1

1) Considerationa) Two types of contract: unilateral (promise in exchange for performance) and bilateral

(exchange of promises).i) In unilateral contracts (e.g., “I’ll pay you $50 if you return my dog Pip”), the

performance is itself the consideration; the counter-performance is the thing that makes the contract. You can’t be sued if you don’t meet the condition, but if you do and don’t receive the $50, you can sue.(1) Example: “Williston’s tramp” (“If you go to that clothing store across the street,

you can have an overcoat on my credit.”)(a) Going across the street is a condition on the promise, but not a bargained-for

condition; it doesn’t provide consideration for the promise, and the promise is thus unenforceable even if the tramp does cross the street and present himself to the haberdasher. (But if the clothing store had been miles away and the tramp had suffered detriment, then the promise might be enforceable by way of reliance.)

ii) Example: “I’ll pay you $50 if you return my dog Pip” is unilateral, but “I’ll pay you $50 if you promise to return my dog Pip” is bilateral, so that the promise to return Pip is binding.

iii) Restatement § 32 (Invitation of Promise or Performance)(1) In case of doubt an offer is interpreted as inviting the offeree to accept either by

promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

iv) Restatement § 62 (Effect of Performance by Offeree where Offer Invites Either Performance or Promise)(1) Where an offer invites an offeree to choose between acceptance by promise and

acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. Such an acceptance operates as a promise to render complete performance.

(2) Example: if invited to choose between promising to cross the Brooklyn Bridge or actually doing so you opt for the latter, it constitutes acceptance by performance and a kind of implied promise.

b) For a contract to be enforceable, the promisor must receive something in return for his promise. Gratuitous promises will generally not be enforced (subject to the reliance exception).

c) Formality (intent to enter into legal relation)i) Congregation Kadimah Toras-Moshe v. DeLeo (Mass. 1989)

(1) Decedent makes oral promise to give $25,000; temple sues his estate for the money. Held, for decedent/promisor. No consideration (because no benefit to the promisor nor detriment to the promisee), and no reliance (because temple did no more than make a budget allocation); furthermore there is a presumption against enforcing oral promises without consideration.

d) Bargained-for considerationi) Restatement § 71 (Requirement of Exchange)

(1) To constitute consideration, a performance or a return promise must be bargained for.

2

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise.

(3) Consideration an include “an act other than a promise,” a “forbearance” [Hamer], or the “creation, modification, or destruction of a legal relation.”

ii) Restatement § 81 (Consideration as Motive or Inducing Cause)(1) The fact that what is bargained for does not of itself induce the making of a

promise does not prevent it from being consideration for the promise.(2) The fact that a promise does not of itself induce a performance [Earle] or return

promise does not prevent the performance or return promise from being consideration for the promise.

iii) Hamer v. Sidway (N.Y. 1891)(1) Uncle promises nephew $5,000 for forbearing to drink, smoke, or gamble until he

turns 21. Nephew fulfills this promise, but the uncle then refuses to pay him until he becomes more mature. Nephew then sues the uncle’s estate. Held, for the nephew/promisee. Consideration need not be a promise; here, the nephew’s forbearance (relinquishing a legal right) was itself the consideration. The extent of the benefit received by the uncle doesn’t matter; courts generally don’t enquire into the adequacy of consideration.

(2) (This is a unilateral promise, with the nephew’s forbearance as a condition; but note that here, unlike Williston’s tramp, the fulfillment of the condition constitutes consideration because it was bargained for, i.e., it was the end in itself, not merely the means to an end.)

iv) Earle v. Angell (Mass. 1892)(1) Aunt tells her nephew that she will give him $500 if he comes to her funeral. He

does, and then sues for the money. Held, for the nephew. Doesn’t matter that the nephew might have gone anyway, nor that the aunt was no longer alive to receive the “benefit” of his attendance.

v) Whitten v. Greeley-Shaw (Me. 1987)(1) Plaintiff keeps a mistress and makes a number of promises to her.

Mistress/defendant promised not to call him at home or the office. Held, for the mistress/defendant. There was no bargain for this promise, since the mistress herself inserted it into the agreement, and hence no consideration. (But wasn’t the continuation of the affair, with all it entailed, itself a consideration? Perhaps the real issue is that there was a quid pro quo, just not one the law would recognize.)

vi) Duncan v. Black (Mo. 1959)(1) Defendant contracts to sell land to plaintiff, with a provision that the plaintiff

receives a 65-acre cotton allotment with the land. After defendant refuses to give the allotment the next year, defendant gives plaintiff a $1500 note sued on here. Held, for defendant. Because there is no way of guaranteeing that there will be an allotment to give the plaintiff in subsequent years, the contract was not enforceable and thus the settlement doesn’t constitute consideration. Defendant had been selling something that wasn’t his to give, so that there was really no case at all being settled. (Fried thinks this result is bogus; was the potential lawsuit really so frivolous as to make the consideration nothing, especially when the plaintiff might have had no way of knowing this at the time?)

3

e) Benefit received (by defendant)i) Restatement § 86 (Promise for Benefit Received)

(1) A promise made in recognition of a benefit previously received [Mills, Webb] by the promisor from the promise is binding to the extent necessary to prevent injustice.

ii) Mills v. Wyman (Mass. 1825)(1) Plaintiff cared for defendant’s estranged son; defendant then sent a letter

promising payment but later revoked the promise. Held, for defendant. There was no consideration because the father derived no benefit: he didn’t request the help, and the son was independent. The obligation was purely moral.

iii) Webb v. McGowin (Ala. 1935)(1) Plaintiff crippled himself to save defendant’s life in the workplace; defendant then

promised to pay him for the rest of his life. Plaintiff sues to recover payments after defendant’s estate stops the payments. Held, for the plaintiff. “It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a moral benefit, although there was no original duty or liability resting on the promisor.”

(2) Distinguishable from Mills because there was a personal benefit to the defendant/promisor, and given the plaintiff’s serious injury, the moral obligation might have been stronger too.

iv) In re Schoenkerman’s Estate (Wis. 1940)(1) Plaintiffs are sister- and mother-in-law of decedent, who asked them to manage

his household and care for his children and executed promissory notes on which they now sue. Held, for plaintiffs. The promissory notes acknowledge a moral obligation sufficient to represent “consideration” on the plaintiffs’ part.

v) In re Crisan’s Estate (Mich. 1961)(1) Old woman is brought unconscious to the hospital and receives medical services

before her death, never recovering consciousness. Doctor sues for payment. Held, for plaintiff. There is a “promise implied by law” to pay; although there was no actual meeting of the minds, it is presumed that she would have consented to pay had she been able to.

f) Reliance (detriment to plaintiff)i) Restatement § 90 (Promise Reasonably Inducing Action or Forbearance)

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promise or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

(2) Charitable subscriptions or marital settlements are binding without proof of action or forbearance induced.(a) Comment (b): “The promisor is affected only by reliance which he does or

should foresee, and enforcement must be necessary to avoid injustice.ii) (Note that just because reliance serves as the “consideration” for a given contract

under § 90 doesn’t mean that reliance will be the measure of damages; the standard remains expectation damages even in cases where reliance supplies the consideration.)

4

iii) Kirksey v. Kirksey (“Sister Antillico”) (Ala. 1845)(1) Defendant induced plaintiff, his sister-in-law, to move to his residence (“I will let

you have a place to raise your family…”); after two years, he told her to move out of the house he had given her. Held, for defendant. Promise was a “mere gratuity,” and defendant’s move was insufficient as “consideration.” (But it was clearly reliance, which the court didn’t consider.)

(2) Distinguishable from Schoenkerman in that there was on promise of money, and hence no acknowledgment of obligation; nor was there any benefit conferred on the defendant, only a detriment to the plaintiff. Also distinguishable from Hamer because the promise here was gratuitous rather than conditional, even if it is questionable in both cases whether the defendant really got a benefit.

iv) Feinberg v. Pfeiffer (Mo. 1959)(1) Defendant agrees to pay plaintiff $200 monthly after retirement; new president of

defendant corporation stops payments on the basis that they are mere gratuities. Held, for plaintiff, under Restatement § 90: the plaintiff relied on the promise to her detriment in choosing to retire.

v) Ricketts v. Scothorn (Neb. 1898)(1) Decedent promises to pay plaintiff $2,000 a year so that she wouldn’t need to

work anymore. Plaintiff did so, and now seeks to recover from defendant’s estate. Held, for plaintiff. There was no consideration on the plaintiff’s part, since the money was given as a gratuity with no expectation of anything in return; but there is equitable estoppel on grounds of reliance. Defendant specified or at least foresaw that the gift would induce the plaintiff to leave work. Thus his estate is estopped from asserting lack of consideration.

(2) (Note that resigning work here and in Feinberg wasn’t consideration; the benefactor hadn’t said “IF you quit your job, THEN I will give you this money,” but rather merely “WHEN you quit the job I will give you money.” Quitting the job wasn’t sought in return for the promise of money in the same way that forbearance was sought in return for the promise in Hamer.)

vi) Allegheny College v. National Chataqua County Bank (N.Y. 1927) (Cardozo, J.)(1) Defendant promised $5,000 to the college after her death, requesting that a fund

be established in her name; she gave $1,000 while alive and then repudiated her promise right before her death. College sues to collect the rest of the money. Held, for plaintiff. The naming of the future scholarship after the defendant approaches consideration. (But was it really consideration or just a condition for the defendant’s donation?) The contract, says Cardozo, is bilateral; the consideration for each promise is the other promise. The moment the money was accepted, there was an assumption of a duty to do whatever was necessary to maintain the memorial. (Fried thinks this “implied promise” is BS.)

(2) Cardozo also notes the possibility of promissory estoppels in charitable subscription cases, but doesn’t have to reach the issue given that he finds consideration. In so doing he anticipates Restatement § 90

vii)Siegel v. Spear (N.Y. 1923)(1) Furniture company promises plaintiff they will insure his furniture while they

store it for him; they don’t, and it is destroyed in a fire. Held, for plaintiff;

5

defendant’s offer to insure was relied upon by plaintiff. (Cited by Cardozo in Allegheny.)

viii) D’Ulisse-Cupo v. Board of Directors of Notre Dame High School (Conn. 1987)(1) School board fails to rehire teacher despite representations that she’ll receive a

new contract. Teacher sues on contractual theory of promissory estoppels and tort claim of negligent misrepresentation. Court distinguishes the two claims. Claim of promissory estoppel is rejected because the representations were “neither sufficiently promissory nor sufficiently definite,” but negligent misrepresentation stands (because this claim doesn’t require proof that the statements were promissory.)

ix) Hoffman v. Red Owl Stores (see below)x) Baird v. Gimbel Bros. (see below)xi) Drennan v. Star Paving Co. (see below)

g) Adequacy of considerationi) Restatement § 208 (Unconscionable Contract or Term)

(1) If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable.(a) Comment (c): Inadequacy of consideration does not of itself invalidate a

bargain, but gross disparity in the values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient ground, without more, for denying specific performance … Ordinarily, however, an unconscionable contract involves other factors as well as overall imbalance.

(b) Comment (d): Gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.

ii) U.C.C. § 2-302 (Unconscionable Contract or Clause)(1) If the court as a matter of law finds the contract or any clause of the contract to

have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.(a) Purpose 1: “The basic test is whether, in the light of the general commercial

background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract … The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power.”

iii) Courts generally don’t enquire into the adequacy of consideration; usually even a “peppercorn” is enough.

iv) Batsakis v. Demotsis (Tex. 1949)

6

(1) In wartime Greece, defendant is unable to get money from the U.S. and borrows drachmas from plaintiff instead, promising to pay $2,000 when the loan itself is worth $25. Defendant argues that the consideration is inadequate and the contract shouldn’t be enforced. Held, for plaintiff. “Inadequate consideration” argument is rejected; the drachmas themselves are consideration, regardless of how inadequate. (It’s not as if the exchange had been $2,000 for 25 dollars, which would really just be a gift of $1975.)

v) American Home Improvement, Inc. v. MacIver (N.H. 1964)(1) Defendants pay a huge sum of money for something which the court says was

worth much less in terms of value of the goods and services. Held, for defendant. Court refuses to enforce the contract on grounds of unconscionability. Court finds the value of goods and services by subtracting the commission paid to plaintiff and interest/carrying charges from the total. (Fried thinks this is bogus: the commission is a kind of overhead which should be paid; and by this logic, executory contracts can always be rescinded by a promisor who hasn’t gotten anything in return.)

vi) Waters v. Min Ltd. (Mass. 1992)(1) Plaintiff’s ex-convict boyfriend convinced her to sell an annuity immediately

exchangeable for $189,000 (and worth $694,000 in the long run) for $50,000. Plaintiff had no legal representation, and the contract was drawn up in unusual and intimidating circumstances. Plaintiff sues to rescind on grounds of unconscionability. Held, for plaintiff. Not only was there a gross disparity in the values exchanged, but also a gross disparity of bargaining power. Adequacy usually isn’t taken into account to determine consideration, but inadequacy does factor into the determination of unconscionability.

(2) Distinguishable from Batsakis:(a) Conditions here were caused by the other party; in Batsakis, the situation was

brought about by Nazi invasion of Greece.(b) (But note that here too, as in Batsakis, there was still consideration. The swap

wasn’t $20 now for $10 now; there was a question of cash value over time, which is a sum not fixed by law but rather by the parties.)

h) Contract Revisions and Preëxisting Dutyi) Restatement § 73 (Performance of Legal Duty)

(1) Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of a bargain.

ii) Restatement § 89 (Modification of Existing Contract) (qualifies § 73)(1) A promise modifying a duty under a contract not fully performed on either side is

binding:(a) If the modification is fair and equitable in view of circumstances not

anticipated by the parties when the contract was made; or(b) To the extent provided by statute; or(c) To the extent that justice requires enforcement in view of material change of

position in reliance on the promise.

7

iii) (Basic rule: “you can’t sell the same thing twice.” If B hires A at $90 per week for one year and the parties later agree to modify to a salary of $100 per week, the salary is unenforceable because there is no detriment to A and no benefit to B – A was already obligated to perform and B already entitled to that performance.)

iv) Alaska Packers’ Association v. Domenico (9th Cir. 1902)(1) Plaintiffs are fishermen who enter into a contract with Alaska Packers, agreeing to

fish for salmon for $50; once they arrive at the cannery in remote Alaska, they demand a bigger contract ($100) and say they’ll leave otherwise. Packers make the modification, but then deny the validity of the contract when plaintiffs seek pay in accordance with it. Held, for defendant. There was no consideration in the supposed modification of the original contract because defendants were only getting what they had already bought and paid for.

(2) (Even if there had been consideration, the court probably would have refused to enforce this contract as unconscionable given the circumstances: if the canning company didn’t agree to modify, the entire shipment would be lost. Given that they were in remote Alaska and had little time, Packers couldn’t simply have sued the plaintiffs for breach.)

v) Schwartzreich v. Bauman-Basch, Inc. (N.Y. 1921)(1) Parties agree that Schwartzreich (plaintiff) will work at $90 a week; before

starting work, Schwartzreich then receives an offer from a competitor and tells Bauman he will work for $100 a week; a new contract is signed after the original contract is destroyed. Held, for plaintiff. The original contract can be rescinded consensually, and the mutual promises of the new contract then serve as consideration since there was a moment at which there was no obligation. There was, in effect, an intermediary contract in which each side agreed to release the other from its obligation. (Fried calls this the “Bauman-Basch fiddle,” questions whether the time frame was really so clear since the old contract was ended at almost the same time.)

(2) Effect of Restatement § 89: is the “new information” that has come to light the fact that plaintiff’s services are worth more than was known initially?

vi) Goebel v. Linn (Mich. 1882)(1) Defendants, brewers, contracted with plaintiffs, an ice company; the next winter’s

ice crop was ruined due to warm weather. Defendants’ beer would have spoiled without ice, and so they entered into a new agreement to pay a higher amount of money. Defendants paid the higher sum until one month when they paid at the original, lower rate. Held, for plaintiffs. Defendants aren’t arguing lack of consideration but rather “circumstances amounting to duress,” which aren’t really present: the ice company didn’t create the situation (nature did, unlike Alaska Packers, where the plaintiffs themselves did). Furthermore, plaintiffs had the option to sue for breach initially and never did; if it had really been that unconscionable, they wouldn’t have abided by the contract for over eight months.

vii)U.C.C. § 2-209 (Modification, Rescission and Waiver)(1) An agreement modifying a contract within this Article needs no consideration to

be binding.(2) Does away with the doctrine of Alaska Packers – but probably wouldn’t change

the result. The court would probably just say the contract was unconscionable.

8

i) Illusory promises (really no consideration)i) Restatement § 77 (Illusory and Alternative Promises)

(1) A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless(a) Each of the alternative performances would have been consideration if it alone

had been bargained for;(b) One of the alternative performances would have been consideration and there

is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

ii) Wickham and Burton Coal Co. v. Farmers Lumber Co. (Iowa 1920)(1) Wickham contracts to sell coal at $1.50 a ton to Farmers; the contract allows

Farmers to order as much coal as it wants, or none at all. Farmers orders a large quantity of coal after the price of coal rises. Wickham then refuses to sell, arguing that there is no contract. Held, for Wickham. The buyer never promised to buy any coal at all, so that there is no mutuality of obligation and no consideration.

iii) Implied Promises(1) Wood v. Lucy, Lady Duff-Gordon (N.Y. 1917) (Cardozo, J.)

(a) Wood contracts with Lucy for the right to sell her designs and endorsements in exchange for 50% of the profits; Lucy then enters into a deal with someone else and breaks the contract, arguing that Wood’s promise was illusory because he didn’t actually bind himself to do anything. Held, for Wood. Cardozo finds an implicit promise “to use reasonable efforts to bring profits and revenues into existence.” (See Restatement § 205.)

(b) (Fried thinks this is more Cardozan BS, and that the honest solution to this problem is to create an option contract in Wood under Restatement § 87, with Wood paying for the option to market Lucy’s designs. Fried also wonders if this “implied promise” would work against Wood. Here Cardozo reads in a promise only to hold the maker of a real promise (i.e., Lucy) liable; would he be more averse to implying a promise so as to hold the maker of that implied promise liable?)

(2) Restatement § 205 (Duty of Good Faith and Fair Dealing)(a) Every contract imposes upon each party a duty of good faith and fair dealing

in its performance and its enforcement.(3) U.C.C. § 2-306 (2) (Output, Requirements, and Exclusive Dealings) (adopts

Lucy)(a) A lawful agreement by either the seller or the buyer for exclusive dealing in

the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

(4) Omni Group, Inc. v. Seattle-First National Bank (Wash. 1982)(a) Buyer agrees to purchase land contingent on a satisfactory engineer’s

feasibility report. Held, that this isn’t an illusory promise. Promises dependent on a condition aren’t necessarily illusory; because the judgment of

9

“satisfactoriness” must be made in good faith, the buyer didn’t have unfettered discretion.

(b) (Not an option contract because no money was given by the buyer in exchange for the option to purchase.)

(c) General rule: “if the happening of the condition is outside the control of the party who makes the promise, the promise is not illusory and does not fail for lack of consideration.”

iv) Termination clauses(1) Gianni Sport v. Gantos, Inc. (Mich. 1986)

(a) Buyer/defendant contracts to buy clothing from seller/plaintiff, but reserves the right to terminate orders of unshipped or late goods at any time. Held, for plaintiff. The termination clause is unconscionable, and the defendant’s promise illusory, because it was unreasonable and because the defendant had superior bargaining power.

(2) Gurfein v. Werbelovsky (Conn. 1922)(a) Buyer sues seller for refusing to ship glass under a contract that gave buyer

the right to cancel at any time before shipment. Held, for buyer/plaintiff. There is sufficient consideration here because the buyer’s right to cancel lasted only up until the time of shipment; if the seller shipped the good, the buyer had to pay at that point. This minute consideration was apparently enough.

(b) (Note that here the buyer wants the goods and is demanding performance; in Gianni, it was the seller who was trying to enforce the contract.)

(3) Corenswet v. Amana Refrigeration, Inc. (5th Cir. 1979)(a) Plaintiff seeks to enjoin termination of a wholesale distributorship terminable

for any reason at any time within 10 days’ notice, arguing the termination was arbitrary and capricious. Held, for defendant. The contract is enforceable; contracts may be terminable without cause when specified by the terms of the contract. Inserting a good faith requirement would make almost all termination-without-cause clauses invalid.

2) Formationa) U.C.C. § 2-204 (Formation in General)

i) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

ii) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

b) U.C.C. § 2-206 (Offer and Acceptance in Formation of Contract)i) Unless otherwise unambiguously indicated by the language or circumstances

(1) An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances… [i.e., inviting acceptance either as a bilateral or unilateral contract – cf. Restatement § 32]

c) Making of agreements i) Objective standard

(1) Hotchkiss v. National City Bank of New York (S.D.N.Y. 1911) (L. Hand, J.)

10

(a) “A contract has, strictly speaking, nothing to do with the personal or individual intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held…”

(2) Embry v. Hargadine-McKittrick Dry Goods (Mo. 1907)(a) Disputed facts: employee Embry claims that his boss told him to keep

working after his contract was about to expire, and employer claims that he was busy at the time and said he would “take it up later.” Employer claims no intent to rehire plaintiff. Held, for plaintiff. Employer’s intent doesn’t matter; the court takes an objective approach and considers what a reasonable man would infer from the employer’s words and acts. Remanded for trial because there is still an open question of fact as to who said what. While it is the role of the court to interpret ambiguous written words in a contract, ambiguous oral words go to the jury.

(b) Does this end up producing a kind of contract by way of negligence, and hence a blurring of contract and tort?

(3) Texaco, Inc. v. Pennzoil Co. (Tex. 1997)(a) Pennzoil is in negotiations with Getty to purchase some of its oil reserves, and

Texaco comes along and takes the deal away from them. Pennzoil sues Texaco for tortious interference with contract; Texaco argues that there never was a contract between Texaco and Getty because there was never a formal instrument, only the memorandum referring to such an instrument. Issue is whether Getty intended to be bound. Held, for Pennzoil (plaintiff). Whether or not Getty intended is beside the point; what matters is that they had behaved and spoken in ways assuming an intent to be bound. The terms of the contract were sufficiently definite.

(4) Empro Mfg. Co. v. Ball-Co Mfg. Inc. (7th Cir. 1989) (Easterbrook, J.)(a) Parties sign a letter of intent, but defendant Ball-Co negotiates with a third

party afterward and reneges. Letter noted that the purchase would be “subject to” certain conditions; but plaintiff insisted that the binding effect depended on intent alone. Held, for defendant. “Intent” is objective and not subjective. “Subject to” isn’t always conclusive, depending on the context; but here the conditions made it clear that a binding effect was being avoided.

(b) Easterbrook notes that letters of intent serve a valuable function in allowing “agreement by stages”: “Letters of intent and agreements in principle often, and here, do no more than set the stage for negotiations on details.”

ii) Subjective standard (intent to be bound)(1) Keller v. Holderman (Mich. 1863)

(a) Keller gives Holderman a check for $300 in exchange for a watch worth about $15, which he keeps until the day of trial and then offers to return; Holderman had no money in the bank when he drew the check, and had intended to insert a condition that would prevent his being liable on the check. Held, for defendant. There was no contract here; the whole transaction between the

11

parties “was a frolic and a banter – the plaintiff not expecting to sell, nor the defendant intending to buy the watch at the sum for which the check was drawn.”

(b) Where neither party intends a contract, even if the words make it look like there is one, there is no contract. By contrast, Embry is a case where one party did intend there to be a contract and reasonably thought there was one, such that there is indeed a contract.

(2) Moulton v. Kershaw (Wis. 1884)(a) Plaintiff orders 2,000 barrels of salt from defendant after receiving what it

claims was an offer of sale; defendant then withdraws the letter in question. Held, for defendant. The letter wasn’t a promise, just an offer to negotiate; defendant wasn’t promising the salt, but just saying that he had salt and that if the plaintiffs wanted to promise to buy it, he might promise to sell it. It was simply an invitation to negotiate. (The result would have been different if the defendant’s letter had said “all you can order,” or specified an amount.)

(b) (Cf. Lefkowitz: advertising is usually not an offer, but “FIRST COME FIRST SERVED” specification is promissory.”)

d) Indefinitenessi) Restatement § 33 (Certainty)

(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of the contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

ii) U.C.C. § 2-204 (3) (Formation in General).(1) Even though one or more terms are left open a contract for sale does not fail for

indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

iii) U.C.C. § 2-305 (1) and (4) (Open Price Term)(1) The parties if they so intend can conclude a contract for sale even though the price

is not settled. In such a case the price is a reasonable price at the time of delivery if:(a) Nothing is said as to price; or(b) The price is left to be agreed by the parties and they fail to agree; or(c) The price is to be fixed in terms of some agreed market or other standard as

set or recorded by a third person or agency and it is not so set or recorded.(2) Where, however, the parties intend not to be bound unless the price be fixed or

agreed and it is not fixed or agreed there is no contract.iv) Joseph Martin, Jr. Delicatessen v. Schumacher (N.Y. 1981)

(1) Martin enters a lease with Schumacher with renewals “to be agreed upon” and now sues for specific performance to extend the lease at a reasonable figure. Held, for Martin. The contract is unenforceable because its terms are too indefinite. There was nothing more than an agreement to make an agreement; the

12

contract must be specific enough for the promise to be ascertainable, because otherwise courts would just end up imposing their own conceptions.

(2) Cf. U.C.C. § 2-305 (not applicable to sale or lease of real property): if no price is set, fair market price or reasonable price governs.

v) Lafayette Place Associates v. Boston Redevelopment Authority (Mass. 1998) (Fried, J.)(1) Plaintiff sues for breach, and defendant argues that there was no binding contract

due to indefiniteness. Held, for defendant: the city is not in breach because the plaintiff didn’t fulfill its own obligations, BUT there was a binding contract. Absolute specificity is not required. Although the price was left open, procedures were specified in the contract for determining it (as was not the case in Martin). Fried notes that contracts should allow parties to bind themselves in the face of contingencies, as they did here.

vi) Hoffman v. Red Owl Stores, Inc. (Wis. 1965)(1) Hoffman seeks to join the Red Owl franchise, and relies on Red Owl’s assurances

about the required amount of capital, meanwhile selling his business, buying a store to gain experience, and buying an option on a site for the would-be franchise store. Red Owl then raises the price, at which point Hoffman terminates the negotiation. Held, for Hoffman. There was no contract, because no mutual agreement was reached on the details of the proposal, but there was reliance pursuant to Restatement § 90. Hoffman is awarded reliance damages only, i.e., damages which reflect his detrimental change of position. (The norm is expectation damages, which aren’t given here.)

(2) Is this really more like a tort misrepresentation case? Unlike other reliance cases, there is no explicit promise here, only reliance on a representation. Cf. D’Ulisse-Cupo (tort for negligent misrepresentation rather than contract because representations weren’t sufficiently promissory).

(3) Chirelstein: “As applied in Red Owl, promissory estoppel was not merely a substitute for consideration or a device for converting an offer into a binding contract – in effect, there was no offer. Rather, Section 90 was made to ‘serve as a distinct basis of liability, without regard to theories of bargain, contract, or consideration, and with its own special damage standard.’” § 90 is now effectively “imposing fair-dealing requirements on parties engaged in pre-contractual negotiations.” (Cf. Gilmore, Death of Contract.)

e) Misunderstandingi) To constitute acceptance, the consideration must be the consideration which the

offeror or promisor sought in return for his bargain. The promisor must get the return which is sought for, not something else.

ii) Restatement § 20 (Effect of Misunderstanding)(1) There is no manifestation of mutual assent to an exchange if the parties attach

materially different meanings to their manifestations and(a) Neither party knows or has reason to know the meaning attached by the other;

or(b) Each party knows or each party has reason to know the meaning attached by

the other.

13

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if(a) That party does not know of any different meaning attached by the other, and

the other knows the meaning attached by the first party.(b) That party has no reason to know of any different meaning attached by the

other, and the other has reason to know the meaning attached by the first party.

(3) [Effectively says that if one party knows what the other does, then they are stuck with that meaning.]

iii) Raffles v. Wickelhaus (Peerless) (Court of Exchequer 1864)(1) Parties contract for cotton delivery “ex Peerless,” but there are in fact two ships

named Peerless sailing from Bombay. Plaintiff ships his cotton in the December Peerless, and defendant refuses to accept or pay for it, arguing that he had in mind the October Peerless. (Cotton prices had gone up in the intervening period due to the Civil War.) Held, for defendants. There was no “consensus ad idem, and therefore no binding contract.” Neither side should be bound to a contract they didn’t make; the contract each party made is different from the one that the other party thought it had made.

(2) How should the loss be split in a relationship like this? It isn’t as if Raffles and Wickelhaus were strangers (unlike the parties in a tort case). Would a more equitable result have been to split the loss between them?

(3) Fried questions whether Wickelhaus was really unaware of there being two Peerless ships; if he had the October Peerless in mind, why didn’t he try to claim cotton from that ship when it arrived?

(4) Holmes’s radically “objective” interpretation: “If there had been but one ‘Peerless,’ and the defendant had said ‘Peerless’ by mistake, meaning ‘Peri,’ he would have been bound. The true ground of the decision was not that each party meant a different thing from the other … but that each said a different thing. The plaintiff offered one thing, the defendant expressed his assent to another.”

f) Terminationi) Restatement § 36 (Methods of Termination of the Power of Acceptance)

(1) An offeree’s power of acceptance may be terminated by(a) Rejection or counter-offer by the offeree, or(b) Lapse of time, or(c) Revocation by the offeror, or(d) Death or incapacity of the offeror or offeree.

(2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

ii) Lapse of time: Textron, Inc. v. Froelich (Pa. 1973)(1) Seller offers broker two lots of steel rods at stated prices over the phone; broker

calls back five weeks later and agrees to buy, and seller replies “fine.” Rods aren’t delivered and buyer sues. Defendant argues the offer had elapsed after the first conversation ended. Held, for plaintiff. When no time for expiration for a power of acceptance is specified, the power terminates “at the end of a reasonable time,” with “reasonableness” a question of fact to be assessed by the jury. Not all offers terminate at the end of conversation.

14

iii) Death or incapacitation: Davis v. Jacoby (Cal. 1934)(1) Mr. and Mrs. Whitehead are an infirm elderly couple; Mr. Whitehead makes an

offer to Mr. Davis and his wife (Mrs. Whitehead’s niece) that if they come care for him everything will be left to Mrs. Davis in the will. Mr. Davis writes back to accept; Mr. Whitehead commits suicide before they arrive, but they come and care for Mrs. Whitehead until her death. The will then bequeaths everything to someone else. Defendants argue that the offer was unilateral, and that only performance would equal acceptance. Held, for plaintiffs. Mr. Whitehead’s letter was an offer and Mr. Davis’s reply an acceptance. The presumption is in favor of bilateral contracts (Restatement § 31); Mr. Whitehead presumably wanted the comfort and assurance of a promise to come. Nor did Mr. Whitehead’s death constitute revocation. He had already received the letter of acceptance before his death, and services were to continue after his death (i.e., care for Mrs. Whitehead.)

iv) Revocation(1) Restatement § 25 (Option Contracts)

(a) An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.

(2) Restatement § 45 (Option Contract Created by Part Performance or Tender)(a) (1) Where an offer invites an offeree to accept by rendering a performance

and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

(b) (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

(c) Comment f. What is begun or tendered must be part of the actual performance invited in order to preclude revocation under this Section. Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror’s promise binding under § 87(2).

(3) Restatement § 87 (Option Contract)(a) An offer is binding as an option contract if it:

(i) Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

(ii) Is made irrevocable by statute.(b) An offer which the offeror should reasonably expect to induce action or

forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.(i) [§87(2) is akin to §90, except the actual thing requested hasn’t been

performed yet, only preparatory steps. Would apply to Red Owl.](4) Dickinson v. Dodds (Eng. C.A. 1976)

15

(a) Dodds agrees to sell property to Dickinson at a particular price, and adds as postscript that the offer is to be “left over until Friday, 9 AM.” Dickinson tries to accept on Friday morning and finds that he is too late, with Dodds selling to someone else on Thursday and Dickinson aware of this. Held, for defendant (Dodds). The document, although it began “I hereby agree to sell,” was really just an offer. There was no meeting of the minds; nor, from an objective standpoint, was this an option contract, given the lack of consideration. “This promise, being a mere nudum pactum, was not binding…” Since Dickinson knew that an offer had been made to someone else on Thursday, he should reasonably have known that the offer was no longer on the table.

(b) Cf. UCC § 2-205 (but not applicable here because this isn’t a sale of goods)(5) U.C.C. § 2-205 (Firm Offers) (certain option contracts don’t require

consideration)(a) An offer by a merchant to buy or sell goods in a signed writing which by its

terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

(6) Petterson v. Pattberg (N.Y. 1928)(a) Pattberg promises a reduction in Petterson’s mortgage in exchange for $780 in

cash; Petterson goes to Pattberg’s house to pay, and Pattberg tells him at the door that the mortgage has been sold. Petterson has to pay the full amount to a third party, and sues Pattberg for the difference. Held, for defendant (Pattberg). The contract was unilateral and thus revocable at any time before performance; since the plaintiff had not yet tendered the money, defendant had time to withdraw (no matter how small the window of time might have been).

(b) Dissent (Andrews): Petterson had in effect performed, and performance was only made impossible by Pattberg himself. The act requested by Pattberg as “consideration” included performance by Pattberg himself, namely accepting the money; Petterson had done his part and given the consideration Pattberg wanted.

(c) Cf. Restatement § 45 (creation of an option contract by part performance)(7) Brackenbury v. Hodgkin (Me. 1917)

(a) Defendant writes to plaintiff, her daughter, and offers her use of the home and inheritance if she and her husband come to care for her. The daughter and son-in-law did so, but relations became strained until the defendant deeded the home to her son instead; the son then served the plaintiffs with notice to quit. Plaintiffs seek a reconveyance to the mother and an adjudication that the mother holds title with trust in their favor. Held, for plaintiffs. The contract here was unilateral, and the plaintiffs accepted the offer by moving to Maine and beginning performance.

(b) Cf. Davis: distinguishable because performance here had already begun, whereas in Davis the plaintiffs had only prepared to go before the alleged

16

revocation. Here, Restatement § 62 would apply (“tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance”).

(8) Carlill v. Carbolic Smoke Ball Co. (English Court of Appeal 1892)(a) Defendants manufacture a medical device an advertise a 100 pound reward to

anyone who gets sick after taking the treatment three times a day. The plaintiff claims the reward. Held, for plaintiff. The lack of particularity (anyone can claim the reward) doesn’t make this promise nonbinding. Nor did the plaintiff need to precede her performance with notification. As for consideration, the advertisers accrue a commercial advantage from the use of their device, and consumers receive some detriment.

(b) “No notice” analogy: “If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal?”

(9) James Baird Co. v. Gimbel Bros. (2nd Cir. 1933) (L. Hand, J.)(a) Baird, a general contractor, makes a successful bid for a job based on a low

quote from Gimbel, a subcontractor; Gimbel then withdraws the offer. Held, for defendant (Gimbel). The mere entry of bids was not enough to constitute acceptance by Baird; Gimbel was looking for acceptance via a return promise. Hand refuses to apply promissory estoppel here. “In commercial transactions it does not in the end promote justice to seek strained interpretations of those who do not protect themselves.”

(b) Chirelstein: “If the Gimbel rule were followed, general contractors would be obliged to add a premium to their bids in order to reflect the risk that one or another of their subcontractors might revoke before acceptance.”

(c) (Fried: Restatement § 87, which applies to offers, might produce a different result here.)

(10) Drennan v. Star Paving Co. (Cal. 1958) (Traynor, J.)(a) Facts are basically identical to Baird. Held, for plaintiff. Defendant had

reason to expect reliance by the plaintiff. The plaintiff bound himself in reliance on the defendant’s terms, and the defendant wanted precisely this result: “It was to [defendant’s] own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor’s bid was likely to be and the greater its chance of acceptance and hence the greater defendant’s chance of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to.”

(b) Chirelstein: “Promissory estoppel is a one-way street in this context.” Drennan would be free to shop around after getting the contract for an even lower bid than Star’s, since Drennan wasn’t bound to award the subcontract to Star. Thus Traynor claims that Drennan’s § 90 claim would be forfeited if he had gone on to enquire from other subcontractors after being awarded the contract.

g) Means of acceptance

17

i) Counter-offers(1) Livingstone v. Evans (Supreme Court of Alberta 1925)

(a) Defendant offers land for $1800; plaintiff replies that he’ll pay $1600; defendant refuses and writes, “Cannot reduce price”; plaintiff then accepts the $1800 offer. By this point defendant has sold to someone else. Question is whether plaintiff’s reply ended the offer. Held, for plaintiff. Plaintiff’s reply was a counter-offer, which amounts to a rejection of the original offer; BUT defendant’s reply, “Cannot reduce price,” constituted a renewal of the original offer.

ii) Mailbox Rule(1) Restatement § 63 (Time When Acceptance Takes Effect)

(a) Unless the offer provides otherwise,(i) An acceptance made in a manner and by a medium invited by an offer is

operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but

(ii) An acceptance under an option contract is not operative until received by the offeror.

(b) [Prevents offeror from revoking once the offeree has put his acceptance in the mail; makes sense insofar as the offeree may have taken costly steps and rejected other offers in accepting.]

(2) Restatement § 40 (Time When Rejection or Counter-Offer Terminates the Power of Acceptance)(a) Rejection or counter-offer by mail or telegram does not terminate the power of

acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

(3) European rule: acceptance is valid on receipt.(4) Problem of the overtaking rejection (“Romeo and Juliet problem”)

(a) (Rejections are only effective on receipt.)(b) Overtaking acceptance (Restatement § 40): Acceptance mailed after rejection

isn’t effective until received, and only if received before the rejection. But what about a rejection mailed after the acceptance and overtaking it?

(c) Calamari/Perillo: “However, there is significant authority, including the Restatement, that a contract is formed [by overtaking rejection, despite the fact that it goes against offeror’s expectations]. Otherwise the offeree could speculate at the offeror’s expense by seeing how the market went. If it moved in the offeree’s favor he would allow the acceptance to stand. If it moved in the offeror’s favor, the offeree could use an earlier-arriving communication to undo the acceptance. This would be unfair because if the offeror is bound by the offeree’s communication this should also be true of the offeree.”

(d) Fried’s suggestion: When offeree snail-mails an acceptance and then emails an overtaking rejection, this creates an option in the offeror to treat it as a contract or not.

iii) Acceptance via Silence

18

(1) Restatement § 69 (Acceptance by Silence or Exercise of Dominion)(a) Where an offeree fails to reply to an offer, his silence and inaction operate as

an acceptance in the following cases only:(i) Where an offeree takes the benefit of offered services with reasonable

opportunity to reject them and reason to know that they were offered with the expectation of compensation. [Day v. Caton]

(ii) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.

(iii) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. [Hobbs v. Massasoit]

(2) Day v. Caton (Mass. 1875)(a) Plaintiff builds a wall, half of which is on the defendant’s land; defendant

objects to jury instruction that if plaintiff built expecting defendant to pay and defendant had reason to know, then a promise can be inferred. Held, for plaintiff. Mere expectation on the plaintiff’s part isn’t enough, but silence can be interpreted as assent depending on the circumstances. “If a party, however, voluntarily accepts and avails himself of valuable services rendered for his benefit, when he has the option whether to accept or reject them, even if there is no distinct proof that they were rendered by his authority or request, a promise to pay for them may be inferred.”

(3) Hobbs v. Massasoit Whip Co. (Mass. 1893) (Holmes, J.)(a) Plaintiff sends eel skins to defendant, who keeps them until they go bad and

doesn’t pay, never notifying plaintiff of the rejection. Defendant objects to jury instruction that verdict for the plaintiff is proper when defendant says nothing while “having reason to suppose that the man who has sent them believes that it is taking them.” Held, for plaintiff. The parties here were nonstrangers, since defendants had purchased skins several times before. Given the circumstances, sending the skin imposed a duty to act on the defendant’s part. (It isn’t as if the plaintiffs had sent unsolicited goods.)

(4) Morone v. Morone (N.Y. 1980)(a) Parties lived together as partners and acted as “husband and wife.” Plaintiff

now alleges express and implied contracts compensating her for domestic services, breached by defendant. Held, in part, for plaintiff. “New York courts have long accepted the concept that an express agreement between unmarried persons living together is as enforceable as though they were not living together, provided only that illicit sexual relations were not ‘part of the consideration of the contract.’” But no implied contract should be found in domestic relations, since “it is not reasonable to infer an agreement to pay for the services rendered when the relationship of the parties makes it natural that the services were rendered gratuitously.”

(5) Hurley v. Eddingfield (Ind. 1901)(a) Defendant was plaintiff’s doctor; messenger went to the doctor to tell him

plaintiff was seriously ill and tendered his fee, but defendant refused to render

19

aid; plaintiff then died as a result. Held, for defendant. Doctor can practice on his own terms. [No acceptance by silence.]

iv) Battle of the forms(1) Common law rule was known as the mirror image rule: offeree’s response

constitutes acceptance only if it is the mirror image of the offer. (Counteroffers are thus outright rejections of the original offer.) Rejected in U.C.C. § 2-207.

(2) U.C.C. § 2-207 (Additional Terms in Acceptance or Confirmation)(a) (1) A definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(b) (2) The additional terms are to be construed as proposals for additions to the contract [i.e., they only become part of the contract if consented to by the offeror]. Between merchants such terms become part of the contract unless:(i) (a) the offer expressly limits acceptance to the terms of the offer;(ii) (b) they materially alter it; or(iii) (c) notification of objection to them has already been given or is

given within a reasonable time after notice of them is received(c) (3) Conduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

(d) [Courts usually find that conflicting terms “knock out” one another; other U.C.C. provisions then fill in the missing provisions.]

(3) Idaho Power Co. v. Westinghouse Electric Corp. (9th Cir. 1979)(a) Idaho sends an enquiry for the price of equipment to Westinghouse;

Westinghouse sends back a quote along with terms and conditions limiting its liability. Idaho responds with an order containing additional terms “superseding all previous agreements,” but no terms as to liability. Idaho sues for breach of express and implied warranties after the equipment fails. Held, for defendant (Westinghouse). Idaho’s order constituted acceptance; and the language of the order doesn’t indicate that Idaho was making its acceptance “conditional on assent to the additional or different terms.” Nor did the “superseding” provision “knock out” the disclaimer of liability.

h) Assent to standardized formsi) Restatement § 211 (Standardized Agreements)

(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.

20

(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.(a) (Basically a kind of mistake doctrine – but why should this only be true for

standardized agreements?) ii) Mundy v. Lumberman’s Mutual Casualty Co. (1st Cir. 1986) (Breyer, J.)

(1) Plaintiff, a lawyer, sues insurer for inadequate notice after a change in policy limiting recovery for theft. Form read, “NEW EASY TO READ POLICY … THERE ARE SOME COVERAGE CHANGES,” but plaintiff says he didn’t read the change. Held, for defendant. “Even a casual reading of the mailed material would have given the plaintiffs adequate notice.”

iii) Richards v. Richards (Wis. 1994)(1) Defendant employs plaintiff’s husband as a trucker; plaintiff wants to ride with

him, and signs a “passenger authorization form” which is really an exculpatory contract releasing defendant for liability even from intentional and reckless conduct by third parties. Exculpatory contracts are generally disfavored, and the court concludes that this one violates public policy. The title (“Passenger Authorization”) doesn’t signal the exculpatory nature of the contract; the release is extremely broad; and the standardized nature of the agreement gives no opportunity for negotiation or bargain. No single reason is conclusive, but together they make it violative of public policy.

(2) (Fried questions what difference the standardized agreement and the “lack of opportunity for discussing and negotiating” really makes. Life is full of “take it or leave it” situations (e.g., could you really negotiate over the cost of postage stamps?) in which there isn’t necessarily reason to think there is no meeting of the minds.)

iv) Broemmer v. Abortion Services of Phoenix (Ariz. 1992)(1) Plaintiff goes to an abortion clinic and signs a bunch of forms before the abortion,

one of which was an agreement to arbitrate. Defendant later moves to dismiss plaintiff’s malpractice suit on grounds of the arbitration agreement. Held, for plaintiff. Court takes a more subjective approach, questioning how there could really have been a meeting of the minds given the plaintiff’s lack of education and extreme emotional stress at the time. The contract was one of adhesion, and no explanation of the arbitration clause was given to the plaintiff. “Contracts of adhesion will not be enforced unless they are conscionable and within the reasonable expectations of the parties.”

v) Silverstein v. St. Paul (2d Cir. 2003)(1) Plaintiff insureds, who were leasing space in the WTC, engaged an insurance

broker to set up a multi-layered insurance program providing $ 3.5 billion insurance on a "per occurrence" basis. In soliciting insurers, the broker circulated information regarding the proposed placement that included a "broker" form. The case addressed whether the events of September 11, 2001 constituted one or two "occurrences" for the purpose of determining policy limits. In addition, as of

21

September 11, 2001, only one of the insurers had issued a final policy, necessitating an individualized inquiry to determine the terms of each insurance binder. The court held that the binders issued by three of the insurers were issued on the basis of negotiations involving the broker form, a copy of which had been provided to each insurer by the broker. The parties intended and understood the binders to incorporate the terms of the form except as expressly modified. Under the definition in the form, the events of September 11th constituted a single occurrence as a matter of law. A second form of a fourth insurer was subject to a different rule by its terms and required consideration of extrinsic evidence.

i) Mistakei) Mutual mistake

(1) Restatement § 152 (When Mistake of Both Parties Makes a Contract Voidable)(a) Where a mistake of both parties at the time a contract was made as to a basic

assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

(b) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

(2) Restatement § 154 (When a Party Bears the Risk of a Mistake)(a) A party bears the risk of a mistake when

(i) The risk is allocated to him by agreement of the parties, or(ii) He is aware, at the time the contract is made, that he has only limited

knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(iii) The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

(3) Sherwood v. Walker (Mich. 1887)(a) Plaintiff agrees to buy a cow from defendant, who told him it was barren;

defendant refuses to deliver it after discovering after the sale agreement that it is pregnant, and plaintiff sues in replevin. Held, for defendant. There was a mutual mistake of material fact. The cow wasn’t what was contracted for by either party; what was contracted for was a cow for beef, not a breeder, and the sale agreement reflected that valuation. Furthermore, the mistake was substantial and went “to the very nature of the thing.”

(b) Dissent: notes that plaintiff, despite hearing the cow was barren, believed that it might be made to breed, and thus acquired the cow taking a gamble. Both parties were ignorant and took a chance, and since the defendant had superior knowledge and was the cheapest cost avoider, he should bear the risk of the cow being pregnant.

(c) Calamari/Perillo: “One explanation for the decision is that in any contract parties take certain risks, but do not take risks of the existence of facts materially affecting their bargain which both shared as a common pre-supposition. In deciding which facts are vital and basic to their bargain one

22

must search the facts for unexpected, unbargained for gain on the one hand and unexpected, unbargained for loss on the other.”

(d) Chirelstein: “Experts dealing with non-experts cannot make ‘mistakes’ as to the intrinsic value of the property being sold.”

(e) (Note that Sherwood is distinguishable from Raffles: in the latter there was no mutual assent so that a contract was never formed, while here there was assent (a specific cow had been identified) but mutual mistake. The issue in Sherwood is quality, not identity; the minds met but were mistaken.)

(4) Beachcomber Coins, Inc. v. Boskett (N.J. 1979): both parties believed a counterfeit coin was real, and plaintiff now sues for rescission; held, for plaintiff, that there is no contract due to mutual mistake. Result would be different if plaintiff had knowingly assumed the risk (i.e., unilateral mistake).

(5) Hinson v. Jefferson (N.C. 1975)(a) Defendant sold land to plaintiff, knowing it would be for residential use;

plaintiff was denied a septic permit due to the water table, of which the defendant didn’t know at the time of sale. Plaintiff now seeks rescission due to mutual mistake. Held, for plaintiff. Restrictions on the deed to residential purposes created an implied warranty of habitability which wasn’t met here. Plaintiff was furthermore a consumer, not a developer, so that she wasn’t purchasing it to make a profit from it (and therefore wasn’t bearing the risk).

(b) “We hold that where a grantor conveys land subject to restrictive covenants that limit its use to the construction of a single-family dwelling, and, due to subsequent disclosures, both unknown to and not reasonably discoverable by the grantee before or at the time of conveyance, the property cannot be used by the grantee, or by any subsequent grantees, … for the specific purpose to which its use is limited by the restrictive covenants, the grantor breaches an implied warranty arising out of said restrictive covenants.”

ii) Unilateral mistake(1) Restatement § 153 (When Mistake of One Party Makes a Contract Voidable)

(a) Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and(i) The effect of the mistake is such that enforcement of the contract would be

unconscionable, or(ii) The other party had reason to know of the mistake or his fault caused the

mistake.(2) Casebook comment: “The ‘exceptional’ case awarding relief [for unilateral

mistake] usually has involved a party who knew of and, saying nothing, claimed the benefit of, another’s mistake.”

(3) Kronman: Risk of mistake represents a societal cost, and the risk should be assigned to the cheapest cost avoider.

(4) Elsinore Union Elementary School District v. Kastorff (Cal. 1960)(a) Defendant, a contractor, makes a clerical error in calculating its bid, which the

school district accepts unknowingly; contractor then notifies the district of the

23

mistake, but it refuses to rescind the contract. Held, for defendant. The contract was unfair, inequitable, and unintended, and defendant sought to rescind it within a reasonable period of time. Relief is generally granted for clerical or mathematical errors.

(5) S.T.S. Transport Services, Inc. v. Volvo White Truck Corp. (7th Cir. 1985) (rationale for rescission of clerical errors): “The reason for the special treatment for such [clerical] errors, of course, is that they are difficult to prevent, and that no useful social purpose is served by enforcing the mistaken term. No incentives exist to make such mistakes; all the existing incentives work, in fact, in the opposite direction. There is every reason for a contractor to use ordinary care.”

(6) McRae v. Commonwealth Disposals Commission (High Court of Australia 1951)(a) Parties contract for the sale of a wrecked oil tanker off the Barrier Reef.

Plaintiffs went to find the tanker at great cost, but it turned out that the boat didn’t exist. Held, for plaintiff. The court reads in an implied provision that there was in fact a tanker at the specified place. Buyers didn’t assume the risk, but merely relied on what the defendant said. Contract is void, and plaintiffs are entitled to reliance damages.

3) Interpretationa) Statute of frauds

i) Requires agreement to be put into writing for certain types of contracts:(1) Interests in land(2) Promises to answer for the debt, default, or miscarriage of another(3) Sales of goods over $500 (U.C.C. § 2-201)(4) Contracts not to be performed within one year(5) Contracts in consideration of marriage

ii) U.C.C. § 2-201 (Formal Requirements; Statute of Frauds)(1) Except as otherwise provided in this section a contract for the sale of goods for

the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten days after it is received.

(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable(a) If the goods are to be specially manufactured for the buyer and are not suitable

for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

24

(b) If the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

(c) With respect to goods for which payment has been made and accepted or which have been received and accepted.

b) Parol evidence rulei) Restatement § 209 (Integrated Agreements)

(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.

(2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.

(4) [Examples: A and B have a written contract for A’s house and an oral contract for A’s car; the car is a distinct, separate agreement, so that the oral contract can be sued upon. But if the oral contract was instead to paint the house, then the written contract would be deemed integrated.]

ii) Restatement § 213 (Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule))(1) A binding integrated agreement discharges prior agreements to the extent that it is

inconsistent with them.(2) Comment b.: Whether a binding agreement is completely integrated or partially

integrated, it supersedes inconsistent terms of prior agreements. To apply this rule, the court must make preliminary determinations that there is an integrated agreement and that it is inconsistent with the terms in question. Those determinations are made in accordance with all relevant evidence, and require interpretation both of the integrated agreement and of the prior agreement … The integrated agreement must be given a meaning to which its language is reasonably susceptible when read in the light of all the circumstances.

iii) Restatement § 214 (Evidence of Prior or Contemporaneous Agreements and Negotiations)(1) Agreements and negotiations prior to or contemporaneous with the adoption of a

writing are admissible in evidence to establish(a) That the writing is or is not an integrated agreement;(b) That the integrated agreement, if any, is completely or partially integrated;(c) The meaning of the writing, whether or not integrated;(d) Illegality, fraud, duress, mistake, lack of consideration, or other invalidating

cause;(e) Ground for granting or denying rescission, reformation, specific performance,

or other remedy.iv) Restatement § 216 (Consistent Additional Terms)

25

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.

(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is(a) Agreed to for separate consideration, or(b) Such a term as in the circumstances might naturally be omitted from the

writing. [Mitchill]v) U.C.C. § 2-202 (Final Written Expression: Parol or Extrinsic Evidence)

(1) Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented(a) By course of dealing or usage of trade or by course of performance; and(b) By evidence of consistent additional terms unless the court finds the writing to

have been intended also as a complete and exclusive statement of the terms of the agreement.

vi) Chirelstein: “When applicable, the parol evidence rule renders unenforceable oral agreements entered into prior to the adoption of a written contract.”

vii)Partial versus total integration(1) Partial integration: document is intended to be final, but not to include all details

of the parties’ agreement. No evidence of contradictory prior agreements can be included.

(2) Total integration: final expression of an agreement, intended to include all details. No evidence of prior agreements, regardless of whether they are contradictory or supplementary.

(3) “Four corners rule”: judge determines whether integration is total or partial only via the document itself.

(4) “Corbin” rule: judge considers all available evidence in determining integrationviii) Mitchill v. Lath (N.Y. 1928)

(1) Parties had a written contract for the sale of defendant’s farm. Defendant orally promised as part of the transaction to remove an icehouse, but failed to keep this promise; plaintiffs now sue for specific performance. Held, for defendant. The oral agreement is unenforceable under the parol evidence rule, as determined by a three-part test for admissibility of prior agreements:(a) The agreement must be collateral, i.e., capable of being expressed in a

separate agreement.(b) Agreement must not contradict express or implied provisions of the written

contract. (Expressio unius suggests that it would have been contradictory.)(c) Agreement must be one that the parties wouldn’t ordinarily be expected to

embody in the writing.(i) (This is the requirement which isn’t met here; the majority finds that if

such an agreement were made it would have been in the contract, given how closely it was related to the sale of the land.)

(2) Chirelstein: “A prior oral agreement to sell separate property for an independent consideration is obviously admissible; a prior agreement to pay more or less than

26

the price named in the written contract for the very things conveyed thereby is obviously not. The hard case, of course, is one in which the prior oral agreement adds to the obligations of one of the parties rather than contradicting a written term, but at the same time plainly falls within the scope of the written contract because it relates to the same subject-matter … Read strictly, Mitchill holds that prior oral agreements are enforceable only if they entail separate consideration on the part of the promisee; if not, the written contract is nearly always decisive of the parties’ obligations.”

ix) Hatley v. Stafford (Ore. 1978)(1) Hatley contracts with Stafford to rent land for growing wheat, leaving an option

for Stafford to buy the land back at no more than $70 per acre; Stafford then cuts the wheat crop many months later and retakes possession. Hatley argues that there was an oral agreement that the buyout provision would only last 30 to 60 days. Held, for plaintiff (Hatley). The oral agreement didn’t contradict any express provisions of the written contract and thus wasn’t inconsistent. Nor was the oral term necessarily one that would naturally be written; court notes circumstances including the parties’ lack of business experience and bargaining power, along with the unreasonable result that a too-literal reading of the contract would produce.

x) Hayden v. Hoadley (Vt. 1920): court reads in an implied provision of “within a reasonable time” in excluding parol evidence pertaining to deadline.

c) Ambiguityi) Restatement § 201 (Whose Meaning Prevails)

(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) That party did not know of any different meaning attached by the other, and

the other knew the meaning attached by the first party; or(b) That party had no reason to know of any different meaning attached by the

other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

ii) Restatement § 204 (Supplying an Omitted Essential Term)(1) When the parties to a bargain sufficiently defined to be a contract have not agreed

with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

iii) Restatement § 212 (Interpretation of Integrated Agreement)(1) The interpretation of an integrated agreement is directed to the meaning of the

terms of the writing or writings in the light of the circumstances, in accordance with the rules stated in this Chapter.

(2) A question of interpretation of an integrated agreement is to be determined by a trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. Otherwise a

27

question of interpretation of an integrated agreement is to be determined as a question of law.

(3) Comment d.: “General usage as to the meaning of words … is commonly a proper subject for judicial notice without the aid of evidence extrinsic to the writing. Historically, moreover, … questions of interpretation of written documents have been treated as questions of law in the sense that they are decided by the trial judge rather than by the jury…”

iv) (Note that the admissibility of extrinsic evidence in interpretation is different from the parol evidence rule. Here the question isn’t whether evidence of prior agreements is admissible, but rather whether evidence of meaning is.

v) Bethlehem Steel Co. v. Turner Construction Co. (N.Y. 1957)(1) Contract contains an escalation clause. Held, for plaintiff; there is no real

ambiguity because escalation clauses always work the same way. “When a contract is clear in and of itself, circumstances extrinsic to the document may not be considered and where the intention of the parties may be gathered from the four corners of the instrument, interpretation of the contract is a question of law and no trial is necessary to determine the legal effect of the contract.”

(2) [Four corners rule: New York courts only consider extrinsic evidence of intent when the contract language is deemed ambiguous, a question of law with reference to the text alone.]

vi) Cofman v. Acton Corp. (D. Mass. 1991)(1) Distinguishes contractual interpretation from interpretation of art. There is a

difference between accidental and intentional absence – namely, the intent of the parties.

vii)Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co. (Cal. 1968) (Traynor, C.J.)(1) In a contract to remove and replace a cover on plaintiff’s turbine, defendant

agrees to perform “at its own risk and expense” and indemnify plaintiff against “all loss and damage resulting from injury to property.” Issue is whether the indemnification covered plaintiff’s property as well as third parties; defendant seeks to admit evidence that it did not. Held, for defendant. Four-corners rule is rejected in favor of a more purposivist approach. “The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” The court isn’t saying that extrinsic evidence can be considered only after a finding of ambiguity, but rather that circumstances have to be considered in determining whether there is in fact ambiguity. (The question of ambiguity is one for the court only; thus the judge would consider the extrinsic evidence and only then, if it meets the threshold of ambiguity, pass it along to the jury.)

viii) Trustees of Boston College v. Big East Conference (Mass. 2004)(1) B.C. wants to leave the Big East and join the ACC. To leave the Big East, the

rule is that you have to pay $1 million and delay 12 months, but a new amendment, initially favored by Father Leahy of B.C., raises the penalty to $5 million and 27 months. Held, for B.C. The $5 million liquidated damages clause

28

is a penalty clause which shouldn’t be enforced. Furthermore, there is a conflict between two sections of the Big East Constitution regarding amendment procedures. Court rules that when two sections are in conflict, the more specific trumps the more general.

ix) Frigaliment Importing Co. v. B.N.S. International Sales Corp.(S.D.N.Y. 1960)(1) “The issue is, what is chicken?” Plaintiff thinks contract specified “young

chicken, suitable for broiling and frying”; defendant, “any bird of that genus that meets contract specifications on weight and quality.” Held, for defendant. “Defendant’s subjective intent would not be significant if this did not coincide with an objective meaning of ‘chicken,” evidenced by USDA regulations, dictionaries, some trade usage, and what plaintiff’s own spokesman had said. Plaintiff had the burden of showing that the narrower meaning was being used, and failed to meet this.

4) Policing the Bargaina) Freedom of Contract and Public Policy Limitations

i) Two types of freedom (Isaiah Berlin): freedom to contract (with whomever you choose) and freedom from contract (only making those contracts that you want). (Unger)(1) Unger’s paradigm: “Venice” (the world of contracts, business, law, masculine,

Old Testament, etc.) versus “Belmont” (private community, equity, feminine, New Testament). “This is the form of life classical contract theory claims to describe and seeks to define – an existence separated into a sphere of trade supervised by the state and an area of private family and friendship largely thought not wholly beyond the reach of contract. Each half of this life both denies the other and depends upon it.”

ii) Sheets v. Teddy’s Frosted Foods, Inc. (Conn. 1980) (Peters, J.)(1) Plaintiff, Sheets, is a quality control manager with a terminable-at-will contract;

he is fired in retaliation for attempting to ensure compliance with a food and drug statute, and now sues for wrongful discharge and breach of an implied contract of employment. Held, for plaintiff. The termination violated public policy. Even though the contract was terminable at will, public policy imposes certain limits on the right to terminate at will. Here, the employee’s choice was between jeopardizing his employment or risking criminal sanction; he shouldn’t be put to such a choice.

iii) In the Matter of Baby “M,” A Pseudonym for an Actual Person (N.J. 1988)(1) Adoptive parents contract with a surrogate mother to carry and bear a child and

then turn it over; surrogate later refuses to turn it over, and adoptive parents sue. Held, the contract is invalid because violative of public policy and state statutes prohibiting acceptance of money for adoption. The child is turned over to the adoptive parents not because of the contract but because it would be in the child’s best interests. Issues with the contract include the disparate bargaining power which may amount to a coercion of the surrogate; the difficulty of determining in advance who will raise the child and of how attached the surrogate will be to it; and the disregard of the child’s own best interests.

29

(2) Classic “Belmont/Venice” argument: “There are, in a civilized society, some things that money cannot buy … values that society deems more important than granting to wealth whatever it can buy, be it labor, love, or life.”

b) Duressi) Robert Nozick: “A party is coerced when the offer that he is given is one that he

would rather not have been given” – e.g., “your money or your life.”ii) Restatement § 174 (When Duress by Physical Compulsion Prevents Formation

of a Contract)(1) If conduct that appears to be a manifestation of assent by a party who does not

intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of intent.

iii) Restatement § 175 (When Duress by Threat Makes a Contract Voidable)(1) If a party’s manifestation of assent is induced by an improper threat by the other

party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

iv) Restatement § 176 (When a Threat is Improper)(1) A threat is improper if

(a) What is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,

(b) What is threatened is a criminal prosecution,(c) What is threatened is the use of civil process and the threat is made in bad

faith, or(d) The threat is a breach of the duty of good faith and fair dealing under a

contract with the recipient.(2) A threat is improper if the resulting exchange is not on fair terms, and

(a) The threatened act would harm the recipient and would not significantly benefit the party making the threat,

(b) The effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

(c) What is threatened is otherwise a use of power for illegitimate ends.v) Silsbee v. Webber (Mass. 1898) (Holmes, J.)

(1) Plaintiff’s son worked for the defendant and confessed to embezzlement; plaintiff met with defendant, who told her that he would have to tell the infirm and unstable father about what had happened. (Defendant knew of the father’s condition.) Afraid that the husband would go insane, plaintiff gave defendant a share in her father’s estate, and now sues for restitution. Held, for plaintiff; case is remanded for jury trial. “If a party obtains a contract by creating a motive from which the other party ought to be free and which, in fact, is, and is known to be, sufficient to produce the result, it does not matter that the motive would not have prevailed with a differently constituted person, whether the motive be a fraudulently created belief or an unlawfully created fear.” [Subjective standard]

30

(2) Dissent (Knowlton): calls for a more objective standard (“that degree of severity, either threatened and impending or actually inflicted, which is sufficient to overcome the mind and will of a person of ordinary firmness.”

vi) Austin Instruments, Inc. v. Loral Corp. (N.Y. 1971) (“economic duress”)(1) Loral is awarded a Navy contract during WWII and has a subcontract with Austin,

which then bids on a second Navy contract via Loral; Austin tells Loral it will stop delivering parts under the existing subcontract unless Loral consents to price increases and awards it the second subcontract. Loral finally accepts after Austin stops delivery; Austin now sues to recover the rest of the payment on the second subcontract, while Loral sues for damages representing the price increases under the first subcontract. Held, for defendant (Loral). Mere threat of breaching a contract is not enough to establish economic duress unless the threatened party had no other option – which Loral did not at the time. Nor could Loral have accepted Austin’s breach and sued for damages, since it needed to obtain the parts quickly in order to keep its government contract.

vii)Hackley v. Headley (Mich. 1881)(1) Plaintiff sues to recover compensation for cutting logs after defendant only pays

$4000 out of the $6000 specified in the contract. Plaintiff accepted the amount and signed a receipt, but claims duress because he needed the money immediately and defendant had said “sue me if you want.” Held, for defendant. Duress here was “of the goods,” not of the person. The plaintiff’s financial necessity wasn’t created by the defendant’s action, unlike Loral or Alaska Packers.

viii) See also Alaska Packers, Batsakis, Waters, Goebelc) Unconscionability

i) Restatement § 208 (Unconscionable Contract or Term)(1) If a contract or term thereof is unconscionable at the time the contract is made a

court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

(2) (Note that unconscionability is assessed at the time the contract was made, not in hindsight.)

ii) U.C.C. § 2-302 (Unconscionable Contract or Clause)(1) If the court as a matter of law finds the contract or any clause of the contract to

have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) Purposes: “The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power.”

iii) Lochner v. New York (1905)(1) New York law restricts bakery workers’ hours and is challenged under the 14th

Amendment. Issue is whether the law falls under the state’s police powers or whether it interferes with rights to purchase and sell labor under the 14th Amendment. Held, the law is unconstitutional as a violation of due process and freedom to contract. There is no effect on the general public, only bakers; there is

31

no particular health hazard to bakers; and health laws like this could be passed to interfere with just about all employment.

(2) Dissent (Harlan): notes unequal bargaining power of bakers and occupational hazards

(3) Dissent (Holmes): “This case is decided upon an economic theory which a large part of the country does not entertain … It is settled by various decisions of this court that state constitutions and state laws may regulate life in many ways which we as legislators might think as injudicious or if you like as tyrannical as this, and which equally with this interfere with the liberty to contract … The Fourteenth Amendment does not enact Mr. Herbert Spencer’s Social Statics.”

iv) Campbell Soup Co. v. Wentz (3d Cir. 1949)(1) Campbell seeks specific performance from Wentz, a farmer. Held, for defendant.

The liquidated damages provision in the contract is unconscionable, as is a provision excusing Campbell from accepting carrots under certain circumstances while prohibiting the seller from selling anywhere else without Campbell’s agreement.

v) Henningsen v. Bloomfield Motors, Inc. (N.J. 1960)(1) Contract for car sale included a waiver of the implied warranty of merchantability

in fine print on the back of the form. Held, for plaintiff. The contract was a standardized contract of adhesion, so that there was no bargaining with respect to the waiver.

vi) Williams v. Walker-Thomas Furniture Co. (D.C. Cir. 1965)(1) Contract for furniture sale contains a clause allowing seller to keep a balance on

monthly payments for all items and to repossess all items if there is a default on one of them. Plaintiff challenges this as unconscionable. Held, remanded for a determination of unconscionability. Court cites Henningsen: “Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration.”

(2) (Note that here the defendant doesn’t have monopoly power as in Henningsen; Walker-Thomas is a “classic ghetto merchant.”)

(3) Chirelstein: “In finding, or at least strongly suggesting, that the cross-collateral provision should be regarded as unconscionable, the Court in Walker-Thomas also in effect decreed that Ms. Williams and other low-income people who want to buy home-appliances on time must in the future pay more for credit … The question, ultimately, is whether Judge Wright or the Walker-Thomas Furniture Company is in a better position to make a ‘meaningful choice’ on behalf of Ms. Williams and other consumers. The choice will be made, in effect, by one or the other. Hence, arguably, the unconscionability doctrine operates not as a means of controlling or intervening in people’s lives, but as a device by which the choice-function is allocated to a court, rather than to the other contracting party, where the circumstances show that the consumer cannot choose for herself.”

32

d) Duty to disclosei) Restatement § 161 (When Non-Disclosure Is Equivalent to an Assertion)

(1) A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:(a) Where he knows that disclosure of the fact is necessary to prevent some

previous assertion from being a misrepresentation or from being fraudulent or material.

(b) Where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which the other party is making the contract and if nondisclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

(c) Where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.

(d) Where the other person is entitled to know the fact because of a relation of trust and confidence between them.

ii) Restatement § 162 (When a Misrepresentation Is Fraudulent or Material)(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a

party to manifest his assent and the maker(a) Knows or believes that the assertion is not in accord with the facts, or(b) Does not have the confidence that he states or implies in the truth of the

assertion, or(c) Knows that he does not have the basis that he states or implies for the

assertion.(2) A misrepresentation is material if it would be likely to induce a reasonable person

to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

iii) Restatement § 163 (When a Misrepresentation Prevents Formation of a Contract)(1) If a misrepresentation as to the character or essential terms of a proposed contract

induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.

iv) Restatement § 164 (When a Misrepresentation Makes a Contract Voidable)(1) If a party’s manifestation of assent is induced by either a fraudulent or a material

misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

(2) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

v) Restatement § 168 (Reliance on Assertions of Opinion)(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to

the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.

33

(2) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion(a) That the facts known to that person are not incompatible with his opinion, or(b) That he knows facts sufficient to justify him in forming it.

vi) Restatement § 169 (When Reliance on an Assertion of Opinion Is Not Justified)(1) To the extent that an assertion is one of opinion only, the recipient is not justified

in relying on it unless the recipient(a) Stands in such a relation of trust and confidence to the person whose opinion

is asserted that the recipient is reasonable in relying on it, or(b) Reasonably believes that, as compared with himself, the person whose opinion

is asserted has special skill, judgment, or objectivity with respect to the subject matter, or

(c) Is for some other special reason particularly susceptible to a misrepresentation of the type involved.

vii)Situations where there is a duty to disclose(1) Statute or regulation requiring disclosure(2) Positive efforts at concealment(3) Lack of full disclosure amounting to a half-truth(4) Supervening events or new information reveals to a party that his earlier good-

faith statement is no longer true(5) Certain transactions, e.g., insurance(6) Fiduciary duty

viii) Laidlaw v. Organ (1817) (Marshall, J.)(1) Plaintiff has contract to purchase tobacco from defendant, which is properly

delivered; defendant then retakes possession two days later, outraged that plaintiff didn’t tell him about the Treaty of Ghent ending the War of 1812 and causing tobacco values to rise. (Defendant had asked plaintiff if he knew anything that would enhance prices, and plaintiff had kept silent.) Held, that the case has to go to the jury to determine whether or not the plaintiff’s silence constituted a denial. Parties weren’t “bound to communicate,” but also “must take care not to say or do any thing tending to impose on the other.”

(2) (Policy concerns: encouraging parties to do research, but discouraging insider trading.)

ix) Reed v. King (Cal. App. 1983)(1) Plaintiff purchases home from defendant where there had been a multiple murder;

plaintiff was never informed of this. Held, for plaintiff. Failure to disclose made this contract one of either unilateral mistake or misrepresentation. The history was a materially-affecting fact insofar as it had an effect on market value.

(2) (Distinguishable from Laidlaw insofar as here it is the seller who has information that the buyer doesn’t; the seller should be expected to have more knowledge than the buyer ever will, so that the duty of discovery shouldn’t fall on the buyer.)

x) Hill v. Jones (Ariz. App. 1986)(1) Plaintiffs buy a home from defendants with history of termite infestation.

Defendants had hidden a damaged spot beneath a plant. Held, for plaintiffs. Seller has a duty to disclose material facts which he knows about, knows that the

34

other party doesn’t know about, and which the other party couldn’t have found out with reasonable inquiry. Materiality is a question for the jury.

5) Performance and Non-Performancea) Express conditions

i) A condition can be either a condition precedent (which “must exist or occur before a duty of immediate performance of a promise arises”) or a condition subsequent (which “will extinguish a duty to make compensation for breach of contract after the breach has occurred”); the former puts the burden of proof on the plaintiff, the latter on the defendant. (Restatement, Second does away with this distinction.)

ii) Restatement § 227 (Standards of Preference With Regard to Conditions)(1) In resolving doubt as to whether an event is made a condition of an obligor’s duty,

and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk [Parsons].

iii) Gray v. Gardner (Mass. 1821)(1) Defendant contracts to buy sperm oil from plaintiff, paying unconditionally 65

cents per gallon and another 85 cents per gallon unless a greater quantity of oil arrives this year between April 1 and October 1 than the previous year. Issue is whether a certain ship, the Lady Adams, “arrived” at Nantucket on October 1, when it had not yet anchored. Held, for plaintiff. The condition is interpreted strictly, so that the condition isn’t met until the ship is anchored. Burden is on defendant to show that this condition has not met. The condition was “a kind of wager as to the quantity of oil, which should arrive at the ports mentioned, before a certain period.”

(2) This is a condition subsequent, not condition precedent. (Conditions precedent put the burden of proof on the plaintiff; conditions subsequent, on the defendant.)

(3) (Fried: Strict enforcement here is analogous to expiry of insurance policies. You wouldn’t get cut any slack because your home burned down the day after your fire insurance policy expired.)

iv) Parsons v. Bristol Dev. Co. (Cal. 1965) (Traynor, C.J.)(1) Bristol hires Parsons as an architect; Parsons starts work on the second phase of

the project and is paid 25% of his fee before defendant fails to get a construction loan on which the second phase was contingent. Plaintiff sues for restitution. Issue is whether or not the obtainment of a loan was a condition. Held, for defendant. Loan was a condition. Plaintiff had gone ahead with work despite knowing that funds hadn’t yet been obtained. He knew or should have known that he was only going to get paid out of the loan money, and assumed the risk.

(2) Distinguishable from Algernon Blair (where plaintiff also sought restitution) because here there was no breach by the defendant; the contract entitled Bristol to halt the project if they didn’t get financing. Defendant hadn’t wrongly benefited.

b) Constructive conditionsi) Restatement § 234 (Order of Performances)

(1) Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary.

35

ii) Restatement § 238 (Effect on Other Party’s Duties of a Failure to Offer Performance)(1) Where all or part of the performances to be exchanged under an exchange of

promises are due simultaneously, it is a condition of each party’s duties to render such performance that the other party either render or, with manifested present ability to do so, offer performance of his part of the simultaneous exchange. [Kingston]

iii) U.C.C. § 2-611 (Retraction of Anticipatory Repudiation)(1) Until the repudiating party’s next performance is due he can retract his

repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

iv) U.C.C. § 2-307 (Delivery in Single Lot or Several Lots)(1) Unless otherwise agreed all goods called for by a contract for sale must be

tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

v) Nichols v. Raynbred (King’s Bench 1615); Kingston v. Preston (King’s Bench 1773)(1) Before Kingston v. Preston, which established mutual interdependence, courts

construed promises in a bilateral contract as independent. If A doesn’t keep his promise to B, B can sue; if B in turn doesn’t fulfill his promise, A can sue back.

(2) Kingston: plaintiff apprenticed himself to a merchant for a number of years under the agreement that he would get the business upon the master’s retirement provided that he could produce the requisite security. Defendant refused to hand over the business after plaintiff failed to provide the security. Held, for defendant. The apprentice’s security was a condition precedent, so that the defendant’s promise was not independently enforceable.

(3) Chirelstein: “As Lord Mansfield observed in Kingston … bilateral contracts can generally be divided into two subclasses – those that contemplate a simultaneous exchange of performances and those that assume a performance by one party in advance of, and as a condition to, performance by the other.”

vi) Lafayette Place Associates v. Boston Redevelopment Authority (Mass. 1998) (Fried, J.)(1) Contract was for LPA to buy a parcel of land and produce the money by the end

of the year, the “drop-dead date.” LPA contends that the city breached by not turning over the land at that date; the city argues that LPA wasn’t ready to perform by that date. Held, for the city. “One party cannot put the other in default unless he is ready, able, and willing to perform and has manifested this by some offer of performance.” This is in keeping with the principle of Kingston: if you show up on the date performance is due, you can only put the other party in default if he has already repudiated the contract or else if you yourself are ready, willing, and able to pay.

vii)Conley v. Pitney Bowes (8th Cir. 1994)(1) Plaintiff is injured in an accident and denied disability benefits. Employment

contract required that plaintiff exhaust all administrative remedies, but the letter denying plaintiff’s benefits didn’t inform him of appeal procedures. Held, for

36

plaintiff. The duty to inform plaintiff of appeal procedures is a constructive condition precedent to the plaintiff’s duty to exhaust administrative procedures, since it logically has to come first.

viii) Stewart v. Newbury (N.Y. 1917)(1) Plaintiff contracts to build for defendant; payment schedule is never written out,

and plaintiff assumes payment “in the usual manner”: 85% every thirty days and 15% at completion. Defendants refused to pay until completion; plaintiff responded by breaching, and now sues for expectation damages (i.e., the contractual payment). Held, for defendant. “Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded.” (Builder might have been entitled to restitution damages capped by the contract price, on the other hand.)

ix) Howard v. Federal Crop Insurance Corp. (4th Cir. 1976)(1) Plaintiff sues to recover loss on tobacco crop from insurance company, which

claims that by cutting the damaged tobacco and plowing the field the plaintiffs violated a portion of the policy which was a condition precedent. Issue is whether the clause in question was a covenant or a condition precedent. Held, for plaintiffs; the clause was a covenant. Presumption is in favor of promises (covenants) over conditions precedent when there is any ambiguity; also in accordance with Restatement § 227, reducing risk of “forfeiture.” Plaintiffs “breached” this covenant, but this doesn’t excuse defendants from performance. (Practical issue: how can defendants’ “damages” from plaintiffs’ plowing be assessed?)

c) Impossibility and Impracticabilityi) Restatement § 263 (Destruction, Deterioration or Failure to Come Into Existence

of Thing Necessary for Performance)(1) If the existence of a specific thing is necessary for the performance of a duty, its

failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

ii) Taylor v. Caldwell (King’s Bench 1863)(1) Plaintiff contracts to use defendant’s music hall for a production; the music hall

burns down (through neither party’s fault) before the period specified, and the plaintiff sues for lost profits. Held, for defendant. Although no stipulation was made in the contract, the court reads in an implied condition that the music hall continue to exist. “In contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.” Parties undertook their obligations with the assumption that the music hall would continue to be there.

iii) Tompkins v. Dudley (N.Y. 1862)(1) Builder contracts to build a school, which burns down before completion; trustees

of the school district sue builder for money advanced by them on the contract and for damages from nonperformance. Held, for plaintiffs. Here, the defendant isn’t the builder himself but rather his insurers. Distinguishable from Taylor insofar as the bonding company is in the business of insuring against losses like this.

37

iv) American Trading and Production Corp. v. Shell International Marine, Ltd. (2d Cir. 1972)(1) Ship owner sues the charterer (Shell) for quantum meruit after the Suez Canal was

closed and the cargo was shipped around the Cape of Good Hope instead. Plaintiff argues that the closure of the canal rendered the original contract impossible and thus discharged it, and that they are now entitled to compensation for the benefit they provided. Held, for defendant. There was no contract to deliver via the Suez Canal, merely a contract to deliver. The Suez Canal might have been the best method of delivery but not the exclusive one. Additional expense alone doesn’t establish commercial impracticability. Owner had responsibility to insure, and could have mitigated loss by not continuing on the Suez route despite the risk of closure.

d) Frustration of Purposei) Restatement § 265 (Discharge by Supervening Frustration)

(1) Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. [Krell]

ii) Restatement § 377 (Restitution in Cases of Impracticability, Frustration, Non-Occurrence of Condition or Disclaimer by Beneficiary)(1) A party whose duty of performance does not arise or is discharged as a result of

impracticability of performance, frustration of purpose, non-occurrence of a condition or disclaimer by a beneficiary is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance. [Fibrosa rule]

(2) Qualified by Restatement § 272(2): “the court may grant relief on such terms as justice requires, including protection of the parties’ reliance interests.”

iii) U.C.C. § 2-614 (Substituted Performance)(1) Where without fault of either party the agreed berthing, loading, or unloading

facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. [Suez Canal cases]

iv) U.C.C. § 2-615 (Excuse by Failure of Presupposed Conditions)(1) Except so far as a seller may have assumed a greater obligation and subject to the

preceding section on substituted performance:(a) Delay in delivery or non-delivery in whole or in part by a seller who complies

with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his

38

customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

(2) Purpose: “This section excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting.”

v) U.C.C. § 2-616 (Procedure on Notice Claiming Excuse)(1) Where the buyer receives notification of a material or indefinite delay or an

allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this Article relating to breach of installment contracts, then also as to the whole, (a) Terminate and thereby discharge any unexecuted portion of the contract; or(b) Modify the contract by agreeing to take his available quota in substitution.

vi) Different from mistake (Raffles, Sherwood) because mistake existed at the time the contract was made (ex ante); frustration occurs after the making of the contract (ex post).

vii)Krell v. Henry (Court of Appeal 1903)(1) Defendant rents plaintiff’s flat to view Edward VII’s coronation parade, and

refuses to pay after the coronation is postponed due to Edward’s illness. Held, for defendant. Occurrence of the coronation was an implied condition of the contract. The contract was founded on the use of the flat for viewing the parade, and the flat had been advertised for that very purpose.

(2) Defendant also made a counterclaim for the 25 pounds he had already paid as a deposit, but this was dismissed. Why should the plaintiff get this windfall? Why can’t there be a recover in quantum meruit?(a) Chirelstein: “A possible inference is that Henry was prepared to view the

deposit as a kind of liquidated damage figure – as if the parties had agreed that Krell could retain that amount (but would receive no more) even if the parade was cancelled – and that the Court, in effect, approved what it took to be a reasonable settlement of a difficult controversy.”

viii) Fibrosa (House of Lords 1943)(1) British manufacturers agree to install textile machineries for a Polish company;

this becomes impossible after WWII begins. Held, that Fibrosa is entitled to restitution of the 1000 pounds it paid the manufacturers, without any deduction for the manufacturers’ reliance expenses.

(2) Parliament responds with the Law Reform (Frustrated Contracts) Act, allowing restitution along with deduction of reliance expenses if it is “just to do so.” But even so these reliance expenses are only deductible from the restitution; there is still no recovery for “naked reliance” under this rule.

ix) Angus v. Scully: builder contracts to move a house which burns down halfway. Held, that the builder is entitled to quantum meruit because he produced a benefit by

39

moving the house halfway. Fried likes this ruling. What happened was a “contractual accident” envisioned by neither party, so that the parties are “in the boat together” and it makes sense for them to split the loss.

e) Perfect-tender rulei) U.C.C. § 2-601 (Buyer’s Rights on Improper Delivery)

(1) Subject to the provisions of this Article on breach in installment contracts and unless otherwise agreed under the sections on contractual limitations of remedy, if the goods or the tender fail in any respect to conform to the contract, the buyer may(a) Reject the whole; or(b) Accept the whole; or(c) Accept and commercial unit or units and reject the rest.

ii) U.C.C. § 2-508 (Cure by Seller of Improper Tender or Delivery; Replacement)(1) Where any tender or delivery by the seller is rejected because non-conforming

and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. [Bartus]

iii) Oshinsky v. Lorraine Mfg. Co.: failure to deliver by specified date constitutes nonconforming tender.

iv) Filley v. Pope: shipment from Leith rather than Glasgow is nonconforming (probably because letters of credit are issued against the bill of lading from a specified ship)

v) Prescott and Co. v. J.B. Powles and Co.: only 240 of 300 specified crates of onions are shipped due to WWI restrictions; buyer refuses to accept, and seller resells at a loss and sues buyer for the difference; held, for buyer. Seller can’t sue on this contract without full performance, even if he might have had a defense had he been sued. (1) Probably different under the U.C.C. § 2-612 (no “substantial impairment” of

value of the whole contract)vi) Bartus v. Ricciardi: seller doesn’t deliver specified hearing aid model but rather a

“new and improved” model which buyer rejects; buyer then refuses to buy the original bargained-for model. Held, for seller. Under U.C.C. § 2-508, seller has option to cure and may substitute a conforming tender if there were reasonable grounds to believe that there would be acceptance, even if the contractual period had expired.

vii)Beck and Pauli Lithographing Co. v. Colorado Milling and Elevator Co.: different standard for unique goods/artistic labor because these aren’t resaleable. Defendant entitled to damages for delay, but can’t refuse the goods.

viii) Plante v. Jacobs (Wis. 1960)(1) Plaintiff builder seeks to recover unpaid contract balance from defendants, who

counterclaim that there was no substantial performance, breach of contract, and faulty workmanship, including a wall that was one foot off where it was supposed to be. Held, for plaintiff. Unless a contract is a sale of goods, substantial

40

performance means that the promisor has got to keep his promise. Holding that the defendants don’t need to pay would amount to a forfeiture.

(2) Cf. Jacob and Youngs v. Kent (but even more troubling here because living-room dimensions are probably more important than the pipe brand – thus making this even more of an “ugly fountain.”)

6) Remediesa) Expectation damages

i) Aim of expectation damages (the normal measure) is to “put the promise in as good a position as he would have occupied had the defendant performed his promise.”

ii) Restatement § 347 (Measure of Damages in General)(1) Subject to the limitations stated in §§ 350-53, the injured party has a right to

damages based on his expectation interest as measured by(a) The loss in value to him of the other party’s performance caused by its failure

or deficiency, plus(b) Any other loss, including incidental or consequential loss, caused by the

breach, less(c) Any cost or other loss that he has avoided by not having to perform.

iii) Restatement § 348 (Alternatives to Loss in Value of Performance)(1) If a breach delays the use of property and the loss in value to the injured party is

not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.

(2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on(a) The diminution of the market price of the property caused by the breach, or(b) The reasonable cost of completing performance or of remedying the defects if

that cost is not clearly disproportionate to the probable loss in value to him. [“Economic waste” rule]

(3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.

(4) Comment c.: Illustrations(a) A contracts to build a house for B for $100,000 but repudiates after doing part

of the work and being paid $40,000; other builders can complete it for $80,000. B gets $20,000 in damages: $80,000 cost of completion less the $60,000 cost avoided.

(b) A contracts to build a house for B for $100,000, but its foundations crack; repairs cost $30,000 but increase the value by only $20,000. B is entitled to the $30,000 cost of remedying the defects. (Not “clearly disproportionate.”)

iv) U.C.C. § 2-708 (Seller’s Damages for Non-Acceptance or Repudiation)(1) Subject to subsection (2) and to the provisions of this Article with respect to proof

of market price, the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article, but less expenses saved in consequence of the buyer’s breach.

41

(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

v) U.C.C. § 2-712 (“Cover”; Buyer’s Procurement of Substitute Goods)(1) After a breach within the preceding section the buyer may “cover” by making in

good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (§ 2-715), but less expenses saved in consequence of the seller’s breach.

(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.

vi) U.C.C. § 2-713 (Buyer’s Damages for Non-Delivery or Repudiation)(1) Subject to the provisions of this Article with respect to proof of market price, the

measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article, but less expenses saved in consequence of the seller’s breach.

(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

vii)Hawkins v. McGee (N.H. 1929)(1) Plaintiff goes in for a hand surgery, with doctor guaranteeing to make the hand

“100% perfect”; instead, the outcome is a disaster. Trial court awards plaintiff damages to compensate for the permanent injury resulting from the operation as well as the pain and suffering caused by the operation; defendant appeals damages. Held, for defendant. The measure of expectation damages should be the difference between the value of the promised perfect hand and the value of the hand as it was after the operation (diminished value). Pain and suffering shouldn’t be compensated because they would be incident even to a successful surgery and were part of plaintiff’s “consideration.”

viii) Groves v. John Wunder Co. (Minn. 1939)(1) Wunder leases Groves’s sand and gravel property, and agrees to leave it at a

uniform grade at the end of the lease, which he never does. Trial court awards Groves $12,000 – the value of the land had it been graded minus its current value (i.e., the same measure as Hawkins). Groves appeals, seeking instead the cost of completion (estimated at $60,000). Held, for plaintiff. Court notes that Wunder “willfully and intentionally” breached the contract. Court also distinguishes contracts to construct improvements like this from situations where a completed structure needs to be remedied at disproportionate cost (“economic waste” – i.e., Jacob and Youngs).

(2) (The reason that the difference between cost of completion and diminished value was so vast was due to the Great Depression.)

42

(3) Chirelstein: “Should we therefore regard the Court’s decision as having provided a ‘windfall’ – that is, an undeserved benefit – to Groves and a corresponding penalty to Wunder? Answer: no. As the court implied, Groves, as lessor, had really paid in advance for the grading work when it agreed to accept a rent of $105,000. If Wunder had not undertaken to grade the land at the expiration of the lease, then, obviously, Groves would have had to look forward to doing that job itself and at its own expense. In the latter event, the rent initially agreed to by the parties would necessarily have been higher … There was no evidence whatever that they intended their duties to be affected by ups and downs in the real estate market (or the stock market or the economy in general).”

ix) Peevyhouse v. Garland Coal and Mining Co. (Okl. 1962)(1) Plaintiffs lease their farm to Garland for five years, with lease providing that

Garland will fill in all strip-mining pits and smooth the surface at the end. Plaintiffs sue for cost-of-completion damages but are awarded only diminished value damages. Held, diminished value damages are proper. Court rejects Groves, and says that the purpose of the contract was just the economic recovery of coal so that the remedial work was only “incidental to the main object involved.” Court doesn’t think the Peevyhouses should get a “windfall,” i.e., a greater amount in damages than they would have gained by full performance.

(2) Fried thinks both Peevyhouse and Groves are wrongly decided. The farm in Peevyhouse has a personal, noneconomic value for the plaintiffs which Groves’ land does not, so that the Peevyhouses should be even more entitled to cost-of-completion damages. Peevyhouse is an “ugly fountain” case under Restatement § 346, Groves a “dry oil well.” If the Peevyhouses are limited to diminished-value damages, they can never contract to have their land repaired, because everyone that comes and contracts with them can promise to do the contract, breach it, and not have to pay damages.

x) Jacob and Youngs, Inc. v. Kent (N.Y. 1921) (Cardozo, J.)(1) Defendant contracts to have plaintiff build a home with “Reading” pipe; plaintiff

uses otherwise identical “Cohoes” pipe. Defendant directs plaintiff to reinstall the pipe at great expense; plaintiff refuses to do so and seeks payment. Held, for plaintiff. There was no difference whatsoever in value between the two kinds of pipe, and the brand name doesn’t matter; Cardozo doesn’t think the kind of pipe should mean anything to a homeowner. Since plaintiffs substantially performed, the defendant isn’t relieved of his duty to pay.

(2) Cardozo also notes that the breach wasn’t willful or intentional, just careless. Might willful breach be grounds for imposing cost-of-completion damages instead (see Groves)?

(3) Dissent (McLaughlin): plaintiff didn’t perform its contract, and defendant is entitled to get what he bargained for.

(4) Chirelstein: “In a sense, therefore, the essence of the Jacob and Youngs decision resides in a kind of ‘finding’ by Judge Cardozo that some consumer preferences are simply too remote and idiosyncratic to be taken seriously.”

xi) Acme Mills and Elevator Co. v. Johnson (Ky. 1911)(1) Farmer makes a forward contract to sell July 29 wheat to plaintiff at $1.03 a

bushel. Instead he sells to someone else on July 13 at $1.16 a barrel. On July 24

43

the price of wheat plummets, and on July 29, the date of delivery, the price was only a dollar a bushel – less than the contract price. Acme sues for the $0.13 per barrel profit earned by Johnson (i.e., restitution damages). Held, for defendant. “In contracts for the delivery of personal property at a fixed time and at a designated place, the vendee is entitled to damages against the vendor for a failure to comply and the measure of damages is the difference between the contract price and the market price of the property at the place and time of delivery.” Johnson’s breach was efficient and actually to Acme’s benefit, since the cost of wheat went down at the time of breach. Any argument for Acme would have to hinge on the idea that it was Acme’s wheat which Johnson sold on July 13; but Acme hadn’t bought July 13 wheat worth $1.16, rather July 29 wheat worth $1.

xii)Laurin v. DeCarolis Construction Co., Inc. (Mass. 1977)(1) Seller removes gravel from the lot of land he sells to buyer; buyer seeks

compensation for value of removed gravel. Held, for buyer. Buyer is awarded the fair market value of the gravel removed, even though the property value is the same as it was before removal. Plaintiff bought the land as it was, so that the gravel was part of the deal in contemplation; it is distinguishable from Acme Mills insofar as the commodity here is not fungible.

xiii) Louise Caroline Nursing Home, Inc. v. Dix Construction Corp. (Mass. 1972)(1) “Compensation is the value of the performance of the contract, that is, what the

plaintiff would have made had the contract been performed … The plaintiff is entitled to be made whole and no more … The measure of the plaintiff’s damages … can only be in the amount of the reasonable cost of completing the contract and repairing the defendant’s defective performance less such part of the contract price as has not been paid.” Here, it cost plaintiff no more to get the job completed by another contractor, so that plaintiff wasn’t entitled to any damages.

xiv) Efficient breach theory(1) Posner (and Holmes) are big proponents: goods find their way to those who value

them most.(2) Friedmann: takes a deontological approach, emphasizing the breach of a promise.

If we have efficient breach, why don’t we recognize “efficient conversion?” A converter can’t simply take your property and pay the market price if it’s worth more to them.

(3) Craswell: can a contract be disaggregated? b) Limits on recovery of expectation damages

i) Duty to mitigate(1) Restatement § 350 (Avoidability as a Limitation on Damages)

(a) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation.

(b) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

(2) Rockingham County v. Luten Brdge Co. (4th Cir. 1929)(a) County revokes bridge contract (with some uncertainty) after contractor has

expended $1900 on labor; contractor continues to build bridge anyway, then

44

sues for its contract price. Held, for defendants. Plaintiff can only recover the amount expended prior to the revocation plus the profits that would have been realized had the project been completed. Plaintiff has a duty not to increase the damages resulting from defendant’s breach rather than building what amounted to a useless bridge.

(b) (Counterargument: might Luten have been unsure as to whether the revocation was definite? Were they really seeking to pile on the damages or were they just afraid of being sued for breach themselves?)

(3) Parker v. Twentieth-Century Fox Film Corp. (Cal. 1970)(a) Plaintiff (Shirley MacLaine) contracted with defendant to play the lead in a

musical which was canceled; defendant then offered her a role in a Western instead, along with a slightly different contract (e.g., no approval rights). MacLaine declined, and sued for money due under the contract and damages. Defendant argues she failed to mitigate by declining the Western role. Held, for plaintiff. The general rule is that a wrongfully discharged employee is entitled to the agreed-upon salary less the amount earned from other employment; but that other employment must be comparable. Defendant had the burden of showing that the other employment was substantially similar. The Western was “different and inferior” employment, which MacLaine had no duty to accept.

(b) Distinguishable from Luten Bridge: Luten involved a duty not to aggravate; this case involves a duty to affirmatively mitigate via an entirely different employment contract.

(4) Billetter v. Posell (Cal. 1949)(a) Defendants employ plaintiff as a “floor lady and designer,” and tell her that

they have decided to employ someone else in her role while offering her the place of another floor lady at a lower salary. Plaintiff refuses and then sues for the remainder of her salary. Held, for plaintiff. “An employee is not required to perform the same work for less pay in mitigation of damages.” Nor are plaintiff’s unemployment benefits deductible as compensation received in mitigation.

(5) Leingang v. City of Mandan Weed Board (N.D. 1991): plaintiff’s constant overhead costs are not included as deductible cost-of-performance expenses.

ii) Consequential damages(1) Restatement § 351 (Unforeseeability and Related Limitations on Damages)

(a) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. [Hadley]

(b) Loss may be foreseeable as a probable result of a breach because it follows from the breach(i) In the ordinary course of events; or(ii) As a result of special circumstances beyond the ordinary course of events,

that the party in breach had reason to know.(c) A court may limit damages for foreseeable loss by excluding recovery for loss

of profits, by allowing recovery only for loss incurred in reliance, or otherwise

45

if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.

(2) Restatement § 353 (Loss Due to Emotional Disturbance)(a) Recovery for emotional disturbance will be excluded unless the breach also

caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

(3) U.C.C. § 2-715 (Buyer’s Incidental and Consequential Damages)(a) Incidental damages resulting from the seller’s breach include expenses

reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(b) Consequential damages resulting from the seller’s breach include(i) Any loss resulting from general or particular requirements and needs of

which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

(ii) Injury to person or property proximately resulting from any breach of warranty.

(4) Hadley v. Baxendale (Court of Exchequer 1854)(a) Plaintiffs are millers whose shaft breaks; they contract with defendants to

have it sent “immediately” and hastily to the engineer for repair, but the defendants delay. Plaintiffs sue for lost profits during the time in which the mill was inoperative. Held, for defendant. Plaintiffs can’t recover because the loss was not a foreseeable result of the breach. Damages should be “such as may fairly and reasonably be considered either arising naturally … from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.” Had the circumstances been known, the defendant might have sought to limit its liability under the terms of the contract.

(b) (Implication: was plaintiff the cheapest cost avoider, since most mills would be expected to keep a backup shaft in their possession?)

(c) Chirelstein: “The rule of the Hadley case – that damages are not recoverable for loss that was not reasonably foreseeable by the party in breach at the time of contracting – can be linked to the familiar proposition that ‘contract,’ unlike tort, is a species of absolute liability … Coupling absolute liability for breach with exposure to unlimited consequential damages, however, could be devastating to the promisor and especially in the case of routine over-the-counter transactions like the carriage contract in Hadley would impose a risk upon the promisor which far outweighs the modest benefit that he might expect to realize from the transaction itself.”

(5) Lamkins v. International Harvester (Ark. 1944): plaintiff buys lights for his tractor which are delivered a year late, then sues for consequential damages; held, for defendant, since nothing about the transaction shows that defendant knew or should have known that the plaintiff expected him to take on such huge liability for a night-grown crop.

46

(6) Victoria Laundry (Windsor) Ltd. v. Newman Industries, Ltd. (K.B. 1949): defendant delivers a boiler six months late; held, for plaintiffs. Plaintiffs can recover loss of business profits because they were reasonably foreseeable; defendant knew it was supplying a boiler for industrial laundry use.

(7) Heron II (House of Lords 1967)(a) Defendant’s ship is under contract to transport sugar from Romania to Basra;

as a result of their delay, the price of sugar has fallen because another ship had arrived first. Held, for plaintiffs; plaintiffs are entitled to the difference between price at delivery and the price at the contracted-for time of delivery. Part of the risk entailed in shipping.

(8) Bebchuk and Shavell: the most economically-efficient system for consequential damages is one in which only the high-valuation buyers communicate their valuation to sellers, which is precisely the outcome to which Hadley creates an incentive.

iii) Uncertain damages(1) Restatement § 352 (Uncertainty as a Limitation on Damages)

(a) Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.

(2) Freund v. Washington Square Press, Inc. (N.Y. 1974)(a) Freund, an author, signs a publishing contract with WSP’s predecessor, which

agrees to give him an advance and to publish if it doesn’t terminate within 60 days of receipt. After granting the advance, they refuse to publish, having never terminated the agreement within the allotted period. Freund sues for damages and specific performance, with damages for delay in academic promotion, loss of royalties, and cost of self-publication. Held, for defendant. There was no contract to print or bind the book, only to publish it in the way that commercial publishers do, so that the cost of self-publication was properly awarded in the trial court. Royalties were not ascertained with adequate certainty.

(b) (Perhaps Freund should have sued for reliance damages instead?)(3) Fera v. Village Plaza, Inc. (Mich. 1976): sufficient testimony to estimate lost

profits for a new business.c) Reliance damages

i) Restatement § 349 (Damages Based on Reliance Interest)(1) As an alternative to the measure of damages stated in § 347, the injured party has

a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. (Armstrong Rubber)

(2) (Burden of proof is on defendant to show that nonperformance would have actually saved the plaintiff money – e.g., if the exhibition in Security Stove had been a disaster. Plaintiffs shouldn’t be able to always recoup their losses in a losing contract by way of reliance damages.)

ii) Goodman v. Dicker (D.C. Cir. 1948)(1) Defendants induce plaintiff to incur expenses in preparing for a “dealer franchise”

to sell Emerson Radio products, but never grant the franchise. Plaintiffs sue for

47

breach; defendants argue that no liability would have arisen even if the franchise had been granted and cancelled (since it was terminable at will) and that the agreement is thus unenforceable. Held, for plaintiff. Defendants are estopped from denying the contract due to plaintiff’s detrimental reliance. Court doesn’t deal with the terms of the franchise, but rather the promise that there would be a franchise. Plaintiff is awarded reliance damages only, not loss of profits.

(2) (Note that here the expectation was zero, given that the franchise was terminable at will, whereas in Hoffman there was at least some expectation.)

iii) Security Stove and Manufacturing Co. v. American Railway Express Co. (Mo. 1932)(1) Parties contract to ship plaintiff’s invention to an exhibition by a certain date;

defendant doesn’t deliver the crucial package. Plaintiff sues for reliance damages (e.g., the hiring of a space at the exhibit and the traveling expenses). Held, for plaintiff. Defendant had notice of the particular circumstances such that it was responsible for consequential damages. But any profits were purely speculative, such that plaintiff is only entitled to reliance damages (and not expectations).

iv) L. Albert and Son v. Armstrong Rubber Co. (2d Cir. 1949) (L. Hand, J.)(1) Armstrong buys four machines from Albert to recondition scrap rubber; two

machines are delivered in 1943, and the other two not until late 1945, when WWII is over and there is no more need. Armstrong, the buyer, seeks reliance damages for the costs of the foundation it built for the machines. Held, for Armstrong. But Albert can reduce Armstrong’s recovery by showing any losses that would have been incurred by performance, since the risks of Armstrong’s contract shouldn’t be imposed on Albert. “It is often very hard to learn what the value of the performance would have been; and it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other.”

d) Restitution damagesi) Restatement § 373 (Restitution When Other Party Is in Breach)

(1) Subject to the rule stated in Subsection (2), on a breach by nonperformance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance. [Algernon Blair]

(2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance. [Oliver v. Campbell]

ii) Restatement § 374 (Restitution in Favor of Party in Breach)(1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform

on the ground that his remaining duties of performance have been discharged by the other party’s breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.

(2) To the extent that, under the manifested assent of the parties, a party’s performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.

48

iii) U.C.C. § 2-718 (Liquidation or Limitation of Damages; Deposits)(1) (2) Where the seller justifiably withholds delivery of goods because of the buyer’s

breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds(a) The amount to which the seller is entitled by virtue of terms liquidating the

seller’s damages in accordance with subsection (1), or(b) In the absence of such terms, twenty percent of the value of the total

performance for which the buyer is obligated under the contract or $500, whichever is smaller.

(2) (3) The buyer’s right to restitution under subsection (2) is subject to offset to the extent that the seller establishes(a) A right to recover damages under the provisions of this Article other than

subsection (1), and(b) The amount or value of any benefits received by the buyer directly or

indirectly by reason of the contract.(3) (4) Where a seller has received payment in goods their reasonable value or the

proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer’s breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller.

iv) United States v. Algernon Blair (4th Cir. 1973)(1) Plaintiff is a subcontractor about 25% of the way through a project when the

owner breaches. Plaintiff stops work (as he is entitled to do) and seeks the cost of labor and equipment. Because complete performance of the contract would have resulted in a loss for the plaintiff (and there would thus be no expectation damages), he sues for quantum meruit instead. Held, for plaintiff. “The measure of recovery for quantum meruit is the reasonable value of performance … undiminished by any loss which would have been incurred by complete performance.” Reasonable value is “the amount for which such services could have been purchased from one in the plaintiff’s position at the time and place the services were rendered”; the contract price may be indicative, but not conclusive.

v) Oliver v. Campbell (Cal. 1954)(1) Plaintiff, a lawyer, represents defendant in a divorce; defendant dismisses plaintiff

before the signing of the court findings, and plaintiff seeks restitution. Held, for defendant. Plaintiff can only recover the unpaid balance of the contract fee. Performance was in effect complete.

vi) Britton v. Turner (N.H. 1834)(1) 9 ½ months into a 12-month contract, plaintiff/employee leaves unjustifiably.

Plaintiff was to be paid $120 at the end of the year, and now sues for $100, the “reasonable value” of the labor he provided to defendant. Held, for plaintiff. Plaintiff is entitled to the reasonable value of the work he provided, less any damages incurred by defendant as a result of the breach; plaintiff’s damages, however, are capped by the contract price. (Otherwise there would be an incentive to breach, defeating the entire purpose of the contract.)

49

(2) (Note that here, unlike Algernon, the party in breach is now also the party seeking restitution – and at a quantity above the contract price! Hence the cap on damages, which doesn’t apply when it’s the other party in breach.)

vii)Kehoe v. Rutherford (N.J. 1893)(1) Plaintiff, a builder, agrees to pave a street for $2700; having completed 60% of

the work, his costs already amount to $3000 and he estimates a total cost of $5000 on completion. Defendant, the municipality, then breaches. Plaintiff argues he is entitled to reasonable value rather than the contract price. Held, for defendant. Plaintiff is awarded a proportionate share of the original contract price: 60% of $2700 or $1620. The balance is absorbed by the plaintiff himself.

(2) (Chirelstein on other damage options: restitution would grant Kehoe $3000 (more than the contract price); reliance would grant him reliance costs ($3000) less anticipated loss from full performance ($2300), or $700.)

e) Liquidated damagesi) Restatement § 356 (Liquidated Damages and Penalties)

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy.

ii) U.C.C. § 2-718 (Liquidation or Limitation of Damages; Deposits)(1) Damages for breach by either party may be liquidated in the agreement but only at

an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a remedy.

iii) City of Rye v. Public Service Mutual Insurance Co. (N.Y. 1974)(1) Contract specifies that developer must pay $200 for every day the completion of a

project has been delayed. Held, for defendant. Alleged harms suffered by plaintiff (a municipality) from delay are de minimis at best. The court finds no reasonable relationship between the alleged harm and the $200 a day liquidated damages, which is really more of a penalty. The court also notes the unequal bargaining power between the city and developer, along with the fact that the city had the power to delay completion indefinitely if it so desired (making the contract extortionate).

iv) Lake River Corp. v. Carborundum Co. (7th Cir. 1985) (Posner, J.): finds liquidated damages clause unenforceable because it failed to reflect the cost avoided by plaintiff in not having to perform (and thus deters efficient breach by failing to recognize expenses avoided). Plaintiff is entitled to expectation damages (unpaid contract price less costs of completion) alone.

v) Muldoon v. Lynch (Cal. 1885)(1) Defendant contracts for a monument to be built for her dead husband, with a

clause specifying that the contractor will pay $10 per day over the specified one year. The project is delayed for two years. Plaintiff now seeks the unpaid balance; defendant seeks to deduct the liquidated damages. Held, for plaintiff. Damages here serve a punitive, not a compensatory, role. Courts refuse to

50

enforce liquidated damages when parties apparently intended them as a penalty, as seems to be the case here. Nothing in this case suggests compensable damages.

(2) (Fried: This is a “first cousin to the ugly fountain case.” Since the damages are nonquantifiable, would this prevent parties from ever contracting for monuments like this? But unlike the ugly fountain case, we can’t simply determine damages by cost of performance; we would have to ask how much money compensates the widow for “two years of heartache.”)

vi) Wilt v. Waterfield (Mo. 1954)(1) Plaintiffs make a $1900 down payment on a $19,000 property; defendant breaches

and sells to someone else for $26,000 instead. Plaintiffs sue for difference between contract price and market value at time of performance ($7,000); defendant argues that liquidated damages clause specified 10% of the agreed price of sale, or the $1900 down payment. Held, for plaintiffs. The 10% is disproportionate and arbitrary because it doesn’t take into account the various possibilities of breach – in other words, if the contract was breached because the defendant cut some of the lespedeza crop, that breach probably isn’t anywhere close to $1900.

vii)Vines v. Orchard Hills, Inc. (Conn. 1980) (Peters, J.)(1) Plaintiffs contract to buy a condo from defendant and make a down payment.

Plaintiffs breach and seek to recover the 10% down payment as restitution; the contract specifies the down payment as liquidated damages. Held, for defendant. In order to recover, the purchaser must show unjust enrichment on the defendant’s part. Since the plaintiffs themselves are in default, the burden is on them to show the invalidity of the clause. The actual damages were not less than the specified amount; damages are assessed at the time of breach. Remanded to give plaintiffs another opportunity to proffer evidence to support this claim.

(2) Fried: the liquidated damages problem can be completely avoided by specifying the 10% down payment as an option price, to be deducted from the final price if the house was purchased.

f) Specific performancei) Restatement § 360 (Factors Affecting Adequacy of Damages)

(1) In determining whether the remedy in damages would be adequate, the following circumstances are significant:(a) The difficulty of proving damages with reasonable certainty,(b) The difficulty of procuring a suitable substitute performance by means of

money awarded as damages, and(c) The likelihood that an award of damages could not be collected.

ii) Restatement § 367 (Contracts for Personal Service or Supervision)(1) A promise to render personal service will not be specifically enforced. [Lumley]

iii) U.C.C. § 2-716 (Buyer’s Right to Specific Performance or Replevin)(1) Specific performance may be decreed where the goods are unique or in other

proper circumstances.iv) Van Wagner Advertising Corp. v. S&M Enterprises (N.Y. 1986)

(1) Landowner leases billboard space to plaintiff, then sells property to defendant, who terminates lease; plaintiffs seek specific performance. Held, for defendant. Specific performance is a default rule in real estate transactions, but this is a lease

51

rather than sale. Court rejects plaintiffs’ argument based on the space and location of the property, because all property is physically unique; what really matters is economic interchangeability, and in particular the uncertainty of valuation. There isn’t such a great uncertainty here, so that the plaintiffs are awarded the value of a nine-year lease in damages instead.

v) Curtice Bros. Co. v. Catts (N.J. Chancery 1907): specific performance is proper for contract of sale of defendant’s tomato crop. There was no way to ensure that the crop could be replaced in time, so that the need was extraordinary.

vi) Lumley v. Wagner (Lord Chancellor’s Court 1852): specific performance can’t be obtained to require opera singer Wagner to sing at the Royal Opera House, but specific performance can be obtained against Covent Garden to prohibit her from singing there.

vii)Theory(1) Posner: upholds common-law preference for expectation damages, noting that

specific performance creates transaction costs and deters efficient breach.(2) Schwartz: notes difficulty of monetizing damages and determining speculative

profits, and counters the “transaction costs” argument by noting that a seller of goods can cover just as well as a buyer.

(3) (Fried: compare to the debate between “cost of completion” and “diminished value” in Groves, the former more akin to specific performance.)