CONTRACTS OUTLINE

I. Introduction
A. Restatement § 1: a contract is a promise or a set of promises for the breach of
which the law gives a remedy, or the performance of which is a duty
B. Two Main Sources of K Law
i. Restatement, state common law
ii. Uniform Commercial Code; Article 2
1. For all sales of goods
2. Common law remains available
II. CHAPTER 1 – Legal Basis for Recognizing and Enforcing Promises
A. CONSIDERATION
i. Restatement section 71, 74, 78
ii. Bargained for Exchange
1. Hawkins v. McGee
a. Rule: Medical promises are usually not enforceable
(medical practitioners can’t predict with certainty the
outcome of procedures and there is a therapeutic value of
doctors telling patients that they’re going to be ok)
b. Exception: In this case because the doctor had repeatedly
solicited the plaintiff and his father for the opportunity to
perform this specific surgery for his own benefit, then the
promise can be enforced.
2. Hamer v. Sidway – Nephew promised his uncle he would refrain
from drinking, smoking, and gambling before turning 21 in
exchange for $5k. The executor of the uncle’s estate argued that
there was no consideration, claiming that the promisee was
benefitted, not harmed, and that the promisor was not benefitted.
Court held that the nephew gave up his liberties, which whether
beneficial or not was sufficient consideration to uphold the
contract.
a. Rule: This case effectively removed the requirement of
benefit/detriment for consideration and left the only
requirement of a “bargained for exchange” – Restatement
§ 71
3. Holmes, “Bargain Theory” of Consideration: Mutual reciprocal
inducement
iii. § 74: Forbearance
1. Dyer v. National By-Products: Dyer lost his foot in a work
accident; received full pay while on leave for ~10 months. He was
fired 1 week after returning to work. He claimed that he had a valid
claim against his employer for the injury, but he forbore from
brining this claim in exchange for a promise of lifetime
employment. Dyer claims his restraint from bringing a claim was
consideration, employer claims that restraining from asserting an
unfounded claim cannot serve as consideration.
 a. Rule: Court holds that forbearance from asserting a claim
in good faith can serve as consideration. Remanded to
determine if Dyer’s forbearance was in good faith (i.e. did
he think in good faith that he actually had a claim against
his employer)
2. Restatement § 74: has both an objective and subjective
requirement; generally, you need both
a. Objective: Claim or defense is in fact doubtful because of
uncertainty as to the facts or the law
b. Subjective: The forbearing or surrendering party believes
that the claim or defense may be fairly determined to be
valid
iv. Requirement of Exchange: Actions in the Past
1. Feinberg v. Pfeiffer Co. – action on alleged contract by Pfeiffer
Co. to pay Feinberg a monthly amount upon her retirement.
a. Rule: Court found that there was no consideration because
there was no exchange. The company offered Feinberg the
monthly retirement payments more as a gesture of
appreciation for her years of service. Feinberg cannot give
past years of service as her consideration in a current
contract. No mutuality of obligation, which is essential to
the validity of a contract.
2. Moral Obligation
a. Webb v. McGowin – Webb saved McGowin’s life during
while at work but suffered severe injury as a result leaving
Webb unable to work. Wyman promised to support Webb
with monthly payments, but when McGowin died his
executor stopped the payments claiming there was no
consideration because the action of saving McGowin
happened before the promise was made.
i. Rule: Court held that McGowin’s estate must still
continue to financially support Webb because the
circumstances of the case were so compelling that
justice required the contract be enforced.
ii. Restatement § 86: promise for benefit received
1. A promise made in recognition of a benefit
previously received by the promisor from
the promise is binding to the extent
necessary to prevent injustice
2. A promise is not binding under subsection
(1)
a. If the promise conferred the benefit
as a gift or for other reasons the
promisor has not been unjustly
enriched or
 b. To the extent that its value is
disproportionate to the benefit
b. Mills v. Wyman – Wyman’s son was ill and taken care of
by Mills, but ultimately died. Wyman wrote to Mills
thanking him for caring for his son and offering to pay the
costs he had accrued, but never did so. Wyman claims there
was no consideration. The promise did not induce Mills to
give the care.
i. Rule: Court holds that Wyman was a third party
with no enforceable obligation to Mills. There was
no reciprocal inducement. No consideration.
c. Harrington v. Taylor – domestic altercation between
defendant and his wife that happened at their neighbor’s
house. The neighbor, the plaintiff, intervened when the
wife was about to stab the defendant and plaintiff saved the
defendant’s life. Plaintiff was injured and defendant agreed
to pay her medical costs, but never did.
i. Rule: Court holds that there is no consideration
because there was no reciprocal inducement.
v. Requirement of Bargain
1. Kirksey v. Kirksey – A widow resides with her children on public
land under a contract of lease. Her brother-in-law, who lives 60-70
miles away, sends her a letter saying, “if you will come down and
see me, I will let you have a place to stay to raise your family, and
I have more open land than I can tend.” The plaintiff than moves
her family to live with her brother-in-law. After two years of her
living in a house he provided her, he required her to leave. Plaintiff
seeks to enforce the promise he gave to provide her a house.
a. Hoding: Not enforceable because there is no consideration.
It is a gift with a condition attached, coming to where the
land is to live there.
2. Lake Land Employment Group of Akron, LLC v. Columber –
Columber was an employee of Lake Land Employment group.
LLEG is suing Columber for violating his promise that he
wouldn’t compete with the Lake Land after their relationship ends.
(Employment at will, no duration is specified, it can end at any
time). Non-compete clauses are in conflict with freedom of
contract and freedom of market. Columber signed the non-compete
covenant, after he was already working at Lake Land, so it is a
post-employment non-compete clause.
a. Issue: is Columber’s non-compete covenant supported by
consideration?
b. Holding: Court says that the non-compete is enforceable
because there was consideration.
i. This is against the legal rule and definitions of
consideration. The employee received nothing for
 signing the post-employment non-compete
agreement.
c. Rule: A post-employment non-compete covenant is
enforceable if it is reasonable as to, (1) Duration, (2)
Geographic scope, and (3) Range of activities prohibited;
AND is supported by consideration
d. Restatement § 188
vi. Promises as Consideration
1. Promise for a promise: A promise can be consideration to make a
reciprocal promise enforceable; the thing itself must be
consideration. The promise cannot be illusory.
2. Illusory Promise: a promise that conveys the illusion of
commitment, might even include the word promise, but it is
actually not a real commitment because the promise has reserved
for him or herself a free or unrestricted way out. Illusory promises
are not consideration. Classic example – at will employment.
a. Restatement § 77
b. Reservation of the right to terminate: Although reserving
the right to terminate a contract for a specified period
makes a promise illusory, the promise becomes
consideration once the period for exercising the right to
terminate has passed.
3. Unilateral vs. Bilateral: refers to how many sides have unfulfilled
or unperformed promises.
a. A contract can start at unilateral for example; if a man says
to his neighbor, “if when I come back the lawn is mowed, I
will give you $20” then there is no contract until the man
comes back and the lawn is mowed. The only promise that
exists is the promise to pay the money – so the contract
arises as unilateral.
4. Strong v. Sheffield – There was no consideration. Consideration is
to be tested by the agreement, and not by what was done after it.
5. Mattei v. Hopper – Mattei is the buyer, Hopper is the seller.
Hopper has entered a contract to sell her land to Mattei, but she
changed her mind. Mattei sues to force the sale. Hopper argues that
the “satisfaction clause” in the contract that gives Mattei a way out
if he doesn’t find “satisfactory” leases for the mall he is going to
build on the land, is illusory. She argues this gives him a free way
out. However, the court finds that the contract was not illusory. His
“way out” is restrained by the requirement that he operate in good
faith.
6. Structural Polymer Group, Ltd. v. Zoltek Corp –
a. Requirement Contract: a contract in which one party
agrees to supply as much of a good or service as is required
by the other party, and in exchange the other party
 expressly or implicitly promises that it will obtain its goods
or services exclusively from the first party.
7. Wood v. Lucy, Lady Duff-Gordon – Wood sues Lucy because
they have a contract in which she was going to give him 50% of all
profits and revenues derived from any contracts he might make as
her agent. She claims there is no consideration because Wood did
not actually promise to do anything. Court says where someone is
the exclusive grantee of a right to represent someone else or to sell
something on their behalf, implicit in that right is the obligation to
use your best efforts to actually sell something. Wood implicitly
promised to use his best efforts to sell Lucy’s products.
a. UCC 2-306: (1) (Output and requirements Contracts) and
(2) (Exclusive Dealings) – each involve a promise that
might otherwise look illusory but it’s not because the law
automatically attaches a certain obligation.
i. Output contracts: good faith
ii. Exclusive dealings: best efforts.
B. Remedies
i. § 344(a): Expectancy – goal is to put the promisee in as good a position
as he would have been in had the contract been performed.
ii. § 344(b): Reliance – goal is to put promisee in as a good a position as he
would have been in had the contract not been made; done by reimbursing
the promisee for expenses + other losses caused by reliance on the K (get
promisee back to status quo anti, SQA)
iii. § 344(c): Restitution – goal is to put the promisor in the position in which
she would have been had the contract not been made, i.e., return any
benefit given to the promisor by the promisee
iv. § 39: Disgorgement – damages based on disgorgement arise from
situations wherein a promisor has realized some gain from breaching a
contract; based in the principle of law that one should not benefit from
one’s own wrongdoing. Return promisor to SQA in regard to not just
benefits conferred by the promisee, but any and all gains wrongly incurred
by the promisor by breaching.
1. United States Naval Institute v. Charter Communications, Inc.:
Charter/Berkeley publishing group breached its contract with US.
Naval Institute regarding when to publish the paperback edition of
a book, “Red October.” They agreed to publish it no sooner than
October 1985, but instead began sales in September. Naval was
awarded damages in the amount of excess profit Charter/Berkeley
made in the one month of sales that was in breach of their contract.
v. § 359: Specific Performance – often unavailable, classic case for specific
performance concerns the sale of land, because courts have regarded land
has unique and not substitutable. Other contracts involving unique goods
can also be specifically enforced.
1. Morris v. Sparrow – Morris agreed to give Sparrow $400 and a
horse in exchange for working 16 on his ranch. During the 16 wks.
 Sparrow broke the horse and turned it into essentially a first-class
roping horse. Court held Sparrow was entitled to specific
performance, i.e., Morris giving him the horse, rather than the
horse’s market value because of the unique bond he’d created with
the horse and all the work he had done to break/train it.
C. Reliance as a basis recovery: Restatement § 90
i. Restatement § 90: A promise that the promisor could expect that the
promisee would reasonably rely on, and only enforcement would bring
justice.
ii. A promise is enforceable even if not bargained for where: (1) the promisor
should reasonably have expected the promise to induce reliance, (2) there
is reliance in fact, and (3) enforcement of the promise is necessary to
prevent injustice.
iii. Ricketts v. Scothorn – Plaintiff, Katie Scothorn, brought suit against the
executor of her grandfather’s estate alleging that he promised to give her
$2,000 if she stopped working. He died without paying it. Executor argues
that there was no consideration.
1. Rule: Court holds that there was no consideration, however it can
still be enforced because Katie relied on the promise from her
grandfather. Stretches the definition of equitable estoppel.
2. Equitable Estoppel: premised on a fact that causes the plaintiff to
change their position.
3. Promissory Estoppel: reliance on a promise that causes the plaintiff
to change their position.
iv. Feinberg v. Pfeiffer – see above for facts. Court ultimately enforced the
monthly pension agreement because Feinberg had relied on this promise
of this continued income.
v. D&G Stout v. Bacardi – example of reliance recovery
D. Restitution as a basis for recovery
i. Cotnan v. Wisdom: Cottan is the administrator of Harrison’s estate.
Harrison died after being involved in an accident. Wisdom and other
medical professionals provided him care but he still died. Wisdom are
seeking compensation from Harrison’s estate for the service they
provided. Cotnan says that because Harrison was unconscious, he could
not have assented to the treatment provided, so there was no agreement
between the parties.
1. Issue 1: Can the doctors recover? And if so on what basis?
a. Holding: Yes, on the basis of restitution. There is an
implied agreement when emergency services are given. As
a public policy matter, we want to encourage this type of
volunteerism (providing medical care in emergencies).
2. Issue 2: Should the person’s ability to pay to be taken into
consideration for calculating damages?
a. Holding: No.
3. Quasi Contract (Contract implied in law): Not really a contract,
the contract is implied by the court. Represents the intersection
 between torts and contracts. Usually involves a tort, unjust
enrichment.
a. ASK: Has someone been enriched? If so, is there retention
of that benefit unjust?
ii. Callano v. Oakwood: Callano’s planted shrubs in the yard of a home for
clients that were not yet the official owners of the home. The owner died
before the sale of the house went through, so the landscapers sue
Oakwood Park who are the sellers of the house for the remainder they are
owed for planting the shrubs.
1. Holding: The suit was not successful. The court says that
Callano’s issue is with Pendergast, not Oakwood. They should
have brought the suit against Pendergast’s estate.
2. If there is a contract you must first seek a remedy from that party
before substituting another defendant.
iii. Pyeatte v. Pyeatte: Husband and wife make an agreement that she will
pay for him to go to law school and he will support her in going to get her
masters later. After he graduates from law school, the husband files for
divorce. Wife sues seeking enforcement of his promise to put her through
graduate school. Trial court rules for her giving her a judgement of $23k,
husband appeals.
1. Appellate Court: There is no contract, because it is insufficiently
definite and therefore cannot be enforced. Wife can still recover
restitution damages, based on a quasi-contract. She will be
compensated based on what she contributed to put her husband
through law school, likely to be way more than the $23k the trial
court awarded her.
III. CHAPTER 2 – Contract Formation
A. Subjective and Objective Approaches to K Formation
i. Subjective: what each party subjectively intended
ii. Objective: what a reasonable person would think the party’s intentions
were based on their actions (dominant current approach)
iii. Lucy v. Zehmer: Objective intent; court uses what the offeror’s intent
was objectively based on his behavior/actions. Could someone looking at
Zehmer reasonably believe that he intended to enter into this contract and
sell his farm to Lucy? Yes. The fact that Zehmer claims he was joking is
irrelevant based on all of his outward actions, which indicated he wanted
to enter into the K. Contracts do not require a “meeting of the minds.”
1. Restatement §16 intoxication – to get out of a contract based on
intoxication you have to be so drunk you don’t know what is going
on.
iv. Specht v. Netscape: Inquiry notice
B. Offer
i. Restatement § 24: “the manifestation of willingness to enter into a
bargain, so made as to justify another person in understanding that his
assent to that bargain is invited and will conclude it.”
 ii. Corbin: It’s an act using words whereby an offeror confers the power on
another party the power to bind the two
iii. Asking for further information does not equal a counteroffer.
iv. Owen v. Tunison: Owen offered to buy Tunison’s storefront for $6,000,
Tunison responded it wouldn’t be possible to sell unless he got $16,000.
Owen responded accepting this price, however Tunison did not intend to
sell. Was Tunison’s response an offer inviting acceptance? No, it was
more akin to opening up negotiations.
1. Holding: No offer was made. Tunnison’s response to Owen’s offer
was an invitation to further negotiate not an offer inviting Owen’s
acceptance.
v. Fairmount Glass Works v. Crunden-Martin Woodenware Co:
Generally, ads/price quotes are not offers, however this case was an
exception because there was a specific quantity in question and because
the price quote wrote, “for immediate acceptance.”
1. Ads/price quotes are usually an invitation for the buyer to
make an offer. Rule is to protect sellers from being overwhelmed
by theoretical unlimited demand.
vi. Lefkowitz v. Great Minneapolis Surplus Store: An offer must be
addressed to a specific person, in this case saying “first come first serve”
was sufficient because it was directed to the first customer. Further, a
specific value of an item is required in order to recover for not receiving
said item.
C. Acceptance
i. Restatement § 50: “a manifestation of assent to the terms thereof made by
the offeree in a manner invited or required by the offer.”
ii. Corbin: Page 204
iii. Mirror Image Rule (R2d § 58, 59): An acceptance must comply with the
requirements of the offer as to the promise to be made or the performance
to be required (aka must be the “mirror image” of the offer). A reply
which seems to accept but actually is conditional on the offeror’s assent to
new or different terms from the original offer is not an acceptance.
iv. Offeror can invite acceptance in 3 different ways
1. By a promise
2. By performance
3. Leaving it up to the offeree to decide how to accept
v. Wucherpfennig v. Dooley: Acceptance must be clear and unequivocal.
The offeror is the master of the offer, the offeror gets to specify what
constitutes acceptance.
vi. International Filter Co. v. Conroe Gin, Ice & Light Co.
1. Restatement § 54, 56 on notice
2. International Filter has drafted an offer (a proposal) that it wants its
buyers to make – it’s soliciting offers. Conroe takes that draft, fills
in certain specifications in and returns it to International Filter
making them an offer to buy.
 3. Inclusio Unius Est Exclusio Alterius: Normally you have to give
notice of acceptance but Conroe, the Offeror, has manifested a
contrary intention – Inclusio Unius Est Exclusio Alterius: To
exclude one is to exclude all others. Assumption in the law is that
if you make a list of things that have to happen for the contract to
be accepted that list is an exclusive list.
a. No requirement of notice in this offer: Buyer accepts and
seller approves it at the home office are the ONLY two
things listed on the offer that need to happen for the offer to
be accepted.
b. Default Rule: When accepting by promise the default rule
is that you have to give notice. Here, the offeror (Conroe)
manifested a contrary intention by listing the requirements
for acceptance and excluded from that list the requirement
of notice. Note that acceptance by performance doesn’t
require notice.
vii. White v. Corlies & Tift: White is a carpenter trying to reach an
agreement with Corlies and Tift about the construction of an office. “Upon
agreement to finish the fitting of the offices at once.” White begins
purchasing materials and then the defendants change their mind and say
that they don’t want his business.
1. Issue: Whether the offer is seeking acceptance by promise or
acceptance by performance?
a. Default: Acceptance by performance does not require
notice, while acceptance by promise requires notice.
viii. Ever-Tite Roofing Corporation v. Green
1. Do we have an offer and acceptance?
2. Court says that Ever-Tite Roofing Co. accepted when they began
performance
ix. Corinthian Pharmaceutical Systems, Inc. v. Lederle
1. Accommodation/Partial Fulfillment: Seller sent an
accommodation/partial order and notified the buyer that this is in
fact was an accommodation not the full order, which then turns the
acceptance and breach into a counteroffer by the seller that the
buyer is free to accept or reject.
2. UCC 2-206(b): a shipment of non-conforming goods does not
constitute an acceptance if the seller seasonably notifies the buyer
that the shipment is offered only as an accommodation to the
buyer.
a. *if were in first hemisphere; shipping of nonconforming
goods could be a counter offer*
D. Termination of the Power of Acceptance
i. Four ways for an offer to end (Restatement § 36)
1. Lapse, through passage of time
2. Revocation, pulled back by offeror
3. Death, of either offeror or offereee
 4. Rejection
ii. Lapse of an Offer (Restatement § 41)
1. Simple when it’s stated in the offeror when it ends, more
complicated when there is no end period stated.
2. Offers lapse after a reasonable time
3. Offers made in a face-to-face conversation are presumed to end
when the conversation ends.
iii. Revocation of Offer: Offeror is taking back the offer; general rule is that
an offeror can revoke an offer any time before its accepted.
1. Dickinson v. Dodds: ‘Nudum Pactum’ – naked promise
a. Summary: Dodds offers to sell his house to Dickinson, with
a P.S. “this offer is to be left over until Friday at 9 am.”
This ends the offer at 9 am Friday, does NOT mean that the
offer is irrevocable until then. Once Dickinson learns that
Dodds has made another offer to, a third-party Allan, that
represents indirect revocation of Dodds offer to Dickinson
b. Restatement § 42 – Direct Revocation
c. Restatement § 43 – Indirect Revocation
2. Drennan v. Star Paving Co.
3. Exception
a. Firm Offers (UCC § 2-205): If you meet the requirements
of a firm offer than the offer has to be kept open, even if
there’s no consideration or reliance.
i. Must be sale of goods
ii. Must be an offer by a merchant (doesn’t matter who
the offeree is, just the offeror must be a merchant)
iii. Must be in signed writing (official letterhead can be
enough)
iv. Irrevocable during the time stated, or if no time is
stated for a reasonable time, but in no event may
such reasonable set period exceed 3 months.
v. Any such term of assurance on a form supplied by
the offeree must be separately signed by the
offeror.
b. Paid for Option K (Restatement § 25): An option K is a
separate contract entered into by the buyer and seller where
the seller agrees to keep the offer open to the buyer for a
certain amount of time, in exchange for money. Must meet
all the requirements of a contract.
i. Option Contracts can only be accepted upon
receipt of acceptance, an exception to the mailbox
rule. This doesn’t necessarily apple to the below a
reliance-based option K created by law.
c. Restatement § 45, 87(2): Reliance Based Option
Contract, created by the law – Option contract to protect
the offeree, in a situation where the offeree might be stiffed
 when the offeror can revoke before the offeree can finish
performing.
i. Ex. Sub-contractor bids (public policy supports not
allowing subs to revoke at will, because general
contractors rely on their bids)
iv. Death of an Offeror: An offer ends when the offeror or offeree dies or is
legally incapacitated. If you already have a contract, that survives death.
v. The Mailbox Rule
1. Along as the offeree is accepting an offer in the proper way
authorized by the offeror (correct means of acceptance) and
they’ve properly dispatched the acceptance, then as of the time the
acceptance is dispatched both parties are bound.
2. Must be properly dispatched (properly addressed, etc.) to ensure
safe transmission
3. United States Life Insurance Co. v. Wilson
E. Precontractual Liability
i. Hoffman v. Red Owl Stores: Promissory estoppel used as a broader
source of relief for someone who has relied on a promise that is not
definite or specific enough to constitute an offer.
1. Offer was not specific, reliance damages only not expectancy
damages
ii. Dixon v. Wells Fargo, N.A.: The Dixons are unable to pay their
mortgage, Wells Fargo tells them, stop paying your mortgage so that you
will be default. If you default you will qualify for a program to adjust your
monthly payments, and then we (Wells Fargo) will consider working with
you. Dixons stop making payments in reliance on this and then aren’t
given the opportunity to work with WF in the default program.
1. Holding: WF must at least consider working with the Dixons
iii. Channel Home Centers v. Grossman: Grossman wants to build a
shopping center and he has a letter of intent from Channel Homes, as an
anchor tenant. In exchange, Grossman gave a promise that he would
negotiate exclusively and in good faith with regards to the particular space
in the anticipated mall that Channel was looking at. Grossman broke this
promise, in the pre-contract contract, which is enforceable.
F. Definiteness
i. Rule: you need definiteness in a contract; circumstance depends what level
of definiteness (Restatement § 33 and UCC 2-204)
1. Court needs to determine if there was a breach and how to remedy
it. Did the party that allegedly breached do what he or she was
contractually obligated to do?
2. How much definiteness you need depends on what remedy is
sought
a. Expectancy damages require more specificity and
definiteness
 3. You don’t need all the terms to be in the original agreement, so
long as there is a basis for supplying the terms or information that
you need later. (Output or Requirements K)
a. UCC 2-306: allows for output and requirement K
ii. Toys, Inc. v. F.M. Burlington Company: Toys is the tenant and
Burlington is the landlord. Lease is space in exchange for money, Toys
says that in addition to that the lease gives them the option to renew. The
issue here is whether the option provision is sufficiently definite.
1. Holding: Court sides with the tenant. In order for a contract to be
enforceable, the terms have to be reasonably clear. But its enough
that they be ascertainable or reasonably clear at the time you need
those terms, terms don’t have to be clear years in advance. Here,
prevailing rate for the space was ascertainable.
iii. Oglebay Norton Co. v. Armco, Inc.: Do the parties intend to be bound
by the terms? If so, can the court set a price? And can the court keep
jurisdiction over this issue for years to come?
1. Holding: Court determines that both parties want to be bound.
They had a long-standing business relationship and were heavily
invested in this relationship, which suggested an intention to be
bound. The Court can also set the price and maintain jurisdiction
over the parties.
2. Restatement § 204: gives the courts broad licensing to supply a
term that is needed to make the contract work, so long as they are
convinced the parties meant to be in contract.
3. UCC – Gap Filler Provisions; when there’s a gap court can fill
them in with any of these gap filler provisions that allow the
contract to survive despite the gap.
a. Open Price Term (2-305): You can have an enforceable
contract even if there is no price specified. If it’s clear the
parties wanted to be in a contract, the court can figure a
reasonable price.
IV. CHAPTER 3 – Statutes of Frauds
A. One Year Provision: An agreement that by its express terms cannot be fully
performed within the year following its making is unenforceable unless
circumstances can persuade the court otherwise.
i. C.R. Klewin, Inc. v. Flagship Properties, Inc. – Court held that the oral
contract was enforceable because the time for completion was not
specified, in other words, it was indefinite. Indefinite time for performance
falls outside the statute of frauds. Courts don’t want to have to decide what
will take a year and what won’t.
1. Rule: To fall within the statute of frauds and agreement must
explicitly state that it cannot be performed within a year of the
making of the contract.
B. Land Contract Provision
 i. A contract involving the interest in land must be in writing; doesn’t have
to be outright ownership, could be leasehold interest, license, easement,
etc.
C. Suretyship Provision: a suretyship contract makes one person liable for the
obligations of another; a surety is normally jointly and severally liable with the
principal. What is required to be in writing is the promise to answer for the debt
of another, when that promise is made to the other’s creditor.
i. Langman v. Alumni Association of the Univ. of Virginia: The
Langman’s gave an arcade that they owned to the alumni association.
They had a mortgage on the property which was transferred to the
association. Court holds that this is not a suretyship because there was no
agreement made between the Alumni Association and the creditor.
Instead, the AA was taking over the interest in the property.
1. Rule: To be a suretyship an agreement must be present between the
surety and the creditor, which was not present here.
ii. Central Ceilings v. National Amusements, Inc.: National owned a
theater complex, Central Ceilings was doing carpentry on theater
construction as a subcontractor for Old Colony. National agreed to pay
Central Ceilings if Old Colony failed to do so. This agreement met the
definition of a suretyship which requires the contract to be in writing to be
enforced; however, it falls into the leading object exception.
1. Leading Object Exception: Promise was made primarily for the
benefit of the promisor; therefore, this type of promise can be
enforced without being in writing.
a. A third party is indebted.
b. There is no novation; substituted one party for another.
c. The third party’s duty to the creditor will be terminated by
the performance promised by the defendant.
d. Contract will be enforceable if the third party’s promise
was given primarily or solely to serve their own interest.
D. Goods for More than $500
i. UCC §2-201
1. Section 1: establishes the writing requirement; if goods are priced
more than $500 or more it must be in writing
2. Section 2: In a contract between merchants, the parties have a
“reasonable” amount of time to put the contract in writing.
3. Section 3: Contract for specially manufactured goods that are not
suitable for resale to others is enforceable without writing; a
contract for goods for which payment has been made and accepted
or which have been received an accepted is enforceable without
writing
a. “Partial Performance” as a substitute for the required
writing can validate the contract only for goods which have
been accepted or for which payment has been made and
accepted. Receipt and acceptance either of goods or of
 payment constitutes unambiguous overt admission by both
parties that a contract actually exists.
E. Satisfying the Statute of Frauds
i. Content of the Writing
1. Must identify the parties to the contract
2. Must show that those parties made a contract
3. Must set forth the nature of the contract, including some indication
of what the parties contracted about (for goods, the quantity must
be specified)
4. Must state the essential terms of the contract (this is where most
litigation happens)
ii. Need some evidence, writing or record that can be called up so as to be
perceivable. No signature needed, just authenticating markers or some
basis of tying the agreement to the party resisting enforcement.
F. Exceptions to Statute of Frauds
i. Restatement §139(1): Estoppel – almost identical to §90, promissory
estoppel
1. The breached against party could invoke estoppel only if it had
relied on a misrepresentation by the breaching party
2. Monarco v. Lo Greco: R2d § 129 Action in Reliance; Specific
Performance
a. Rule: An oral contract that falls within the statute of frauds,
but is not in writing, can still be enforced if the party relied
on the promise to their detriment and to the unjust
enrichment of the other party, and if justice requires
enforcement.
3. St. Ansgar Mills, Inc v. Streit
a. Rule: A party entering into a contract that needs to be in
writing can wait a “reasonable” amount of time to obtain a
written contract. Reasonableness is based on the facts and
circumstances of the particular case. UCC §2-201(2)
V. CHAPTER 4 – Policing the Bargain
A. Void vs. Voidable
i. Void: contract is void on its face
ii. Voidable: at one point the contract was valid, but it can be avoided by one
party
B. Capacity: Infancy Doctrine (minors)
i. Douglass v. Pflueger Hawaii, Inc.: Douglass had an employment
contract with Pflueger Hawaii that included an arbitration clause. He tried
to bring a suit regarding discrimination, harassment, etc. and was
prohibited by the arbitration clause – he argues that the employment
contract is void because he was a minor when he signed it.
1. Rule: Minors signing a contract may void a contract they signed
while they were a minor and for a reasonable amount of time after
they turn 18.
2. Exceptions
 a. Minors cannot void contracts for goods or services
necessary for their health/sustenance.
b. Hawaii state legislatures says that 16/17 year old’s can
acquire employment, which means that they will be
entering into contracts 🡪 employment contracts are not
voidable based on a party’s status as a minor.
3. Holding: Infancy doctrine doesn’t apply here, but the arbitration
agreement was not enforceable because of its location in the
employee handbook. 60 pages that employee is supposed to read,
and arbitration agreement is buried within the agreement – not
obvious enough.
4. Restatement § 14: Minors
C. Capacity – Mental Illness
i. Ortelere v. Teachers Retirement Bd.: Grace Ortelere suffered a nervous
breakdown and was on leave from her job as a teacher for mental illness.
Her husband quit his job to help care for her. Grace than made an
adjustment to her retirement plan to receive more per month but gave up
the option for her spouse to receive whatever is left in the account when
she dies. Her husband sues claiming that she wasn’t able to make this
choice due to her mental incapacity.
1. Two Tests for Mental Incapacity:
a. Cognitive Test: Whether the mind was “so affected as to
render him wholly and absolutely incompetent to
comprehend and understand the nature of the transaction”
b. Volitional Test: A contract is only voidable by a party by
reason of mental illness if the party is unable to act in a
reasonable manner in relation to the transaction and the
other party has reason to know of his condition.
i. Restatement §15
2. Holding: Court uses the Volitional Test and finds both parts of the
test met, therefore the change that Grace made to the retirement
plan is void.
ii. Cundick v. Broadbent: Cundicks enter into a poor deal to sell their ranch
to Broadbent. After a multiple months long process to finish the deal, the
wife then tried to claim that the contract to sell is void because the
husband was mentally incapacitated.
1. Holding: The contract is legit, not void. Broadbent was acting in
good faith, not trying to deceive the Cundicks. Both husband and
wife participated in the months long transaction to secure the sale,
so she does not have a good argument to say that her husband’s
mental capacity was the reason for the poor deal.
a. Takeaway: More evidence than just a bad deal is needed to
prove mental incompetence.
iii. Kenai Chrysler Center, Inc. v. Denison: Summary: Denison, a young
adult with developmental disabilities, purchased a car from the Kenai
Chrysler dealership. His parents sued saying that this sale is void because
 Denison was mentally incapacitated. Dealership argues they didn’t know
and cant be held responsible.
1. Holding: Sale is void. Denison had been adjudicated to be
mentally incapacitated, and under the guardianship of his parents.
If one has been adjudicated to lack mental capacity, said
adjudication is public notice, i.e. the dealership should have
known.
iv. Restatement § 15: Mental Incapacity
D. Behavior of parties during bargaining process:
i. OVERREACHING
1. Pre-Existing Duty Rule/ Modifications
a. Alaska Packers Association v. Domenico: A group of
fishermen signed a contract with the Alaska Packers
Association for $50 and 2cents for each salmon. Upon
arrival at Pyramid Harbor the workmen stopped working
and demanded $100 for their services. It was impossible to
get substitutes, so the superintendent agreed to the $100.
However, when they returned to San Francisco they were
only paid the $50.
i. Holding: There was insufficient consideration for
the additional money the workmen were requesting;
they were asking for more money to do the job they
were already contractually obligated to do based on
the original agreement to do it for $50. The
workmen were exploiting the temporary monopoly
they had over labor to extort the Alaska Packers
Association to a price hike to perform a duty they
were already contractually obligated to perform.
ii. Rule (R2d 73): you can’t use a temporary position
of monopoly to extort or renegotiate a price hike. If
there had been a change in the conditions than that
could be a basis for a bargain.
b. Watkins & Son v. Carrig: Carrig had hired Watkins &
Son to excavate his basement. After starting, the contractor
found rock under and asked for a 9x price increase from the
one they had agreed to in the contract for the work.
Homeowner initially agreed to the price increase, but then
changed their mind is not trying to reneg on that saying that
they only agreed under duress.
2. UCC 2-209: Pre-existing duty rule is removed from the code; you
do not need new consideration. A modification achieved through
extortion is ineffective as a violation of the duty of good faith.
3. Restatement § 89: Represents a modern softening of the pre-
existing duty rule.
 a. Allows for modification if the modification is fair and
equitable in light of circumstances not anticipated when the
contract was made.
b. Reliance: modifications are enforceable to the extent that
justice requires in view of material change of position in
reliance on the promise
E. DURESS
i. Austin Instrument, Inc., v. Loral Corporation
1. Business compulsion; duress in commercial dealings
2. Loral accused Austin of using duress in forcing Loral to make
certain agreements
3. Two Requirements for Contract to be Voidable in Business
Compulsion
a. Contract is voidable on the ground of duress when its
established that the party making the claim was forced to
agree to it by means of a wrongful threat precluded the
exercise of free will AND
b. Must be shown that the threatened party couldn’t obtain the
goods from another source of supply and that an ordinary
remedy of an action for breach of contract would not be
adequate
c. Restatement § 175
d. Restatement § 176
4. Holding: Loral acted in good faith and agreed to the price increase
as a consequence of the economic duress employed by Austin, so
the contract was voidable.
F. UNDUE INFLUENCE
i. Howe v. Palmer: Howe the plaintiff had severe dyslexia and was
developmentally delayed. The Palmers took advantage of Howe in many
respects.
1. Undue Influence: a situation where the victim’s own free will is
destroyed or overcome such that his actions are contrary to his true
desire and free will. Victim of undue influence is likely to think
that what they are doing is right for them, but only due to bullying
by someone in a dominant position.
ii. Common Examples of Undue Influence
1. Discussion of the transaction at an unusual or inappropriate time
2. Consummation of the transaction in an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. The use of multiple persuaders by the dominant side against a
single servient party
6. Absence of third-party advisers to the servient party
7. Statements that there is no time to consult financial advisers or
attorneys
G. CONCEALMENT AND MISREPRESENTATION
 i. Concealment and misrepresentation are different, however they can
overlap
1. Restatement § 161 and 169
2. Is what you did to protect your own economic interests at the
expense of the other party permissible by today’s standards?
ii. Concealment:
1. Swinton v. Whitinsville: Swinton buys a house that he later finds
out is infested with termites. Did the seller unlawfully conceal this
fact?
a. Rule: Nondisclosures, standing alone, are not the basis for
recovery. No liability for a bare non-disclosure
iii. Misrepresentation
1. Kannavos v. Annino: Annino had a single-family dwelling that
she illegally converted into apartments. When she sold the
converted house, she advertised it as a multi-unit home that could
be used to generate income through renting out the separate units.
Kannavos bought the house under these false pretenses, despite
Annino knowing that the use of the house was against
zoning/permitting laws. Kannavos says had he known this he
would not have purchased the property, and wants the contract
rescinded. Once Annino advertised the property as a rental
property she had a duty to tell the whole truth about how using the
property this way would be illegal. She advertised half-truths
knowing that this fraudulent advertising would lead someone to
purchase under false pretenses.
a. Rule: No duty to speak, but if you do speak with reference
to a given point then you are bound to speak honestly.
Anninos duty to disclose about the improper zoning was
initiated when she advertised that the property could be
used in such a way that was illegal, despite her knowledge
that it could not be.
2. Vokes v. Arthur Murray: Over several years Vokes spends tens
of thousands of dollars on Arthur Murray dance company lessons.
She argues that the dance company misrepresented her
progress/potential. Arthur Murray argues that the
misrepresentation is a misrepresentation of opinion, not fact.
a. Rule: Contracts can only be rescinded based on
misrepresentation of fact. However, this rule does not apply
when there is a fiduciary relationship between the parties or
when there has been trickery employed, or when the parties
do not deal at arm’s length, or when the representee does
not have equal opportunity to become apprised of the truth.
VI. CHAPTER 5 – Contract Interpretation, Determining the Parties Obligations
“Finding the Law of the Contract”
A. Agreement vs. Contract
 i. UCC 1-201 B3, Definition of Agreement: This is what we interpret, what
the parties discussed and agreed to.
ii. UCC 1-201 B12, Definition of Contract: Total legal obligation, includes
the parties’ agreements and also the law adds additional elements (good
faith, etc.), this is what we construe, because the contract is what we
“constructed.”
B. Three Questions
i. What is considered part of the contract?
ii. What is the meaning of the terms in the contract? (UCC 1-303 and
Restatement § 203(b)): This is a hierarchy; higher things overrule the
lower things. If there are inconsistencies, things higher up govern.
1. Express terms (includes incorporation by explicit reference)
2. Course of Performance (these same parties, on this same deal)
3. Course of Dealing (these same parties on any previous deals)
4. Usage of Trade (what do people in the industry do/think)
5. Restatement § 201; whose meaning prevails?
a. The party who knew or should have known that a term was
subject to multiple meanings either in general or in specific
trade then they are better positioned to avoid confusion by
being clearer, court is likely to rule against them.
b. If you go through all possible ways to determine whose
meaning prevails, the result is there is no contract. Failure
to agree on a pivotal term can mean there is no contract.
Not a neutral result.
iii. To the extent that there is a gap or a hole in the agreement, what are we
going to put in the gap?
1. Restatement § 204
2. UCC § 2-305
C. The Parol Evidence Rule (applies to all three questions ^)
i. Applies only if you have a written K (an integration; a writing that
purports to distill at least some part of the parties agreement); it applies to
try to exclude outside evidence from prior or contemporaneous
negotiations, agreements or concessions that are not in the written K.
ii. Integration/Merger Clause: provides that the written contract is the final
and complete agreement and any prior or contemporaneous agreements
between the parties is superseded by the written contract. Simply put, the
whole agreement between the parties can be found within the four corners
of the contract and any other previous agreements made by the parties
have no effect on the contract.
1. Circumstance can impact the effectiveness of a merger clause. In a
contract between two sophisticated parties the merger clause would
have more weight, than in a contract where one party is
unsophisticated.
2. Inconspicuous merger clauses (hidden in the fine print of a form
contract given to an unsophisticated buyer) provide little to no
evidence of the parties’ intentions.
 iii. Is the writing an integration?
1. No – end of PER analysis
2. Yes (§214, § 215)
a. § 214: It’s ok to explain, clarify, or define
b. § 215: You cannot contradict what’s in the integration
c. Is the integration partial or Complete? (§ 210) The court
decides this.
i. Complete – nothing changes
ii. Partial (§ 216): It is okay to add consistent
additional terms, as long as you don’t contradict
iv. PER is a hurdle trying to keep evidence out
1. First hurdle is to get judge to look at your evidence
2. Second hurdle is to get the judge to send your evidence to the jury
v. Judge asks; is there a writing? Is it partial or complete? Are there terms
that need to be interpreted?
vi. Mitchell v. Lath – PER applies (evidence excluded)
1. Oral agreement not allowed enforced; the oral agreement that the
Laths would remove the icehouse from their property was so
closely related the K for Mitchell’s purchase of the land, that it
should have been included in the written K.
vii. Masterson v. Sine – PER does NOT apply (evidence allowed)
1. Masterson owns a farm that he sells to his sister, in anticipation of
bankruptcy. He includes a buy back provision in the sale, which
would allow him to buy back the ranch within 10 years. The
bankruptcy trustee then tries to exercise this option to buy back the
ranch. Masterson and his sister argue that the provision was only
intended to be exercised by family members. The trustee wins at
the trial court, he can buy back the ranch at below market and sell
it to repay Masterson’s creditors.
a. Holding: Appellate court finds that the agreement is only
partially integrated so we can add consistent additional
terms to it, as long as we don’t contradict what is already in
writing. § 214, 215, 216
2. Case is one of a few cases that represent Justice Traynor’s move to
liberalize the Parol Evidence Rule in California.
viii. Four Corners/Plain Meaning Approach
1. A really strict four corners judge won’t look at any evidence
outside the document, stick to the “four corners” of the written
agreement.
2. Plain meaning: If a word has a plain meaning we don’t need parol
evidence to explain, clarify, define, etc.
ix. California/Restatement/Traynor Approach
1. Liberalization of the parol evidence rule; allowing for more outside
evidence to be presented to show party’s intent.
 2. Very few circumstances when a judge would not even look at
extrinsic evidence, but that doesn’t mean that they would show it
the jury.
D. Using Extrinsic Evidence to Show Parties Intent
i. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.:
PG&E had an agreement with G.W. Thomas Drayage that included an
indemnity clause. The issue of this case is whether that clause applied to
damages to PG&E’s property, or just third-party property. Justice Traynor
says that we have to look beyond the four corners and determine what the
specific parties intended.
1. Holding: The court decides to allow external evidence to
determine what the parties meant by the indemnity clause. Justice
Traynor was continuing to liberalize the PER.
ii. Greenfield v. Philles Records Inc.
iii. Trident Center v. Connecticut General Life Ins. Co.
E. Using Extrinsic Evidence in Commercial Context
i. Frigaliment v. BNS International: Issue was what the word chicken
meant in the contract.
1. Court is not starting from scratch; they just have to choose between
the two meanings being offered by defendant and plaintiff. One
party’s meaning prevails.
2. The contract referenced the USDA; which has six different
definitions of chicken. The contract therefore incorporated the
USDA by reference, making its contents express terms.
ii. Hurst v. W.J. Lake & Co.: Hurst contracts to sell horse meat to Lake,
with a clause that says the meat must have at least 50% protein and if it
doesn’t meet this standard there will be a discount of $5/ton. The meat in
question has 49.53-49.69% protein. Lake pays with the discount taken into
account. Hurst sues to recover the balance, alleging that Lake should not
have taken the discount because in the trade there’s a common
understanding that anything above 49.5% equals 50%.
1. Holding: Court rules for the seller, they interpret it based on the
trade language and intended meaning in the industry.
F. Using Extrinsic Evidence to Supplement or Qualify the Agreement
i. Nanakuli Paving & Rock Co. v. Shell Oil Co: Nanakuli contracted with
Shell Oil Co. for supplies. In Hawaii the standard was price protection
because the largest contracts came from the government, who wouldn’t
allow for price changes based on changes in supply costs. On two
occasions Shell honored the price protection standard, but on the third
occasion they sent a letter letting Nanakuli know about a price change.
VII. CHAPTER 6 – Limits on the Bargain and Its Performance
A. Unfairness (restatement § 364 and UCC 1-103)
i. McKinnon v Benedict: Mckinnon assisted the Benedict’s in buying a
resort that was enclosed by McKinnon’s property and a lake. Mckinnon
promised help in getting business and loaned the Benedicts $5,000. The
Benedict’s promised Mckinnon to not cut any trees between their camp
 and McKinnon’s property and to not make any improvements “closer to
his property than the present building” for 25 years. Benedicts pay off the
loan within 7 months and then they decide to add an RV camp and begin
to make improvements to open this camp. Mckinnon sues for an injunction
based on their promise not to make any improvements.
1. Holding: They do not enforce an injunction 🡪 the terms of the
contract were unfair and therefore they cannot be enforced by an
injunction. McKinnon’s contribution to the Benedicts was so
grossly disproportionate to them sacrificing their right to make
lawful and reasonable use of their property.
ii. Tuckwiller v Tuckwiller: Mrs. Tuckwiller agrees to take care of Mrs.
Morrison “for her lifetime” and in exchange she will be left a farm in Mrs.
Morrion’s will. Mrs. Morrison dies before she can officially change her
will to reflect this agreement, and at the time of her death. Mrs. Tuckwiller
only provided her a few days of care. Mrs. Tuckwiller brings this claim
against the executor of Mrs. Morrison’s estate to enforce the transfer of
the farm.
1. Holding: Court enforces the transfer of the farm to Mrs.
Tuckwiller. Mrs. Tuckwiller was ready and willing to uphold her
end of the bargain, providing care for her aunt’s lifetime, which
could have been a very long time. Further, Morrison had intended
to make the agreement legit – she went to her lawyer, and also, she
had EMTs that took her to the hospital sign a statement that she
intended for the farm to go to Mrs. Tuckwiller.
2. Aleatory Contract: a contract where at least one sides obligation
is of uncertain scope and duration (ex. An insurance contract)
B. Standard form & Adhesion K’s (Restatement § 211)
i. Deserve higher scrutiny than a non-standard form/adhesion contract
ii. O’Callaghan v. Waller & Beckwith: O’Callaghan was a tenant in a
building operated by the defendants. She was injured when she fell while
crossing the paved courtyard on her way from the garage to her
apartment. She sued to recover for her injuries, alleging they were caused
by defective payment. O’Callaghan had signed an exculpatory clause in
the lease that relieved the lessor and its agents from any liability to the
lessee for personal injuries or property damage caused by any act or
neglect of the lessor.
1. Holding: The court affirmed the appellate court’s decision that the
action was barred by the exculpatory clause. The use of a form
contract does not of itself establish disparity of bargaining power.
2. Dissent:
iii. Graham v Scissortail: Unconscionable form contract because the
arbitration clause called for an arbitrator that would be inherently bias.
The court here found undue oppression of the term requiring a specific
arbitrator.
iv. Judicially Imposed Limitations on Enforcement of Adhesion
Contracts
 1. Is the provision at issue unfairly surprising? If so, the provision
is not enforceable.
2. Is there undue oppression? If there is undue oppression, the
terms are not enforceable.
C. Unconscionability (Restatement § 208 and UCC 2-302)
i. Restatement § 208 – If a contract term is unconscionable (a deal no fair
person would make and no sane person would accept) a court may refuse
to enforce the contract or may enforce the remainder without the
unconscionable term or may limit the enforcement to avoid an
unconscionable result.
ii. UCC 2-302 – If the court 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 limit the application of any
unconscionable clause so as to avoid an unconscionable result.
1. Parties can provide evidence as to a potentially unconscionable
clause’s commercial setting, purpose, or effect to aid the court in
determining if a clause is unconscionable.
iii. Williams v Walker Thomas: Walker Thomas, a furniture company, had a
lease to buy program. Williams bought a stereo
iv. Stoll v Xiong:
D. Good Faith (Restatement § 205 and UCC 1-304)
i. Restatement § 205 & UCC 1-304: Every contract imposes upon each
party a duty of good faith and fair dealing in its performance and its
enforcement.
ii. Dalton v. ETS: You must be able to point to something in the contract
that allegedly breaching party violated.
1. How do we monetize Dalton’s damages if he did in fact earn the
higher SAT score?
iii. Northwest Inc. v. Ginsburg: Northwest had a frequent flyer program that
Ginsburg was a member of. They had a term that they could revoke
membership if there was an “abuse” of the program. Ginsburg was not
happy with this and asserted a breach of contract claim.
1. State good faith requirements can be preempted by federal
statutes
iv. Market Street Associates v. Frey:
v. Bloor v. Falstaff Brewing Co.: Best efforts, requires good faith plus an
affirmative effort to accomplish a particular objective. Don’t need to go
into bankruptcy but you may be required to take on some losses in making
best efforts. “Reasonable Diligence”
E. Public Policy (Restatement § 178, 186-88)
i. Public policy is trying to prevent situations when the parties are doing
something that is abusive to the rest of society.
ii. In Pari Delicto = In Equal Fault
iii. Contracts void as Against Public Policy
1. Illegal Contracts
 a. Illegal subject matter
b. Related to illegal subject matter (proximity, procurement,
performance)
2. Judicially Created Public Policy
a. Hopper v. All Pet Animal Clinic: Dr. Hopper has a post-
employment non-compete agreement with All Pet. She
decides to violate this agreement and open up her own
clinic. Here, court is okay with range of activities and
geographic scope of the non-compete agreement but have a
problem the duration of three years. Court says three years
is unreasonable. About balancing the interests of the
employer in protecting its business against the interest of
the public in there being competition.
i. Post-Employment Non-Compete Covenants OK if:
1. Supported by consideration
2. Reasonable re:
a. Duration
b. Geographic scope
c. Range of activities prohibited
3. In CA; presumptively invalid and
unenforceable (very
pro-market/competition and pro
employee)
ii. Blue Pencil Approach: The idea that if Courts
could just ‘delete’ a provision that’s overbroad, and
the result would be reasonable they could enforce it.
But you can’t change anything, only deleting
allowed.
iii. Other Approach: Look at what the parties wrote,
and court can reduce the agreement to what they
think is reasonable. Problem is it encourages
employers to write unreasonably broad restrictions.
b. Sheets v. Teddy’s Frosted Foods: Plaintiff was employed
by the defendant (frozen food producer) as a quality control
director and operations manager. Plaintiff noticed
deviations from specifications in the required standards set
by the company and state law. Plaintiff alerted his
employer of these deviations and was later fired for
“unsatisfactory performance.”
i. Exception to the general idea that you can fire an
employee at will: Here, you cannot fire someone
for “whistleblowing.”
c. Balla v. Gambro: Lawyers are duty bound to report ethical
concerns. The right of a client to have an attorney of their
choice is more important as a public policy matter than the
protection of one attorney’s job security.
 iv.Simeone v. Simeone: A young woman is getting married to an older
surgeon, prior to getting married they sign a prenup. She claims that the
prenup was given to her under duress and that she wasn’t able to consult
with an attorney.
v. In the Matter of Baby M: Court finds the contract void as a matter of
public policy. Restored the rights of the biological mother of Baby M, but
gave custody to the father. You cannot buy the parental rights to a baby
from the biological parents.
vi. Shadis v. Beal:
VIII. CHAPTER 7 – Performance and Breach
A. Conditions – Restatement § 224, 230
i. Restatement § 224: A condition is an event, not certain to occur, which
must occur, unless its non-occurrence is excused, before performance
under a contract becomes due.
ii. Restatement § 225: Effects of Non-Occurrence of a Condition
1. Performance of a duty subject to a condition cannot become due
unless the condition occurs or its non-performance is excused.
a. Only the party that benefits, or the court, may excuse
nonperformance of a condition
2. Unless it’s been excused, the non-occurrence of a condition
discharges the duty when the condition can no longer occur.
3. Non-occurrence of a condition is not a breach by a party unless he
is under a duty that the condition occur.
iii. Condition Subsequent: An event that, if it happens, will defeat or modify
an existing arrangement or discharge an existing duty. In a contract, a
condition subsequent can often terminate the duty of one party to perform
under the agreement.
iv. Luttinger v. Rosen: Luttinger’s entered into an agreement to buy the
Rosen’s house. The contract was subject to and conditional upon the
buyers obtaining a $45,000 mortgage from a bank or lending institution
for a term of not less than 20 years at an interest rate not more than 8.5%.
The Luttinger’s could not find a loan at these specifications and gave the
Rosen’s notice and demanded their down payment back. The Rosen’s
offered to make up the difference between the interest rate offered by the
bank and the 8.5% rate provided in the contract. Luttinger’s turned this
offer down, and the Rosen’s refused to return the down payment and thus
the Luttinger’s sued.
1. Holding: The court found that the Luttinger’s used due diligence
to find an interest rate required by the contract, which is all that is
required of them. They are not required to accept the Rosen’s
offer, because the contract expressly required that the mortgage be
from a bank or lending institution. The Rosen’s must return the
down payment.
a. Only the Luttinger’s (or the court) can excuse the condition
because the condition is in the K to protect them.
b. Express conditions are strictly construed
 v. Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc.: Defendant,
a processor of rice, entered into an agreement with the plaintiff, an
exporter, for the sale of 95,600 pockets of rice. River was to ship rice to
Lake Charles and Houston. Internatio Rotterdam was obligated to pay for
the rice. The condition was the buyer (Internatio) had to provide
instructions of where to ship the rice to River Brand two weeks prior to the
shipment. Seller’s duty to ship is conditional on receiving the instructions
from Buyer. The shipment was to be in December 1952.
1. Express Condition: They had to have received instructions by Dec.
17 in order to ship the rice in December as the contract stated.
vi. Peacock Construction Co. v. Modern Air Conditioning: General
contractor has a contract with subcontractors for work. The subs sue the
general to be paid, but the general argues that they have not been paid by
the owner which is a condition for the subs to be paid. Contract includes
three things have to happen for the sub to be paid, (1) completion of the
work by the subs, (2) written acceptance by the architect, and (3) full
payment by the owner. The general contractor says based on these three
provisions, “I don’t have to pay you, until I have been paid by owner.”
1. Holding: Court says the conditions are ambiguous, which is
usually a question for the jury, but the court decides it here as a
public policy matter. The owner’s failure to pay the general
contractor is not the subs problem, they should still be paid by the
general. The court here makes it come out this way to be fair to the
sub and for public policy reasons. Court excuses nonoccurrence of
the condition that for the sub to be paid by the general, general
must be paid by the owner.
vii. UCC 2-311:
B. Doctrine of Constructive Conditions
i. Kingston v. Preston: “I don’t have to do my part, until you do your party.
And vice versa.”
ii. Stewart v. Newbury: Stewart offered to do the excavation work for
Newbury’s building. Nothing in the contract specified time and manner of
payment. Plaintiff claimed there was a phone call where they agreed that
payments would be made in the “usual manner.”
1. Holding: Payments should be made at a reasonable time
iii. Order of Performance
1. As specified in contract
2. If not specified, default is simultaneous performance (§ 238)
3. If that’s not possible, then we use faciendo ante dando
iv. Faciendo Ante Dando: Doing before giving
1. Presumption is that if your performance is going to take some time,
like building something, etc., then your performance should go
first, and payment should go second.
C. Consequences of Non-Performance
i. UCC: The Perfect Tender Rule (UCC 2-601)
1. High Standard: right quantity, right quality, correct delivery (time
place and manner). If the goods delivered or the tender of delivery
fail in any respect tot conform with the terms of the K, the buyer
has the right to accept the goods, reject the entire shipment, or
accept part and reject part.
a. Good faith tempers the use of the perfect tender rule as a
pretext
b. Softened in 3 ways
i. (1) 2-508: Seller has the power to cure a defective
tender “if time for performance has not yet
expired.” And in some situations, even if that time
has expired.
ii. (2) 2-608: Allows a buyer who has already accepted
goods to revoke that acceptance only if the “non-
conformity substantially impairs their value to
him.” (subjective
iii. (3) 2-612: Allows a buyer under a contract for
delivery of goods in installments to reject an
installment only if a non-conformity as to the goods
“substantially impairs the value of that installment”
and to claim a breach of the whole contract only for
a breach that “substantially impairs the value of the
whole contract.”
1. Under an installment contract a buyer
must accept non-conforming goods if the
seller gives adequate assurances they will
cure the defect; unless the non-conformity
substantially impairs the value of the
installment and cannot be cured.
2. UCC 2-602: Perfect tender rule does not apply to installment
contracts. The likelihood is greater that market conditions will
change to favor one party or the other and the buyer will use the
perfect tender rule to get out. Society has an interest in installment
contracts working out, so once in one you are expected to be more
forgiving and flexible.
3. Bartus v. Riccardi: Riccardi goes to Bartus’s retail store to
purchase a specific hearing aid model. He gets fitted for a certain
model, which Bartus orders from the manufacturer. The
manufacturer sends a newer model (supposedly better model),
which Bartus gives to Riccardi. Riccardi tries it out then rejects it
because it is not the model he ordered, Bartus then offers to send
Riccardi the original model however Riccardi rejects it. Bartus
sues to recover the cost.
a. Holding: Seller has a right to cure the defect before the
date of delivery. The seller could have more time to cure
the defect, if the seller reasonably believed that the buyer
 would accept the non-conforming goods. Here, Bartus
reasonably believed that Riccardi would accept the newer
model.
4. Rejection of goods
a. Wrongful vs. Rightful: Whether you have a right to reject
b. Ineffective vs. Effective: Whether you reject in the correct
way
i. Most of the rules have to do with avoiding
waste/loss
5. Jorgensen v. Pressnall: Jorgensen’s contracted to buy a mobile
home from the Pressnall’s. The Jorgensen’s brought this suit to
rescind their purchase and for recovery of their down payment.
Pressnall represented the mobile home to the Jorgensen’s as being
of “good sound construction and of medium quality.” Jorgensen’s
discovered many defects (water and air leaks, defective doors,
cabinets, vents and walls). They were assured by the Pressnalls that
these would be corrected; but their attempts to get the Presnall’s to
fix failed.
a. Holding: The plaintiff’s (Jorgensen’s) effectively revoked
their acceptance of the mobile home. They successfully
proved that nonconformities substantially impaired the
value to them. They intended to use the home as the
residence and due to the defects and the defendant’s failure
to cure them, the value of the mobile home to plaintiffs as a
residence was substantially impaired.
ii. The Common Law: Substantial Performance and Material Breach
1. Major vs. Minor Breach (also Material v. Immaterial)
a. R2d § 241: Determining whether a failure to render or to
offer performance is material, consider the following:
i. Whether the injured party will be deprived of the
benefit which he reasonably expected
ii. Extent to which the injured party can be adequately
compensated for the part of that benefit he was
deprived
iii. Extent to which the party failing to perform or to
offer to perform will suffer forfeiture
iv. Likelihood that the party failing to perform or to
offer to perform will cure his failure, taking account
of all the circumstances including any reasonable
assurances
v. Extent to which the behaviors of the party failing to
perform or to offer to perform comports with
standards of good faith and fair dealing
2. Jacob & Youngs v. Kent: Builders are suing owners for failure to
pay. Owners stopped paying because they realized that the builders
used pipes that weren’t the brand specified in the contract, so they
 claim that the builders breached, and thus owners think they don’t
need to pay.
a. Holding: Builders have performed substantially, which
triggers the owner’s duty to pay. Their breach was minor.
The pipes were an embedded defect, an in order to not
avoid the waste that would result in tearing them out and
starting over, the result must be for the plaintiff including
the diminished value of the pipes. Not a willful breach;
willfulness is not about willfulness, about blameworthiness.
b. Embedded defect 🡪diminished value
c. Question: has the essential purpose of the contract been
met? In this case yes, the essential purpose was to build a
livable house, which the builders did.
D. Suspending Performance and Terminating the Contract
i. Walker & Co. v. Harrison: Walker agreed to build and install a neon
sign on Harrison’s property for his business. It was arranged that the sign
would be leased to the buyer (Harrison) for 36 months and at the end of
that time title would transfer to Harrison. (Lease to own). It was agreed
that during the lease period the seller (Walker) would maintain the sign.
Sign was hit with tomatoes, and the buyer complained of rust and
cobwebs; buyer requested that the seller provide maintenance through
several requests. Seller did not perform maintenance, so the buyer
informed the seller that he was not going to make any more payments and
that their contract was over. The seller than came and fixed the sign a
week later and sued the buyer for the full amount of the contract.
1. Holding: Court determines that the buyer breached first by
stopping payments. The seller’s failure to fix the sign immediately
was a minor breach, he had otherwise performed substantially and
therefore the buyer was required to pay. The injured party (buyer)
still got the substantial benefit that he reasonably expected (a neon
sign that lights up).
ii. K & G Construction Co. v. Harris: Contractor had an agreement with
subcontractor to make progress payments for the work performed. The sub
also agreed in the contract to have liability insurance for property damage.
In the course of work the subcontractor caused damage to the house and
the immediate damage of a wall. The sub did not compensate for that, so
the contractor refused to pay one of the installments. Then the sub also
stopped performing. Issue: did the contractor have the right to refuse to
make progress payments? Who committed the first material breach?
(apply factors in § 241)
1. Holding: The sub damaging the wall and refusing to pay for it was
the first material breach. The sub also breached again when they
stopped performing after the contractor withheld payment.
iii. Substantial Performance (R2d § 237): a material failure of performance,
including defective performance or absence of performance, operates as
the non-occurrence of a condition. Nonoccurrence of a condition has two
 possible effects on the duty subject to that condition (per R2d §225) either
(1) prevents performance of the duty from becoming due, at least
temporarily, or (2) discharges the duty when the condition can no longer
occur.
1. Substantial performance is a condition which must occur in order
to trigger the reciprocal duty to perform.
E. Mitigating Doctrines:
i. Divisibility: Restatement § 240: Part Performance
1. Gill v. Johnstown Lumber: Gill had contracted to deliver logs to
Johnstown Lumber, but due to a massive flood only some of the
logs made it to Johnston. Gill wants money for the logs that were
delivered while Johnstown would argue that the contract should be
null and void because Gill didn’t satisfy their end of the bargain.
a. R2d § 240: If you can divide up the performances on each
side and match them up into corresponding pairs, then we
treat them like individual contracts. Each pair is evaluated
like a full contract.
2. Progress payments do not automatically equal
divisibility/severability. Each part must have independent utility.
a. Ex. Construction contracts often have progress payments
but standing alone each month of work doesn’t have
independent utility when the goal is to build a house. Could
be severable if the contract is to build separate structures,
that independently would have value.
3. Referred to as an Installment Contract in the code
ii. Restitution
1. Britton v. Turner: Britton had a contract with Turner to work for
a year for $120. After 9.5 months he breaches the contracts without
substantially performing. Is he out of luck or can he recover for the
9.5 months worked?
a. Holding: Yes, Britton can recover some money. He can
recover based on restitution, so that the employer won’t be
unjustly enriched. He will recover not based on the contract
but based on an independent value of the work he
performed (can use market value of the work).
2. Kirkland v. Archbold: Plaintiff contracted with the defendant to
make repairs and alterations to the defendant’s house. The
contracts established progress payments. Plaintiff worked for two
months, then materially breaching the contract before he had
substantially performed. The defendant then stopped performance
and plaintiff brought this case to get the full first payment that was
owed to him.
a. Holding: Citing Britton v. Turner the court says that
plaintiff can recover the value of the work he has
performed in order to prevent the defendant from being
unjustly enriched.
 iii. Waiver, Estoppel, and Election
1. Mckenna v. Vernon: A contract to build a movie theater for
$8,750 in installments. One of the conditions of the installment
payments is for the architect to inspect and confirm that the work
to date conforms to the plans. Here, the architect was not
consulted, and the owner made 6 out of 7 payments without asking
for an inspection certificate. Then on the last payment the owner
wants out based on lack of certification.
a. Holding: Court says by repeatedly electing to waive the
condition of the certification the owner is estopped from
reasserting this right.
iv. Hindrance, Prevention, Cooperation
1. Hinderance, Prevention: Self-evidently bad faith. You cannot
hinder or prevent someone from performing the contract. Ex.
Union lockout.
2. Cooperation: you have to cooperate in good faith
a. Ex. Internatio Rotterdam – had to cooperate by sending the
instructions on where to deliver the rice.
F. Prospective Nonperformance
i. Anticipatory Reputation: essentially, a promise that you are going to
breach, and the other party is entitled to rely on this promise. When one
party anticipatorily repudiates, the other party can accept it and treat it as a
breach now, or they can wait and not treat it as a breach immediately but
treat it as a breach later when it actually is a breach. Can only wait a
reasonable amount of time
ii. UCC 2-610: If either party repudiates the contract with respect to
performance not yet due, the loss of which will substantially impair the
value of the contract to the other, the aggrieved party may: (1) for a
commercially reasonable amount of time await performance, (2) resort to
any remedy available for breach.
iii. Restatement § 250: A repudiation is a statement by the obligor to the
oblige indicating that the obligor will commit a breach that would of itself
give the oblige a claim for damages for total breach.
iv. Restatement 243:
1. Hochester v. De La Tour: Delatour entered into a contract to pay
Hochester to be his courier on an upcoming trip that was to begin
on June 1 . On May 11 Delatour wrote to Hochester to let him
st th

know that he no longer needed his services, Hochester than

brought suit on May 22 (before the trip was to start) to recover
damages for Delatours breach. Issue: Can Hochester bring this
claim before the breach has actually happened (which would be on
June 1 )?
st

a. Holding: Yes. One reason people enter into contracts in

advance is the security of knowing that performance is
forthcoming. Cooperation in good faith requires that each
party not do anything leading up to the contract that
 interferes with the other sides performance. Delatour has
breached his obligation of cooperation. Hochester is
entitled to rely on Delatours anticipatory repudiation of the
contract and go and find alternative employment, rather
than waiting around until Law Day (the date that
performance is due.)
2. Kanavos v. Hancock Bank & Trust: Kanavos has right of first
refusal to buy a building, but Hancock Bank & Trust sold the
building without giving Kanavos the chance to buy it. Kanavos
wins, Hancock appeals saying that yes we didn’t offer him the
chance to buy the building but he couldn’t have bought it anyway.
a. Issue: Is Kanavos’ ability to buy the building a condition to
his ability to recover when the bank has admittedly
breached the contract? If so, who has to prove it?
b. Holding: Yes. It’s a condition that he was able to buy the
building, and it’s on him to prove that he was able to.
c. No question the bank breached, but unless Kanavos could
have bought it there is no injury from the breach. If he
couldn’t have bought it, there is a breach but no injury.
3. McCloskey & Co. v. Minweld: Plaintiff, a general contractor, is
suing the subcontractor, Minweld. Minweld sent McCloskey a
letter stating they were having difficulty obtaining the necessary
materials for the project they have contracted to help build, but
stated they still want to perform. The contractor takes this as a
repudiation of the contract and brings suit against the sub.
a. Holding: The sub wins here because their letter is not a
repudiation. There must be an absolute and unequivocal
refusal to perform. The contractor upon receipt of the letter
should have requested adequate assurance of performance,
rather than going straight to a lawsuit for breach.
4. Procedure for when a breach/repudiation is unclear
(Assurance):
a. First, you have to have reasonable grounds for insecurity
based on something supervening that has arisen since the
contract was entered into
b. Second, you have to ask (demand) for adequate assurances
that the party is going to perform (you can suspend
performance while waiting).
c. Finally, if they don’t give such adequate assurances, then
you can treat it as an anticipatory repudiation, which you
can treat as a breach.
d. Restatement § 251: Where reasonable grounds arise to
believe that the obligor will commit a breach by non-
performance that would of itself give the oblige a claim of
damages for total breach (§ 243), the oblige may demand
adequate assurance and may, if reasonable, suspend
 performance for which he has not already received the
agreed exchange until he receives such assurance.
e. UCC 2-609: Aggrieved party is permitted to suspend
performance while they are waiting for adequate assurance.
Acceptance of any improper delivery or payment does not
prejudice the aggrieved party’s right to demand adequate
assurance of future performance.
i. Grounds for insecurity don’t have to arise from or
be directly related to the contract in question.
v. Retracting/Nullifying the Repudiation: Until it is accepted the
repudiator can retract or nullify the repudiation any time before its
accepted or relied on. Repudiator does not need to know that the other
party has relied on their repudiation.
1. Restatement 256 – Nullification
2. UCC 2-611 – Retraction
IX. CHAPTER 8 – Remedies for Breach
A. Specific Performance
i. Money damages are preferred over specific performance (easier and
simpler for courts to give award money)
ii. Personal service contracts are almost never specifically enforced – the
parties likely have an adverse relationship after litigation
iii. ASK: Is this a situation where money won’t fix it?
1. Are the goods or services unique/one of a kind? Ex. land, certain
heirlooms, works of art. Generally, specific performance is
appropriate when the goods are unique, but also in other
situations.
iv. Modern trend: liberalizing the use of specific performance
v. § 359 – Specific performance or an injunction won’t be ordered if
damages would be adequate to protect the expectation interest of the
injured part.
vi. UCC 2-716: Specific performance may be allowed when the goods are
unique or in other proper circumstances.
vii. Campbell Soup Co. v. Wentz: Campbells enters into an output contract
to purchase all of the Chantenay Red carrots that the Wentz’s grow at $30
per ton.
1. District Court: Denied specific performance because the carrots are
not unique.
2. Appellate Court Holding: Affirmed, but because specific
performance would be unfair, not because the carrots weren’t
unique. The contract was unfair/out of balance (favoring
Campbells), so it was unconscionable. Contract provided, even if
Campbell’s decided the carrots were unsatisfactory, the Wentz’s
wouldn’t be able to sell to anyone else, which is basically an
unconscionable term, but the court uses the term unfair.
viii. Laclede Gas Co. v. Amoco Oil Co.: Laclede is the plaintiff and Amoco is
the defendant. There are in a natural gas distribution agreement, Laclede
 would develop gas systems for housing units/subdivision. Default was that
the agreement was automatically renewed, unless there was an affirmative
action to end it (Ever Green Provision). Laclede has the option to get out
of the contract, Amoco does not. Amoco notified Laclede that the price of
oil increased, Laclede objected to the price increase, at which point
Amoco notified Laclede they were going to terminate due to lack of
mutuality. Trial court finds for Amoco. Laclede appeals, seeking specific
performance of Amoco to continue providing natural gas per the terms.
1. Holding: There is no requirement of mutuality of obligation, or
mutuality of remedy. Public Policy favors specific performance
because the public needs natural gas. Also given that the duration
of the contract is unknown, it would be difficult to calculate money
damages. Price x Quantity x duration = damages (here, all are
uncertain)
ix. Walgreen Co. v. Sara Creek Property co. – Anomaly
1. Specific performance is ordered in hopes that the parties will work
out the issues in a settlement amongst themselves. Analysis is
turned into an economic one in this case. The court specifically
says they expect that the injunction that was ordered will not be
followed, because the parties will work out themselves a settlement
that will allow Sara Creek to rent space to another pharmacy in the
mall.
B. Measuring Expectation
i. Expectation = giving injured party the “benefit of the bargain”
ii. What they expected to receive – what they did receive +
incidental/consequential damages – anything salvaged or saved (minus
damages the party could have mitigated)
iii. Types of Measuring Expectancy: Goods
1. Cover – UCC 2-712; recovery for the buyer getting the goods
elsewhere. Damages would be if they had to pay a higher price to
get the goods from another seller.
a. Laredo Hides Co. Inc. v. H & H Meat Products Co.,
Inc.: Laredo agrees to buy all hides from H&H meats for a
period from March to December 1972 (an output contract).
The check for the second shipment was delayed in the mail,
H&H objects to this delay and calls Laredo requesting
payment in the next few hours or there will never work
with them again. Laredo had already contracted with a
tannery in Mexico to sell these hides to them, so without
the hides from H&H they were forced to buy substitute
hides on the open market which were more expensive.
i. Holding: Court determined that it was reasonable
for Laredo to recover for the additional costs
accrued for “covering,” purchasing the substitute
hides.
 2. Resale – UCC 2-706; recovery for the seller if the buyer breaches,
accounts for discrepancy in the different resale price as compared
to the original contract (injury would be if the price was lower).
3. K/Market Differential -- UCC 2-708(1); if a buyer or seller
doesn’t make an actual substitute transaction (cover or resale), you
are still entitled to damages based on a hypothetical substitute
transaction. Law recognizes an economic interest in the right that
the breach victim had to a transaction at below or above market
rate.
4. Action for the Price – UCC 2-709: Sellers equivalent to specific
performance (not an equitable remedy). Ex. if seller has delivered
goods and the buyer doesn’t pay, or the buyer breached and the
goods are perishable or there is no other buyer, seller is entitled to
their money.
5. Lost Volume Seller – UCC 2-708(2): Seller can recover for a lost
sale when they can show that they have a predictable and finite
number of customers and that it would be profitable for them to
produce the extra unit.
a. R.E. Davis Chemical Corp. v. Diasonics, Inc.
i. Lost Volume Seller: injury is from loss of sale, if
not for the breach the seller would have made two
sales.
6. Specific Performance – UCC 2-716: Buyers remedy when seller
breaches. See above.
iv. Overhead Costs
1. Vitex Manufacturing Corp. v. Caribtex
a. Overheard – once the defendant has lost the lawsuit, they
are looking for ways to limit damages and deducting
overhead is one way they look to do it.
b. Fixed vs. Variable Overhead – the breaching party can
deduct variable overhead costs from the amount of
damages owed, they cannot deduct fixed overhead costs.
v. Cost of Repair/Replacement/Completion vs. Diminished Value Rule
1. Plante v. Jacobs
a. Diminished Value Rule: Comes up mostly with embedded
defects. A really forgiving measure of damages for the
breaching party. Only for a minor breach where the
typical measure of cost of completion/replacement/repair
would be grossly disproportionate to the loss in value from
the breach.
b. Can it be fixed without economic waste?
vi. U.S. v. Algernon Blair: Subcontractor contracted with Algernon to
complete a naval hospital. There was a dispute over whether or not
Algernon needed to pay for the renting of cranes to actually do the work.
Algernon refused to pay, and after subcontractor completed 28% of the
contract, they stopped performance because Algernon was no longer
 paying for the equipment. Trial court concluded that the subcontractor was
no entitled to recover damages for the work they had completed because if
they had actually completed the entire contract the sub would have
actually lost money. The sub had made an economically irrational contract
(a bad deal). Appealed.
1. Holding: The general cannot just get the subs work for free.
Appellate court decides to ignore the contract, because the
breaching party (the general) cannot get a windfall. Court decides
to grant the subcontractor restitution damages, in quantum merit
(as much as he deserves), the general must pay the sub for the fair
market value of the work they had already done. Going to assign
an independent value to the worth of the work.
C. Limitations on Damages
i. Rockingham County v. Luten Bridge Co.: Luten Bridge has contracted
with the County to build a bridge in North Carolina. The county backs out
of the contract, due to public backlash. The county repudiates and lets
Luten know that they don’t intend to follow through on the contract. Luten
decides to continue work on the bridge, ignoring the repudiation by the
County. Luten than sued to recover damages for the work they had
performed.
1. Holding: Luten could have mitigated their damages by stopping
performance when the county repudiated the contract. Mitigation is
not required but, they have no right to continue to pile up damages
by working on a useless bridge.
2. Restatement § 350: Damages are not recoverable for loss that the
injured party could have avoided without undue risk, burden, or
humiliation. Injured party is not precluded from recovery to the
extent that he has made reasonable but unsuccessful efforts to
avoid loss.
3. “when you’re in a hole stop digging” or ex: roofer left a faulty hole
in your roof that you don’t notice until it rains. You should put a
bucket under the hole, and not pile up furniture to increase the
damages.
ii. Opposite of Luten Bridge: UCC § 2-704(2) – a seller that is
manufacturing goods may proceed to complete their manufacture upon the
buyer’s repudiation, instead of halting manufacturing and salvaging them
while in process, “in the exercise of reasonable commercial judgement for
the purposes of avoiding loss and effective realization.”
1. It’s presumed that there is another market for the sale of the
goods.
2. It would be wasteful to stop manufacturing for a good that you
could resell to another buyer; if the product is so
unique/customized than maybe it would be better to scrap it.
iii. Cosden Oil & Chemical Co. v. Karl O. Helm
1. Issue: When should damages be measured?
 2. Holding: Damages should be measured at a commercially
reasonable point after Cosden informed Helm that it was
cancelling the three orders.
3. Buyer cannot just sit back and let damages run up (i.e. market price
of plastic). When would buyer have covered? “Commercially
reasonable time” after buyer learns of the repudiation allows time
for the buyer to cover. Additionally, it allows for the buyer to give
the repudiator an opportunity to retract.
iv. Parker v. Twentieth Century Fox Film Corp: An actress, Shirley
McLaine Parker, entered into a contract with Twentieth Century Fox Film
Corp to play the lead in Fox’s new movie, “Bloomer Girl.” The contract
provided that Parker was to receive $750,000 for the movie. Before
production started, Fox informed Parker that they were no longer going to
produce the film and they instead offered her a leading role in another film
with the same compensation.
1. Basic Rule: the general rule is that the measure of recovery by a
wrongfully discharged employee is the amount of salary agreed
upon for the period of service, less the amount which the employer
affirmatively proves the employee has earned or with reasonable
effort might have earned from other employment. Employer must
show that the other reemployment was comparable, or
substantially similar to that of which the employee has been
derived. Not expected to move down the line of work.
2. Issue: Was the other film that Fox offered Parker inferior or
substantially different than the original film?
3. Holding: The alternative movie offered to Parker was inferior and
different, and thus her non acceptance was not a breach.
v. Hadley v. Baxendale
1. Rule: Damages are only recoverable to the extent that they were
foreseeable by the breaching party at the time of entering into the
contract. Foreseeability test.
2. Difference between direct damages and consequential damages
a. Direct damages follow directly from the breach: Damages
you are automatically responsible for are ones that anyone
in your shoes would be injured by
b. Consequential damages are ripple effect damages
i. Contemplated damages are consequential
ii. Knew or should have known that the type of
damages were foreseeable and that they would be
liable
vi. Kenford Co. v. County of Erie
1. Changes/Mistates the Hadley rule; adds the “tacit agreement”
which is not part of the law
vii. Fera v. Village Plaza, Inc.
1. Lost Profits of a New Business
D. Sentimental/Emotional Damages
 i. Sentimental Value: Hard to determine the value to the owner; only
allowed to recover for the actual or intrinsic value not any unusual
sentimental value.
ii. Emotional Damages: Restatement § 353
1. Damages for emotional distress/mental anguish are generally not
recoverable in a contract action
2. Sometimes emotional distress is not foreseeable, even if it is
foreseeable damages are often difficult to establish and to
measure.
3. Exceptions
a. Cases involving the care of a deceased loved one’s body.
b. Where serious emotional distress is particularly
foreseeable. Focus is shifted from the manner of the breach,
to the nature of the contract.
c. Employment discharge following harassment by fellow
employees
d. Cases involving religious observance
E. Liquidated/Stipulated Damages
i. Penalties are not generally allowed in contracts.
ii. Liquidated Damages: A provision that allows for the payment of a
specified sum should one of the parties be in breach of contract. An
amount the parties designate during the formation of a contract for the
injured party to collect as compensation upon a specific breach.
1. Restatement § 356: Enforceable if they are reasonable
2. The harder it is to estimate damages, the larger the window of
‘reasonableness’ is
3. Second Look Back – can determine if provision is ‘reasonable’ by
looking at what the actual damages from a breach were, was the
provision close to that?
iii. Dave Gustafson & Co. v. State: Gustafson was hired to construct a
highway for the state in South Dakota. The contract provided a graduated
scale of liquidated damages per day. Gustafson sued the state to collect the
full amount owed, claiming that the state was wrong to withhold damages
for a 67 delay in construction.
1. Holding: the state was right to withhold damages for the delay.
a. Difficult to determine what the losses would be for a delay
b. Graduated scale for the size of the project (large scale
construction project)
iv. Wasserman’s Inc. v. Township of Middletown: Plaintiff, Wasserman,
and defendant, Township of Middletown, entered in an agreement for a
commercial lease. The agreement contained a provision that if Township
cancelled the lease, it would pay the lessee, Wasserman, a pro rata
reimbursement for any improvement costs and damages of twenty five
percent of the lessee’s average gross receipts for one year. Township
cancelled and refused to pay the agreed damages.
 1. Modern trend is to assess reasonableness of liquidated damages
clauses at the time of contract formation or at the time of breach
v. Subterfuge – Instead of providing a penalty for delayed completion,
parties can provide a bonus for early completion. Fully permissible.
F. Punitive Damages
i. Bain LLC v. Arco Prod. Co. – Punitive damages are meant to hurt the
party; so, the parties’ assets can be considered, but regardless punitive
damages may only go as far as 9x the amount of compensatory damages.
ii. Restatement § 355 – You can’t get punitive damages for pure breach of
contract unless the breach is also a tort, or if there is a statutory provision
that provides for punitive damages.