Contracts

Offer and Acceptance

A. Offer
1. Manifestation of willingness to enter into a bargain [RS § 24]
a) indicating that assent is invited AND
b) that offeror intends to be bound by assent
2. An offer must make the terms of the contract “reasonably certain” [RS § 33]
a) provide a basis for determining if there’s a breach & for giving a remedy
b) uncertainty as to one or more terms may indicate an intention not to be bound
BUT
c) [RS § 34]: part performance may remove uncertainty or reliance may make
contractual remedy appropriate though uncertainty is not removed.
3. A proposal other than one addressed to one or more specific persons is an invitation
to make offers (unless otherwise clearly indicated by its maker)
4. Effect
a) Creates a legal right in offeree (“power of acceptance”) to bind offeror to contract.
b) Places offeror in position to be bound whether or not s/he actually so intended.
[RS § 21: manifestation that promisor does not want to be legally bound may
prevent formation.]
c) Revocable any time unless qualifies as ‘option contract’ (see below)
Ray (p 31) P contracted D to build a house. After P made modifications to D’s
proposed specs, the full set of documents were reviewed by P and D. The K
was then signed but not the specs or the prints. The specs were later by D
and P at the mortgage bank. D claims that they never saw the modified
specs and that they assumed that signed K referred to their original
proposed specs.
Held: Absent fraud, duress, or mutual mistake, a party having the
capacity to understand a written document who reads and signs it, or
without reading it or having it read to him, signs it, is bound by the
contract. (objective rule → means what reasonable person in position
of parties would think it means)

Bilateral Contracts: Mutual agreement as to bargained-for exchange of promises.

Lonergan (p 42): Aborted transcontinental land deal. Manifestations by seller:

newspaper ad (addressed to gen’l audience; no price); form ltr. (addressed to
no specific party; stated min. price); personal letter (ok’g buyer’s proposed
escrow agt. should the deal go through & warning that seller expected to sell
w/in week). Ct said no offer -- ’s intention not to be bound clear in warning
to act fast.
Izadi (p 46): Newspaper ad offering a minimum $3,000 trade-in regardless of
the car’s actual value. The ad also contained very fine print that stated that the
offer applied only to a specific type of car in stock, and that the offer was based
on a trade-in worth at least $3,000.

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 Held: An ad that employs bait-and-switch tactics is interpreted under
standard contract principles and not under the general rule that an ad
does not constitute an offer.

Normile (p 51).:  and other party both tried to buy land from D. P first
submitted a bid, but D responded with a counteroffer. Prior to P’s acceptance of
D’s counteroffer, D sold the property to other party.
Held: offer remains only offer until seller accepts it on the terms
originally offered. If instead seller purports to accept but changes
or modifies terms of that offer, creates counteroffer which is new
offer (“conditional acceptance”). No K formed unless both parties
agree on same terms. A counteroffer acts as a rejection of the original
offer and does not contain the terms of the original offer. The
counteroffer, like the original offer, must be accepted before it is
revoked.

Unilateral Ks: One party agrees to commit to some performance iff other party first
“accepts” by performing.

Cook (p 60): P was a real estate salesperson for D at the time D instituted a
bonus program. After receiving the first part of her bonus, P was informed that
receiving the remaining portion of her bonus was contingent on continued
employment. When P left her job, D refused to give her the remainder of her
bonus.
Held: The unilateral contract was enforceable because Plaintiff had
already made substantial performance before Defendant attempted to
revoke. Offer may not be revoked if the offeree has substantially
performed. Substantial performance may operate as consideration to
make the offer irrevocable.

Sateriale (p 66): Camel cash points - some "C-notes" stated that D could revoke
offer at any time, but not all. In reliance on RJR's actions, they purchased Camel
cigarettes, enrolled in the program, and saved their certificates for future
redemption. RJR abruptly ceased accepting certificates for redemption, making
Plaintiffs' unredeemed certificates worthless. Plaintiffs brought this action for
breach of contract, promissory estoppel, and violation of two California
consumer protection laws. Court reversed the dismissal of Plaintiffs' claims for
promissory estoppel and breach of contract, holding that Plaintiffs adequately
alleged these claims.

Walker (p 76): P leased a small lot from D for a ten year term. The lease
agreement between the parties provided an option to renew for an additional
ten years. The option included the same terms as the original lease, but did not
set an amount for rent. The lease option provided that the rent would be set “in
such amount as shall actually be agreed upon by the lessors and the lessee with

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 the monthly rental fixed on the comparative basis of rental values as of the date
of renewal with rental values at this time reflected by the comparative business
conditions of the two periods.” Plaintiff gave proper notice of renewal, but the
parties were unable to reach an agreement as to the amount of rent.

Held: The option is unenforceable because the provision for setting the
rent is indefinite and ambiguous. Court characterizes the provision as an
unenforceable agreement to agree. If the parties had agreed on a
specific method, computation, formula, or even arbitration to
determine the rent, the court would have enforced the option.

Quake (p 83): D was expanding its facilities at Airport. Jones was hired by the
Defendant to prepare bid specifications, accept bids, and award construction
contracts. P submitted a bid to Jones. Jones notified P orally that the P had been
awarded the contract. P was informed that a written contract prepared by Jones
would be received shortly. To aid P in securing subcontractors, Jones sent P a
letter of intent. The letter of intent indicated that a written contract would be
prepared and that Jones could cancel the letter of intent if the parties failed to
agree on a fully executed subcontract agreement. At a meeting with P’s
subcontractors, Jones announced that P would be the general contractor for the
project. Immediately following the meeting, D told the P that their involvement
with the expansion was terminated.

Held: Letters of intent may be enforceable if the parties intend them to

be binding. If a writing is not ambiguous, the court may only look at the
writing. However, if the writing is ambiguous, parol evidence may be
introduced to show the intent of the parties. To determine whether
parties intended to reduce their agreement to writing the court
considers: whether the type of agreement is one generally put in
writing, the amount of details the agreement contains, the amount of
money the agreement involves, whether a formal writing is required for
full expression, and whether a formal written document was
contemplated at the end of negotiations.

B. Acceptance
1. Modes of acceptance
a) Unless offer [unambiguously – UCC] invites only a specific form of acceptance,
it may be accepted in any manner & by any medium reasonable in the
circumstances [RS § 30; UCC § 2-206(1)]
i. Acceptance may be required by [RS § 30]
* Affirmative verbal/written answer
* Performing or refraining fr. performing a specified act
* Selecting terms of acceptance
b) An offer shall be interpreted as inviting acceptance by either a promise to perform
or performance, as offeree chooses, if [but only if] it’s unclear what type of
acceptance wanted [RS § 32]

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 i. When offer invites acceptance as offeree chooses, tender or beg’g of
performance shall bind both parties to the contract [RS §62]
ii. [If an offer is to be accepted by a promise, performance is no substitute]

c) If offer prescribes place, time, or manner of acceptance, then a contract will only
be formed if the terms of acceptance met. [RS § 60]
i. If the offer merely suggests a time, place, manner of acceptance, it does not
preclude other methods. [RS § 60]

d) Silence & inaction will not operate as acceptance unless [RS § 69]
i. offeree implies by act that offeror does not own the offered property
* if offeree acts wrongfully, acceptance not complete w/o offeror’s ratification
* offeree so bound is subject to the offered terms unless they are unreasonable
ii. offeree takes bennie of offered services though had (1) chance to reject & (2)
reason to know compensation would be expected
iii. offeror manifests willingness to be bound by silence/inaction AND offeree
intends to accept through silence/inaction [subjective acceptance]
iv. previous dealings or other grounds make it reasonable for offeree to notify
offeror if he does not intend to accept.

2. Conditional Acceptance
a) If an acceptance is made but additional terms are suggested, there is valid
acceptance (so long as acceptance not predicated on assent to changed or added
terms) [RS § 61]
b) If it the acceptance is not clearly independent of the additional terms, there is a
counter offer.
3. Mailbox rule
a) Acceptance normally takes effect on dispatch (Adams v. Lindsell)
i. Manifestation of mutual assent complete when acceptance put out of offeree’s
possession EXCEPT [RS § 63]
* In an option contract, the contract is formed when acceptance received [RS §
63(b)]
* If improperly addressed or carelessly dispatched [RS § 66]
b) If acceptance dispatched after rejection or counteroffer dispatched but not yet
rcvd, acceptance works as counteroffer unless it arrives b4 rejection or c.o. rcvd.
[RS 40]
c) Revocation effective on receipt in most j’dictions
4. Partial Performance
a) Offer to be accepted by performance becomes an option contract if [RS §45]:
i. Offeree tenders or begins invited performance [see also §87(2)]
ii. Offeror’s duty to perform then rests on completion or willingness to complete
the invited performance as per the terms of the offer
b) Offer that can be accepted by either performance or promise to perform becomes
binding upon both parties when performance is begun or tendered. [RS §62]

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Consideration - each party gives up a legal right in order to obtain the one which the other party gave
up; contract must have consideration to be enforceable

Dougherty v. Salt (p 113) - aunt promises nephew $ though he didn’t promise anything
in return: court says not enforceable

Pennsy Supply (p 105) - P recieved free hazardous material from D. P used materials to
pave parking lot. Court: avoidance of disposal costs to D constitutes consideration even
if no evidence this was D's intent.

Dohrmann v Swaney (p 118)

Hamer v. Sidway (p 99) - nephew gives up drinking, swearing: court says he gave up a
legal right – enforceable

Plowman (p 127) - employer let go employees and promised lifetime half pay as long as
they come to office to get check. Payments later stopped. Court: no consideration. past
consideration != consideration.

Marshall Durbin (p 136) - P sue former employer for failing to pay five years salary post-
employment. K included recital of consideration, and company benfited from retaining
emp at time of K. Enforceable.

Jannusch (p 146)

Promissory Estoppel – 1) promise, 2) detrimental reliance on promise, 3) injustice can only be avoided
by enforcement of promise (Katz) [may be enforceable even w/o consideration]

Harvey v Dow (p 215) – D (father) promised P (daughter) land for house. D’s actions in
accordance included: giving P permission to build house, obtaining building permit, and
building part of house himself. D then refused to give deed after P spent $200,000
building. Court: consider promisor’s conduct and any generalized promises to determine
promissory estoppel. Here, D even helped build. D should have expected P to rely, P
reasonably relied, P spent/built relying on promise, and P would unjustly lose $200k if
not enforced. Enforceable even without consideration

King v Trustees (p 223) – MLK promised papers to D uni. After death, wife (P) wants
them back. Letter from MLK to Uni: “All papers … remain my legal property until
otherwise indicated …” “In the event of [MLK’s] death, all… materials… shall become…
absolute property of [Uni].” Court: charitable subscriptions enforceable if donative
intent clear when specificity of donor’s promise, consideration, and reasonableness of
charity’s reliance are considered [need: consideration or reliance]. Here, letter =
donative intent and specificity, reliance obvious, possible consideration by D indexing
papers, making available to researchers, and providing staff to care for papers.

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 Katz (p 233) D laid off P & promised ~ half salary. D convinced P by explaining how
pension + SS bennies + other part time employment would total more than he made
working for D. D testified that P would have been fired anyways if he didn’t take deal. D
later changed deal, and told P he must work 5 days/wk to continue receiving pension.
Court: was promise, injustice req met bc P too old to work FT now, det reliance b/c P
only retired due to promise.

Pre-acceptance Reliance -

Restitution

• Credit bearau - hospital charges. Services performed to avoid serious bodily harm rule
• Iequity contracters - no contract because transactions done thru intermediary (?); if owner has
not paid anyone for services, and subcontractor has exausted remedies against gneral contractor,
then subcontractor may recover from owner even though no direct contractor
• Watts - unjust enrichment test (unmarried couple property dispute) - 1) benefit conferred on D by
P, 2) appreciation or knowledge by D, 3) retention of benefit by D in unjust way
• Case (sick son on boat case) - moral consideration is not consideration, past consideration is not
consideration
• Webb - employee saved pres of Co from death and suffered harm as result, pres offers to pay
amount every month for life in return, restitution makes enforceable. Need: moral obligation,
material benefit to promisor, subsequent express promise to pay

Statute of Frauds - Contracts which fall under the statute of frauds (for this class: 1) contracts that
cannot be performed within one year of making, 2) contracts for sale of land) MUST be in writing to be
enforceable.

Crabtree v. Elizabeth Arden Sales Corp (p 335) - breach of employment K - If a contract falls
under the statute of frauds it must have a sufficient memo that is signed with the intent to
authenticate the terms and evidences the terms of the contract. The memo does not have to be
one document. It may be multiple documents if they are linked together expressly or internally
by evidence of subject matter and occasion. The Court finds in this case that the memo written
on the telephone order, the payroll change form initialed by Defendant’s general manager, and
the paper signed by Defendant’s comptroller all refer to the same transaction on their face. The
Court holds that the lower court was justified in finding that the three documents comprised a
sufficient memo.

Beaver v. Brumlows (p 344) - the statute of fraud does not bar the specific performance of an
oral contract for the sale of land, where the terms of contract other than the purchase price
have been proved, part performance to the agreement by both parties have occurred, the part
performance refers unequivocally to the sale of the land through possession and the making of
improvements and a remedy of law would not be adequate. [part performance exception]

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 two principal factors are looked for by majority of courts in deciding whether a promisee’s
performance is “unequivocally referable” to the contract; (1) whether possession of the
property has been obtained by the party seeking the enforcement, and (2) whether a valuable
improvement have been made to the property by the party.

Alaska Democratic Party V. Rice (p 355) - Plaintiff Rice quit her job and relocated in reliance on
a promise of employment made by Defendant, the Alaska Democratic Party. After moving to
Alaska, Plaintiff was eventually informed that she did not have a job with Defendant. A claim for
promissory estoppel may be brought in an employment situation, even if the agreement is
unenforceable under the statute of frauds. [promissory estoppel exception]

Principles of Interpretation

A. Whose meaning prevails?

1. Parties’ intent governs ct’s reading of contract & parties’ mutual understanding,
reasonable or not, establishes meaning of terms, not legislative, administrative, or
judicial definitions. [RS § 201(1) & comment c]
2. Lack of mutual understanding
a) Equally “reasonable” interpretations: no contract
i. Objective facts admit of different meanings
ii. Neither party more blameworthy than the other for misunderstanding

Parol Evidence Rule - In general, the parol evidence rule prevents the introduction of evidence of prior
or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual
terms of a written contract when the written contract is intended to be a complete and final expression
of the parties' agreement.

1. Technically, not a rule of interp’n but of evidence: will evidence of prior agrts be
admitted in interpreting the terms of a contract that includes a writing?

2. If there is a writing that qualifies as an “integration” then “parol evidence”

inadmissible to vary, contradict, or add to written terms.

a) “Parol evidence”: evidence of a connected agrt that precedes the written agrt or is
contemporaneous w/ written but oral
b) “Integration” [RS 209]
i. Writing or writings constituting final expression of one or more terms of agrt
ii. An apparently complete agrt will be presumed to be an integration unless
other evidence est’s that it was not a final expression
iii. [Whether a writing = integration is a question of fact normally determined by
trial judge before interpretive ruling or application of p.e.r. – comment c]
c) Partial & total integration [RS 210]
i. Completely integrated agrt is EXCLUSIVE statement of terms
* Discharges prior agrts to the extent that they are w/in its scope [RS 213(2)]

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 ii. Whether a writing is partial or complete integration is to be determined by the
ct. before interpreting contract or deciding if p.e.r. applies – any relevant
evidence is admissible in making this determination. [comment b & RS 214]
iii. Where there is a binding agrt, evidence of prior or contemporaneous agrts or
negotiations inadmissible to contradict terms of the agrt [RS 215]
iv. [merger clause declaring a writing to be a complete integration may or may
not have weight – typically boilerplate & as such suspect]
d) Form contracts are integrations so long as they genuinely reflect trading practices
& do not contain unconscionable clauses [RS 211(1)]

3. A separate agreement may be enforceable if

a) it was made for separate consideration
b) it is NOT a/b the same subject
c) it would be “natural” to have left the alleged agreement out of the writing

4. Four Corners Approach: Where the parties have recorded their intentions in a writing,
it will be presumed to be a total integration unless alleged additional terms were such
as might naturally be made by separate agreement. [merger clause decisive if
present]

Thompson v Libby (p 414) – Written K, D to purchase logs from P. D alleges P

provided oral warranty as to quality of logs, and that logs were shitty.

Court: Evidence of oral warranty inadmissible. K was complete integration, and oral
warrantly would add or vary terms in written K.

5. Corbinian view: In order to determine if a writing constitutes a total integration of

the party’s intentions, ct. must look @ extrinsic evidence. [merger clause NOT
conclusive]

Taylor v State Farm (p 422) – Car collision. P received judgement against him in
excess of ins policy limits and is suing D (ins provider) for acting in bad faith by not
settling claim within policy limits. During original case, P signed release. D argues
this precludes claim, and evidence regarding P’s intent of signing release
inadmissible (P argues intended only to cover original case, not this new one against
ins co)

Court (Corbin view): extrinsic evidence of intent admissible b/c of purpose of

evidence. K also worded in very limiting way, whereas broader language could have
indicated an intention to include bad faith claim in release.

6. Integrated agreement is to be interpreted in light of circumstances [RS 212]

i. by trier of fact if question is one of credibility of extrinsic evidence or of
reasonable inference fr. extrinsic evidence

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 ii. otherwise, as a matter of law

Implied Terms - any term that the court finds to be "implicit" in the parties' words or conduct even
though not literally expressed by them, either because a statute so provides, common law dictates, or
court concludes its appropriate

Implied-in-fact: agreed to in some meaningful sense by parties themselves

Implied-in-law: imposed by court

a) What parties probably had in mind but didn’t bother to express.

b) What parties probably would have said if they’d thought about it.
c) What parties should have said in ct’s view for reasons of fairness or policy.
i. Supplying a missing term is not interpretation [RS §204 comment c]
ii. When parties to a contract have not agreed to a term essential to determining
their rights & duties, ct. supplies term “reasonable in the circumstances.” [RS
§ 204]
iii. “The circumstances” is not just parties’ intentions as revealed in contract’s
structure or “a hypothetical model of the bargaining process,” but also
community’s standards of fairness. [RS § 204 comment d]

Wood v Lucy (p 472) – D (fashion designer) hired P as exclusive sales/mkting agent in exchange
for 50% commission. D also auth to endorse products. K for 1yr & renewable. D proceeded to
independently endorse products and keep all profits. D argues agreement not binding b/c
nothing binding on P.

Court: K still valid if one party’s detriment is implied even if not explicit element of K.
Promise that D market designs of P implied by business relationship: no profits for
anyone unless D performs, w/o implied promise transaction wouldn’t make sense.

Leibel (p 476) – D verbally agreed to provide garage doors and related parts to P at factory
distributor price. After 2 years, sales slowed and D terminated K in favor of another dealer. P
sued for insufficient notice.

Court: P entitled to reasonable notice b/c K was for infinite duration. Reasonableness
related to “the circumstances under which notice is given and the extent of advance
warning”.

Seidenberg (p 484) – P sold business to bank. Under sales K, P received shares in bank and
allowed to continue as executives. D then sabotaged P, depriving them of income, then fired
them. P sues for breach of implied covenant of good faith and fair dealing.
Court: Application of implied covenant of good faith: 1) permits inclusion of terms not
expressly in K, 2) allows claim for breach for bad faith performance regardless of lack of
breach of express term, 3) permits court to inquire as to how parties exercise discretion
under terms of K. Here, D in breach. Parole evidence may be used to determine parties’
motives and understanding regarding K.

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 Categories where breach of good faith appropriate: 1) K does not provide term
necessary to fill parties’ expectations, 2) bad faith, 3) K expressly provides discretion in
performance (one-sided here)

Avoiding Enforcement

A. Changed Circumstances
7. RS: A party’s duty to perform is discharged if (1) performance is made
“impracticable” [§ 261] OR (2) his primary purpose is substantially frustrated [§ 265]
a) W/o his fault
b) Through occurrence of an event the non-occurrence of which was a basic
assumption on which contract formed AND
c) Language or circumstances do not indicate that s/he assumed the risk of the event
occurring.
B. Duress
1. Rule: voids a contract otherwise enforceable; traditionally covered promises made
under life-threatening conditions but cts. now consider economic duress
a) RS §175
i. “improper” threat
ii. leaves no reasonable alternative
b) RS §176: improper =
i. threat of crime, tort, prosecution, abuse of civil process
ii. resulting exchange not on fair terms
iii. arises fr. illegitimate use of power

C. Forbearance to bring suit

1. Surrender of an invalid claim is not consideration unless [RS §74(1)]
a) claim is actually “doubtful” (not clear by facts or law if it’s a good claim) OR
b) forbearer honestly believes claim valid [subjective standard]
2. Old rule (may still operate in some cts) - RS1 §76: Surrender of invalid claim is not
consideration unless forbearer has reasonable AND honest belief in validity of claim.
3. Written surrender of a claim or defense is consideration if it is bargained for [RS
§74(2) & comment e]
a) so long as party executing quitclaim did not have a legal duty to do so
b) even if party surrendering claim believes s/he had no valid claim

D. Illusory promise
1. Promise conditioned on the will of one party to perform is not consideration so voids
bilateral contracts
2. RS §77: Apparent promise is not consideration if promisor reserves choice of
alternative performances unless

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 a) ea. alternative wouldabin consideration if it alone had been bargained for OR
b) one alternative wouldabin consideration & looks likely to be the only choice that
will be left by the time promisor must perform
3. Varieties & exceptions
a) “stop any time” promise (relates to contract’s terms)
Co’Cola v. Orange Crush – licensee can cancel @ any time.
i. exception: One Clear Chance
Gurfein – coulda shipped plate glass as soon as got order thus voiding other
party’s right to cancel before shipment
b) “if I want to” promise (indeterminable condition relating to formation)
Wickham – lumber co. not obliged to buy any coal
i. exception: Satisfaction Clauses (promisor’s claim of dissatisfaction will be
judged by commercially reasonable standard OR good faith)
Mattei – developer had option to back out of land purchase if could not obtain
“satisfactory” leases; seller tried to back out on grounds that condition made
the promise illusory. Ct. held that promisor’s duty not to claim
dissatisfaction arbitrarily made the promise real.
ii. exception: Output & Exclusive Agreements
UCC 2-306: if one party promises to sell all it produces to the other or to buy all
it needs from the other, the promisee has a good-faith obligation to use best
efforts to supply or demand.
Lady Lucy – though Wood did not explicitly promise to sell Lady Lucy’s wares,
he implicitly promised to do so by promising half the profits and a monthly
accounting.
E. Legal duty
1. Performance of a legal duty NOT consideration unless [RS §73]
a) duty “doubtful” (not clear that it is a duty) [objective standard] OR
b) honestly disputed [subjective standard] OR
c) the duty performed is not exactly the same as the preexisting legal duty
2. Types of duty
a) public -- not consideration if
i. act within the scope of the duty with regard to conduct & jurisdiction OR
ii. act required as part of the duty
b) pre-existing contractual -- not consideration

F. Mistakes & misunderstandings

1. Misunderstandings: See “Whose meaning prevails?” under “Interpretation” below:
parties hold equally reasonable, mutually exclusive beliefs a/b meaning of terms, no
contract (Peerless)
2. Mutual mistake: @ formation, if both parties mistaken a/b “basic assumption”
underlying cntrct & mstk has “material effect” on agrd exchange, cntrct unenfor’ble
a/g adversely affected party unless that party bore risk of mistake [RS 152]
a) “material effect” to be measured in light of available reformation, restitution
b) [Party bears risk of mistake when [RS 154]]:
i. risk is so allocated by explicit or implicit agrt o’ parties

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 ii. s/he knows s/he has only ltd knowledge o’ facts but deems it sufficient
iii. ct. deems it reasonable in the circumstances to put risk on that party
* seller, having control over the thing, may bear risk of error b/c had special access
by which to obtain factual knowledge
3. Warranties: Can replace mutual mistake doctrine in allocating risk, but usually
favor buyers whereas mutual mistake generally favors sellers. [UCC 2-313 - 15]
4. Unilateral mistake: One party who was mistaken as above can void contract if s/he
did not bear the risk of mistake and enforcement would be unconscionable [RS 153]
5. Duty to disclose: Party who knows that disclosure is necessary to correct other
party’s misperception must disclose ifboi nondisclosure [RS 161]:
a) would make a previous assertion false, fraudulent, or “material” (?)
b) would correct the other party’s mistake in re a basic assumption central to the
contract or the meaning or effect of a writing pertaining to the agrt
c) would violate a relation of trust such as that of fiduciary or dr.-patient.

6. Exceptions to nonenforcement
a) Restitution: value of bennies conferred can be recovered even if agrt not
enforceable
b) Part performance
i. 1-yr provision: full performance by one side makes agrt enforceable (usually)
ii. Interest in land
* vendor has an action for price as soon as land conveyed and may have right of
specperf (payment) if purchaser gets one
* purchaser can get enforcement by specperf if
 w/ assent of vendor makes improvements to land or takes possession & pays
@ least part of price
 renders service over a long period of time
* boundary disputes can be settled w/o a writing if one party manifests an oral agrt
by putting up a fence or other marker
iii. Sale of goods: goods that have been accepted must be pd for @ K even if agrt
unenforceable.
c) Reliance
i. Though agrt unenforceable per statofrauds, reliance may be awarded if that’s
the only way to avoid injustice (reliance must be reasonable, foreseeable,
definite, substantial; restitution or cancellation inadequate) – RS 139
ii. Expectation damages may be the appropriate measure to avoid injustice.
iii. Interest in land: buyer can get specperf if shows reliance on oral agrt & no
other way to avoid injustice
G. Third Party Beneficiaries
1. CL tradition holds that only parties to the contract may sue on the contract. No more!
2. Promise in a contract creates a duty in the promisor toward any intended beneficiary
& the intended may enforce the duty. [RS 304]
a) Intended beneficiary is one whose right to enforce would effectuate the intention
of the parties. [RS 302]

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 b) Incidental beneficiary does not have a right to enforce unless policy consideration
confers that right independent of intent of parties. [RS 315 & 302 comment d]

Justification for Nonperformance

Consequences of Nonperformance

Expectation Damages – Where P has fully performed, and the only unperformed obligation of D is to
pay a stated amount, preserve benefit of bargain to P by putting him forward to where he would have
been if contract had been performed

a) Coverage [RS §347 & UCC §2-708]

i. Loss of value of other party’s performance
ii. Incidentals recoverable if reasonable & foreseeable
* For goods: storage, costs of effecting cover . . . [UCC 2-710, -15]
iii. Consequentials
* damages resulting fr. special circumstances of which breaching party aware
[Hadley v. Baxendale; RS §351(2)(b); UCC §2-715(2)(a)]
* injury to person or property arising fr. breach of warranty [UCC 2-715(2)(b)]
* [mostly a buyer’s problem – seller rarely has consequential costs]
iv. [Emotional distress recoverable if ] [RS §353 & Valentine]
* contract’s main purpose to secure personal rather than pecuniary interests or the
breach particularly likely to cause emodist OR
* emodist results fr. physical injury caused by breach

Crabby’s v Hamilton (p 857)– (Real Estate K, breach by buyer) – Where seller proved breach by
buyer (and vice versa?) damages for loss of bargain in such cases are ordinarialy calculated as
the difference between the K price and the market value of the property at time of breach.
Market value may be calculated as equal to actual sale price obtained by another willing buyer
(just under a year) after the breach (where seller highly motivated).

Handicapped Children (p 866) – (Employment K, breach by employee) - P offered to renew D’s

contract and D accepted. However, prior to the beginning of the next school year, D accepted
another job offer that paid a higher salary and that was closer to her home. P refused to release
D from her contract. D then obtained a doctor’s note stating that she had high blood pressure
and submitted a letter of resignation. She then began her new position. Only one qualified
person applied to be D’s replacement. This applicant had more teaching experience than D and
therefore, P was forced to pay her a hire salary.

Held: P is entitled to have the benefit of its bargain restored. Damages resulting from
breach are measured by the expectations of the parties. P’s expectations were not to
hire a more experienced teacher. Instead it expected to receive the services specified in
D’s contract for the salary specified in D’s contract. The court also reasoned that

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 although P had a duty to mitigate damages, since only one qualified applicant applied
for the position, P had done all it could to mitigate.

American Standard (p 871) - (Construction K) P wanted to sell the land w several buildings and
industrial equipment. P agreed to convey to D all of the equipment on the land if he would
remove all the equipment, demolish the structures and grade the land to a depth of one foot. D
did not grade the property, nor did he remove the foundations and other structures. P were
able to sell the property for $183,000.00, which was $3000.00 below fair market value.

Rules: (1) In this kind of K, injured pty may recover damages which are direct, natural, and
immediate consequence of breach and which can reasonably be said to have been in the
contemplation of the parties when the K was made. (2) Where contractor's performance is
defective or incomplete, damages = reasonable cost of replacement or completion. (3) Where
substantial performance made in good faith but defects exist, damages = difference between
value as constructed and value if perfomance were properly completed. (4) Under Rest. 346,
completion of K must involve "unreasonable economic waste" - eg. no liability where bldg built
w/ different brand part, but part has same specs and quality.

Here, no good faith attempt or substantial performance. Fact that cost to D would have been
higher than expected irrelevant. Rule 2 applies and D liable for cost of completion.

Reliance and Restitutionary Damages

A) Types of damages
1) Reliance damages: these are damages incurred as a result of a party’s
promise, the award is supposed to restore the injured party to the position they
would have been in had no promise been made
2) Restitution damages: these damages restore a benefit given by the plaintiff to
the defendant (addresses unjust enrichment – the breaching party should not
benefit from the breach)
a) There must be a substantial breach before the court will award
restitution damages
b) The plaintiff must show that they have conferred something of benefit
on the defendant
i) Therefore the contract must be partially executed on the part of
the plaintiff
ii) If the contract has been substantially performed the court is
likely to award expectation damages according to the terms of the
contract rather than restitution or quantum meruit
B) Restatement Sections
§344 Purposes of Remedies
Judicial remedies serve to protect one or more of the following interests of
a promise:

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 (a) His “expectation interest” which is his interest in having the benefit of
his bargain by being put in as good a position as he would have been in
had the contract been performed
(b) His “reliance interest” which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as
he would have been had the contract not been made
(c) His “restitution interest” which is his interest in having restored to him
any benefit that he has considered on the other party
§345 Judicial Remedies Available
The judicial remedies available include a judgment or order
(a) Awarding a sum of money due under the contract or as damages
(b) Requiring specific performance of a contract or enjoining its
non-performance
(c) Requiring restoration of a specific thing to prevent unjust enrichment
(d) Awarding a sum of money to prevent unjust enrichment
(e) Declaring the rights of the parties
(f) Enforcing an arbitration award
§370 Requirement That Benefit Be Conferred
A party is entitled to restitution only to the extent that he has conferred a
benefit on the other party by way of part performance or reliance
§371 Measure of Restitution Interest
If a sum of money is awarded to protect a party’s restitution interest, it
may as justice requires be measured by either
(a) The reasonable value to the other party of what he received in terms
of what it would have cost him to obtain it from a person in the claimant’s
position, or
(b) The extent to which the other party’s property has been increased in
value of his other interests advanced
Note: this does not allow a purely subjective valuation, there must be an
objective value attached, they cannot claim something is without value to
them
C) Cases:

1) US v. Algernon Blair
a) Facts:
i) This is a case of a money losing contract

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 ii) A sub-contractor ceased work after the primary contractor
stopped paying him
iii) The sub-contractor sues for quantum meruit for labor and
materials already given
a) Typically would sue for lost profits, but in this contract
there were no profits
b) The court allows restitution damages in this case
b) Policy behind allowing restitution damages in money losing contracts
i) The breaching party has been unjustly enriched by the innocent
party and should be forced to return that value
ii) The breaching party should not be allowed to use the breached
contract as protection to limit losses
iii) The court rejects the argument that simply because it was a
losing contract no damages should be awarded – a party might
lose even more on a contract by having it breached than they
would have lost after full performance so they should be able to
recover restitution
iv) The court allows the innocent party to chose how to recover
their losses, either expectation under the losing contract or
restitution for services rendered

Specific Performance

A. Generally
1. Removes the breach & makes injured party whole (alternative to expectation
damages).
2. Awarded if but only if damages an inadequate remedy (see limitations below).
3. Rules are not as important to determining when specperf should be awarded as FACT
CATEGORIES:
a) Likely for transactions in
i. unique goods (antiques, art, etc)
ii. real estate (esp. homes)
iii. commercial setting when damages inadequate or unascertainable: breach of
contract to transfer stock, to indemnify, to purchase output or supply
requirements; breach of covenant not to compete.
b) Unlikely for transactions in
i. fungible or mass market goods
ii. widely available services, esp. construction [MAE: rule here weakening &
unpredictable]
iii. employment

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 City Stores v Ammerman (p 1014) -

A department store contends that it was promised a lease in a developing shopping

mall, in exchange for helping the developer obtain the necessary zoning permits. The
court held that where legal remedies are inadequate or impracticable and material
terms of the contract are definite, the fact that some terms are left open does not
render specific performance an inadequate remedy. The court reasoned that because
the Plaintiff was promised a lease with terms “at least equal” to that of the other major
tenants, the material terms could easily be ascertained by examining the other tenants’
leases. The court also reasoned that remedies at law would not be adequate because
they could not compensate the Plaintiff for the future advantages it would receive by
being located in a suburban shopping center. The court also reasoned that forcing the
Defendant to give the Plaintiff a lease would not be especially detrimental or result in a
hardship to the Defendant.

B. Rules and Limitations

1. RS §§ 359, 360: Specperf or injunction will not be ordered if damages would be

adequate to protect the expectation interest of the injured party.

a) Factors suggesting inadequacy of damages

i. difficulty of proving damages w/ reasonable certainty [cts. will turn to
surrogate measures of damages before turning to specperf.]
ii. difficulty of getting suitable substitute performance
iii. likelihood that damages would prove uncollectible
iv. uncertainty of the terms of the agrt or the agreed exchange

b) Specperf can be a partial remedy, in combination with damages.

2. UCC §§ 2-709 [comment 2] & 716(3)

a) Action for the price is available to seller when

i. resale of goods impracticable
ii. goods have been destroyed after risk of loss has passed to buyer
b) Buyer may replevin goods if unable to cover.

3. Prudential limits on rules

a) Administrability: cts. reluctant to order specperf if it will be hard to oversee, hard
to tell when performance has been completed
b) Intrusiveness: cts. don’t want to interfere in personal behavior, intimate
relationships.
c) Reluctance to criminalize inaction: failure to comply with an order for specific
performance carries criminal penalties which the ct. would rather not impose.

C. Policy

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 1. Pro
a) Some things are just not fungible and award of damages cheapens value.
b) Award of specperf can force parties back to bargaining table to work out an
equitable deal.
2. Con
a) Can place a harsh burden on parties who breach to get out of a losing deal.
b) Traditional approach to awarding or denying may not adequately take into acct.
contemporary conditions: suburban tract homes & condos may be more fungible
than unique; in big, anonymous firms, specperf for breach of emp’t contract might
be feasible as emp’ee & emp’r not necessarily in intimate contact w/ one another.

Agreed Remedies – aka liquidated damages clauses - Original agreement specifies remedies to
be awarded in event of breach. Will NOT be enforced unless: 1) damages to be anticipated from
breach are uncertain in amount or difficult to prove, 2) parties intended clause to liquidate
damages rather than operate as penalty, 3) amount must be reasonable forecast of just
compensation for harm flowing from breach (Orr v Goodwin).

- Decisive element = intention of parties (eg, for determination of whether valid clause,
or invalid penalty).
- Determine intent by K’s subject matter, language of K, circumstances surrounding
execution of K
- Time of K formation is point from which to judge reasonableness of provision.
If provision valid, no inquiry into actual damages so no duty to mitigate damages.
(Barrie School)

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