of the obligor
ii) Assignment materially increases the burden or risk imposed on obligor by K
iii) It materially impairs obligors chances of obtaining return performance
iv) Substitution materially reduces value of contract 317(2)(a)
v) It violates statute or public policy 317(2)(b)
vi) Right cannot be assigned if contract precludes it 317(2)(c)
c. Requirements of Assignment
i)
Assignor must make intent to relinquish right clear
ii) Assignor cannot retain any control over right or power of revocation
iii) Obligor need not accept the assignment
d. Liability of Obligor Herzog
i)
Once obligor has notice of assignment, he must pay assignee not assignor
ii) Assignor can assert claim against obligor directly
e. Sale of Goods: see 2-210
2. Delegation 2-210, 322
a. Duty can be delegated unless other party has a substantial interest in having her
original promisor perform.
b. Party has a substantial interest in having original party perform when:
i) Personal Services
ii) Personal Services exception applies to business contracts when party has an
interest in performance by a specific individual
iii) K cannot be delegated if there is some reason why the non-assigning party would
find performance by delegate substantially different from what it bargained for.
See Sally Beauty
25

Vogan v. Hayes Appraisal Associates, Inc.: Bank entered into contract with an inspection company. Company was
to inspect Banks customers home and Bank would disperse funds to contractor based on appraisals. Appraisal
company was negligent and caused all of Banks money to be dispersed before home was complete so homeowner
sues. Court allows third party to have standing. Court found that Bank intended to benefit third party (bank wanted
to protect Vogans so they would be able to repay loan). Court also required that promisor have reason to know that
such benefit is contemplated by the promisee as one of the motivating causes in making contract. Court found that
appraisal company had reason to know because it was inspecting a home site and the Vogans name were on the
paperwork.
Zigas v. Superior Court: Tenants sued their landlords for violating a contract with HUD requiring the landlords to
charge rents below a certain amount in exchange for getting low interest loans. Court held that tenants had thirdparty standing. The court applied the rule that a contract made for the benefit of a third person may be enforced by
him at any time before the parties thereto rescind it. The court considered 5 factors relevant to intent. (1) The
tenants lost money because of breach not the government; (2) There is no government administrative procedure;
(3) The s liability is limited to the tenants that were overcharged; (4) The government regulation had a narrow
purpose to keep rents low for families with children; (5) Agreement manifested an intent to make tenants direct
beneficiaries because it limited rent increases (this protected the tenants not govt which granted mortgage).
Martinez v. Socoma Companies (a case distinguished by the Zigas court): residents of a city sued company for
breaching contract with government to provide job training to people in the community. Court did not allow third
party standing applying same factors. (1) Government lost money it gave to company, residents were not out of
money; (2) There was a government administrative procedure in place; (3) Liability was to a broad, undefined group
of people: people who would have participated in the job training program and benefited from it; (4) Regulation had
a broad purpose: training and employment of disadvantaged people as a means of improving a LA neighborhood;
(5) not discussed.
Herzog v. Irace: Client signed over some of his settlement to a doctor. This assignment was valid because client
made intent clear, didnt retain any right to $ and the assignment didnt burden the lawyer. After lawyer got
settlement, client told lawyer not to pay doctor. Lawyer gave client the money instead. The doctor sued the lawyer.
Court held that this was allowed and lawyer was liable to doctor for the money.
Sally Beauty Co. v. Nexxus Products Co: Nexxus, a manufacturer of hair care products, entered into an exclusive
distributorship contract with Best, a salon. Best was bought out by Sally Beauty, which was owned by Nexxus
competitor. Court held that contract was not assignable because Nexxus had reasons to believe the performance
by Sally Beauty was substantially different from what it bargained for. Nexxus bargained for the best efforts in
having its products sold and Nexxus was rational in believing that a store owned by its competitor might not give its
best efforts. DISSENT: thought that competitor would give satisfactory performance and would have enforced K and
allowed Nexxus to sue for breach if Sally didnt give best efforts.

VIII. CONSEQUENCES OF NONPERFORMANCE

A. Material Breach and Constructive Conditions 237, 241, 242
1. Is non-performance justified? [e.g. was there a material breach?]
a. Was partys performance substantial? Jacob & Young or
i) Can party utilize performance for its intended purpose? (If yes, then breach is not
material).
ii) If there was only a trivial and innocent omission then there is no breach. A
change such as in the pipe used will not be tolerated if is so dominant or
pervasive to frustrate the purpose of the K. Jacob & Young
iii) Minor or immaterial deviations from the K do not amount to failure of a condition
to the other partys duty to perform RS 237
iv) Willful Breach
A) According to Jacob & Young, a willful breacher cannot recover
B) In RS, a willful breach does not automatically bar recovery
26

b. Is Breach Total? Sackett

i) Is breach material? RS 241 [non-breaching party is temp. discharged]
A) Extent injured party will be deprived of a benefit expected
B) Can injured party be compensated
C) Will party failing to perform suffer forfeiture
D) Likelihood failing party will cure his failure
E) Extent failure comports w/ good faith and fair dealing
ii) Is breach total? 242 [non-breaching party is permanently discharged]
A) Has to be material according to 241 above
B) Extent that delay will hinder injured party from making
substitute arrangements
[consider reasonableness of injured partys conduct in
communicating grievances and in seeking satisfaction]
C) Is timely performance important
2. Constructive Conditions RS 226, 234, 237 238
a. Order of Performances RS 234
i) Performances that can be rendered at the same time are due simultaneously
ii) If performances cannot be rendered at the same time, the performance requiring
a longer period of time must be rendered first
b. When performances are due simultaneously it is a condition of each partys duty
that the other party render of manifest present ability to render performance 238
c. It is a condition on parties remaining duties that there be no uncured material
defect in earlier partys performance 237
B. Anticipatory Repudiation and Adequate Assurances of Performance
1. When is an Anticipatory Repudiation final? Truman Flatt & Sons
a. Did a party repudiate? RS 250, UCC 2-611
i) Statement
A) Repudiation must be clear and unequivocal
B) Suggestion to modify contract is not a repudiation
ii) Voluntary affirmative act which renders party unable to perform
b. Did other party RS 256, UCC 2-611
i) materially change its position? or
ii) indicate that it considered repudiation final?
2. When can a party request an Adequate Assurance of Performance? Hornell
a. UCC 2-609 (sale of goods)
i)
Reasonable Grounds for Insecurity
A) Buyers words and actions
B) Course of performance
C) Course of dealing
D) Nature of contract and industry
ii) Text requires request to be in writing (courts have not strictly
adhered to this formality)
iii) Adequate Assurance must be requested (depends on
commercial reasonableness and factual conditions)
b. RS 251 same as UCC except no writing requirement
27

C. Express Conditions
1. Threshold Issues 227
a. Is statement a promise or condition?
i) Is event something within partys control?
ii) Look at language (e.g. if, unless, until indicate condition)
b. If it is a condition, is it an express condition or constructive condition?
i) Express conditions are agreed to by the parties and must be literally performed
ii) Constructive conditions arise from the language of the promise and substantial
compliance is sufficient, constructive conditions may be interpreted into the K by
the court
iii) When language is unclear, courts will find a constructive condition over an
express one, especially when an express condition would increase the risk of
forfeiture by obligee
c. Is the condition material or not? Immaterial conditions may be thought of as
procedural or technical or those whose nonoccurrence is comparatively minor
d. Which partys duty is conditional? Consider if the condition is present to protect
both parties or one in particular
2. Excuse of Conditions
a. Substantial Performance Oppenheimer
i) Doctrine only applies to constructive conditions
ii) If condition is constructive, then substantial performance is sufficient
b. Forfeiture: the denial of compensation that results when obligee loses its right to
agreed exchange after it has relied substantially, as by preparation or performance
on the expectation of the exchange
J.N.A., 229
i) Party failed to satisfy condition due to negligence or excusable neglect
ii) Substantial reliance [but see Oppenheimer- requiring unjust enrichment]
iii) No prejudice to other party
c. Waiver
84, 246
i) Material Conditions
A) Can only be waived in exchange for consideration
B) Cannot be retracted if consideration was paid
ii) Immaterial Conditions
A) Can be waived without consideration
B) Whether waiver can be retracted depends on timing. Waiver is non-retractable
if it is made after the time performance was due. If waiver is made before
performance is due, it can be retracted unless there was reliance
3. Interpretation: a satisfaction condition Morin, 228
a. Objective Test: is dissatisfaction reasonable
b. Subjective Test: was party honestly dissatisfied with performance
c. Deciding whether an objective or subjective test applies
i) Morin
A) Objective Standard applies in cases in which commercial quality, operative
fitness or mechanical utility are in question
B) Subjective Standard applies in situations in which personal aesthetics or fancy
are at issue
ii) Restatement 228
A) Objective test should be preferred when it is practicable to determine whether
a reasonable person in the position of the obligor would be satisfied
B) Subjective test used when the agreement leaves no doubt that it is only
28

honest satisfaction is meant and nothing more

Right to Sue for Damages
Total/Material Breach
Partial Breach/Substantial
Performance
Repudiation
Breach of a promissory
condition
Failure of a condition
Full Performance

Right to withhold performance

YES

YES

YES
YES

NO
YES

YES
NO
NO

YES
YES
NO

Jacob & Youngs v. Inc.: /contractor built a home for . The K stated that all pipe was to be of Reading
manufacture. used other manufacturers pipes of the same price and quality in the home. However, refused to
pay remaining balance due under contract, alleging a breach. The court held that an omission both trivial and
innocent will allow damages, but not be considered a breach. Here, the substitution had no effect on value/quality of
job so no damages were given, the court didnt give replacement damages because they were out of proportion to
their value. Court stated that if mistake was willful, then outcome would have been different. DISSENT: only 2/5 of
pipe were Reading manufacture so inadvertence not minor, had a right to this specific pipe regardless of the
reason.
Sackett v. Spindler: Spindler contracted to sell sock to Sackett. Payment was due on 8/15. The check bounced and
a new due date of 9/22 was set. Nothing was paid by 9/22, so Sackett promised to pay by 9/29. Nothing was paid
on 9/29. Spindler stated that he no longer wanted to continue K. Sackett offered to pay via liquidated assets instead
of cash. Because the original contract was for cash and Spindler need $ for his newspaper, he stated that he would
only take cash. Sackett sued. The court found that Spindler was justified in refusing to sell (court mentioned that
Spindler really didnt refuse to continue K on its original terms) because Sacketts breach was total. The court
applied the first restatement (now 237) to determine materiality. (2) injured party could be compensatedgoes in
Sacketts favor; (3) Sackett had paid part of the purchase price; (5) failure was not innocentgross negligence to
willful conduct; (6) Spindler was uncertain that Sackett would perform.
Truman L. Flatt & Sons Co. v. Schupt: entered into contract to buy land from . couldnt get zoning change that
it wanted, so it sent a letter to informing them of the zoning problem and offering a lower price. rejected the
lower price, but otherwise didnt change its position. then agreed to buy land at original price, but refused.
sued and court found that it (1) hadnt clearly repudiated the contract and (2) even if it had, it took back the
repudiation before relied on it or acknowledged that repudiation was final.
Hornell Brewing Co. v. Spry: manufactures Arizona iced tea. entered into a contract with , allowing to be the
exclusive distributor of Arizona in Canada. The product was sold to on a 10-day credit term. s unpaid invoices
grew to $100,000, its check was returned for insufficient funds, and sales were far below projections. An agreement
was made for payment to be by April 15. Instead of paying that day, told to write to Metro, its loan company.
Metro paid the balance a week later than requested. As soon as the payment was confirmed, order $390,000$450,000 worth of product (his credit limit was only for $300,000). requested a letter confirming line of credit and
a personal guarantee before it would agree to sale. never answered request. UCC 2-609 allowed to terminate
contract. 2-609 requires that the grounds for insecurity be reasonable and the assurance be adequate. The
court found both conditions to be met. was insecure b/c had late payments, bounced checks, and failed to sell
a small fraction of what was projected. also placed a huge order once payment was received and heard rumors
that s operation was a scam. The court also found that the credit documentation was a reasonable request.

29

Oppenheimer v. Oppenheim, Appel, Dixon: and entered into a sublease subject to three conditions (1)
obtained landlords written consent by a certain date, (2) submitted proposed work by a certain date and (3)
obtained landlords written consent to tenant work by a certain date. The first two conditions were satisfied and
gave oral consent to by deadline. refused to agree to accept this performance. Court found that condition was
an express condition because of the explicit language of K. Because condition was express, court held that doctrine
of substantial performance did not apply. The court found that there was no waiver by and no forfeiture by .
There was no forfeiture by because it was going to be reimbursed by third party of $1 million it spent and money
didnt enrich .
J.N.A. Realty Corp. v. Cross Bay Chelsea: acquired a lease on s property with only 5 years left on it, paying
$40,000 for improvements. agreed to an option to renew the lease for 25 years. The contract required that the
renewal option be used 6 months before lease expired. Due to negligence, didnt extend the lease. When sent
eviction notice, tried to exercise its renewal option, which refused to accept. Court stated that might be able
to exercise the renewal option due to forfeiture. Forfeiture requires substantial reliance on the K, failure of condition
due to negligence or excusable fault, and no prejudice to other party. Here the court found that had substantial
reliance because it spent $40,000 at time of purchase on improvements, $15,000 during tenancy, and built up a
clientele which it would lose if required to move. The court remanded the case for a determination if would
prejudiced if K was enforced.
DISSENT: thought that a negligent party should not be able to recover.
Morin Building Products Co. v. Baystone: GM hired /contractor to build an addition to a Chevy plant. entered
into an agreement with /Morin in which Morin was to put up the exterior siding to the plant. The K called for Al
siding unpainted and the contract stated that it was subject to GM approval. put up the siding and GM
disapproved of it. The evidence suggested that its disapproval was unreasonableit complained that the siding
was not uniform but this metal siding wasnt ever uniform. refused to pay , so it brought suit. The issue in this
case was whether an objective or subjective standard applied to the approval condition. The court held that it was
an objective standard because metal siding on a factory was not something intended to be artistictherefore the
court interpreted the artistic clause of the contract not to apply.

IX. Expectation Damages

A. Computing the Value of the s Expectation
B. Foreseeability, Certainty, and Causation
C. Mitigation of Damages
D. Nonrecoverable Damages

30