Contracts Outline Spring 2012

I. PRINCIPLES OF CONTRACTUAL OBLIGATION

-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 the law in some way recognizes as a duty (§1: Contract Defined).
-A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as
to justify a promisee in understanding that a promise has been made (§2: Promise).
-Leonard v. Pepsi, Inc.- Commercial viewer sent check for $700,000 (7 million Pepsi points) in
exchange for a fighter jet.
 Holding: Summary judgment for manufacturer because (1) the commercial was an
advertisement, not a unilateral offer, (2) a reasonable person would conclude that a fighter
jet wasn’t really up for grabs, and (3) no writing between parties to satisfy Statute of Frauds.
-Carlill v. Carbolic Smoke Ball Co.- Carlill won her case that she should receive $100 from the
company after getting the flu (the advertisement offered a reward because it sought to induce
performance and she complied with the terms of the offer). Today if she brought the case,
though, she would probably lose because of the idea of the reasonable person.
-Ray v. William G. Eurice & Bros., Inc.- Eurice Bros. breached contract to build Ray’s home
because they thought that Ray’s specifications were too precise and unreasonable, despite the
fact that they had signed the written offer with those updated specifications. There was no
fraud or duress here; if there was a mistake, it was unilateral and it existed because the Eurice
Bros. did not pay close enough attention to the written agreement.
 Holding: D wrongfully breached his K with P and P was entitled to the difference
between the cost agreed upon and the cost to complete the house ($5,993.40).
-Hurley v. Eddingfield- Decedent was sick, patient of the doctor, sent messenger for him; Dr.
Eddingfield knew there was no one else available and that decedent relied on him, but the doctor
refused to treat, without giving reason. Patient died. Estate sued doctor, alleging wrongful refusal
to enter employment contract.
 Holding: Ct said that D was not liable. A medical license doesn’t require a doctor to practice
on any compulsory terms, or at all if he doesn’t want to.
 No mutuality here. Even if decedent relied on D, D didn’t do anything to create the reliance
or make himself responsible for decedent.
-Three concepts, as described by Fried:
1. Traditional concept/ Restatement (Second) concept/ Fried
-“Contract as Promise” was written at a time when there were a few things present:
legal realists, critical legal studies, Atiyah’s book “Economic Analysis of Law,” and
Gilmore’s little book called “The Death of Contract.” Friend was irritated by these
things, so he wanted to write his own book.
-The traditional view is that Contract is a kind of neutral framework for voluntary
transactions. It isn’t about any particular kind of transaction; it’s a way for people to
frame any transaction they wish. This is what contrasts Contracts from Torts and
Property.
-Contracts is about creating duties which otherwise do not exist.
-Torts, by contrast, deals with transactions and encounters which are almost
always involuntary (like a car accident). And the duties aren’t duties that are
voluntarily assumed; they are duties that are imposed by the law. *The
transactions aren’t always involuntary though.
-And Property is the starting point for both kinds of duties.
-Restitution:
-Fried gives an example of accidentally sending $250 to a charity instead
of to his plumber. If the sender contacts the charity before the charity

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 allots or spends the money, does the sender get the money back?
Answer: money paid by mistake can be recovered under restitution.
The receiver wasn’t entitled to the money, the sender hasn’t done
anything wrong, and the sender hasn’t damaged the receiver.
-Fried believes that contracts should be fixed and enforceable at the time that the risk is
transferred. One shouldn’t be able to break his/her contract whenever because
conditions inevitably change.
2. Legal realists say there’s no such thing as public law. All duties and all rights are imposed by
governments for its reasons – law is politics. / Atiyah (“The Rise and Fall of Freedom of
Contract”)
-This is the view that Atiyah espouses. Atiyah believes that the traditional view (the
view supported by Fried about contracts as promises) is not wrong necessarily, but it’s
passé or regressive. Atiyah believes that the traditional view is in favor of the haves (it
supports the rich getting richer). He doesn’t like this and says that the traditional idea of
contracts as a neutral framework doesn’t work anymore.
-Reasons to enforce promises: (1) promises create expectations and people will be
disappointed if the promises aren’t performed, (2) contracts and promises are risk-
allocation devices, and (3) it may be desirable to uphold the principle of promissory
liability.
3. Law and economics/ Posner
-Posner believes that the function of law is to increase value and that value is defined by
ability to pay. Fried says that Atiyah kind of agrees with Posner. He gives the example
of the pituitary gland problem and the poor family wanting stuff to help their child not
be a dwarf and the rich family wanting it to make their 5’10” child 6’1”.
A. Grounds for Enforcing Promises
1. Formality
-In order for a contract to be enforceable, the promisor must receive something of value in
return for the promise.
-The promise must be bargained for
-Bilateral Contract – Contract involving the exchange of promises
-Unilateral Contract – Contract involving the exchange of a promise for performance
-Congregation Kadimah v. DeLeo (MA, 1989)- A Jewish synagogue brought this action to
compel the administrator of an estate to fulfill the decedent’s oral promise to give $25,000.
The Congregation planned to use the $25,000 to transform a storage room into a library.
 Holding: Congregation doesn’t get the money; there’s no contract here because (1)
neither legal benefit to the promisor nor detriment to the promisee (consideration),
(2) a hope or expectation, even though well founded, is not equivalent to either
legal detriment or reliance, and (3) it wasn’t written.
2. Bargain
a. §17: Requirement of a Bargain – Consideration must be bargained for: Sought by the
promisor in exchange for her promise and given by the promisee in exchange for the
promise
i. Except as stated in subsection (2) the formation of a contract requires a bargain
in which there is a manifestation of mutual assent to the exchange and
consideration
ii. Acts of Consideration
a. Act other than the promise
b. Forbearance

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 c. Creation, modification or destruction of a legal promise
-Hamer v. Sidway (NY, 1891)- Uncle promised at an anniversary party that he would give $5,000
to his nephew if he would refrain from drinking, smoking, swearing, and gambling until 21.
Nephew did, but uncle died before paying the money.
 Holding: The nephew’s promise to refrain from doing something that he had the legal
right to do is an act of forbearance and therefore valid consideration for the $5,000.
 Consideration means not so much that one party is profiting as that the other abandons
some legal right in the present or limits his legal freedom of action in the future as an
inducement for the promise of the first (p197).
 Unilateral contract (nephew didn’t promise, he just acted; uncle couldn’t have sued
nephew if nephew didn’t perform)
-Earle v. Angell (MA, 1982)- Aunt had nephew promise to attend her funeral in exchange for
$500.
 Holding: Nephew gets the money. “A contract to pay money after one’s own death is
valid.”
 Doesn’t matter that nephew would have gone to the funeral anyway
o §81: Consideration as Motive or Inducing Cause – The fact that what is
bargained for does not itself induce the making of a promise does not prevent it
from being consideration for the promise
 Bilateral contract (promise for a promise)
-Whitten v. Greeley-Shaw (ME, 1987)- P (man) and D (woman) had an affair for some years. D
struck up an agreement in which P paid her $500/mo, visited and called at stated intervals, gave
trips and jewelry, etc. P signed it. At some point, P loaned D $64,000 to purchase a home. D
defaulted on the promissory note and P brought a foreclosure action, to which D filed a
counterclaim based on their agreement.
 Holding: Agreement unenforceable, because no consideration (no consideration when a
clause is the promise is neither “bargained for” by P nor “given in exchange for” his
promises).
 Fried thinks this case was wrongly decided, that it was actually a bilateral contract, and
that the court just didn’t want to uphold an immoral (sex) contract.
-§71: Requirement of Exchange; Types of Exchange- Consideration must be bargained-for:
sought in exchange for promise and delivered in exchange for promise. Performance can be act,
forbearance, or change in legal relation.
-Duncan v. Black (MO, 1959)- Black (D) made a contract with Duncan (P) that Duncan would
receive a 65 acre cotton allotment with the 359 acres of farm land he had purchased. P wanted
the same arrangement the following year, D refused, and P sued for breach of contract.
 Holding- No breach of contract. Contract was invalid from the start because no
agreement could be made for future allotment because the allotment is restricted to
one-year considerations (public policy reason).
 Fried thinks this case is doubly wrong: (1) Duncan should be compensated since he
couldn’t get the cotton allotment and (2) the agreement was made in good faith so it
should stick.
3. Benefit
-Mills v. Wyman (MA, 1825)- P cared for D’s adult son in illness. D sent a letter promising
payment but later revoked the promise.

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  Holding: D owes nothing. No consideration because D was only attempting to fulfill a
moral obligation and that doesn’t constitute consideration. “A promise based on moral
or past consideration is simply a donative promise and is therefore unenforceable.”
 Promisor (D) didn’t directly benefit from P’s act (D’s son did).
-Webb v. McGowin (AL, 1935)- P saved D’s life at work and incurred injury. D promised to pay P
a monthly sum. When D died, his executor stopped paying.
 Holding: D’s agreement to pay Webb was a valid and enforceable contract. “Where the
promisee cares for, improves, and preserves the property of the promisor, though done
without his request, it is sufficient consideration for the promisor’s subsequent
agreement to pay for the service, because of the material benefit received.”
 Promisor directly derived a benefit (different from Mills v. Wyman).
-§86: Promise for Benefit Received- Promise based on previous benefit is binding to the extent
necessary to prevent injustice. Excludes gifts, unjust enrichment, disproportionate benefit
-In re Crisan Estate (MI, 1961)- An elderly woman collapsed and later died. Dr. rendered medical
services. She never gained consciousness and therefore, she never consented.
 Holding: The court held that the doctor was entitled to damages because they assume
that had she been able to consent she would have. The promise to pay is implied by law.
 Implied-in-law Contract- party required to compensate another for benefit conferred in
order to avoid unjust enrichment (e.g., doctor helps unconscious pededstrian)
 Implied-in-fact Contract- promises of parties implied from acts/conduct (e.g., auction,
plumber, etc.)
-In re Schoenkerman’s Estate (WI, 1940)- When Schoenkerman’s wife died and left him with two
teens, he asked his mother-in-law and sister-in-law to come take care of the home. He
promised (in written notes) to pay them. Sister-in-law wanted the full, promised amount.
 Holding: Schoenkerman had to pay them because the notes plainly acknowledged a
moral obligation and afforded more than ample consideration.
4. Reliance (Promissory Estoppel)
-§90: Promise Reasonably Inducing Action or Forbearance- Promise reasonably expected to
induce action & forbearance and does induce such action & forbearance is binding if injustice
cannot be avoided otherwise. Charitable subscriptions and marriage settlements binding even
without showing of inducing action & forbearance.
-Kirksey v. Kirksey (AL, 1845)- P was invited by her brother-in-law, D, to leave her home in the
country and move her family to him. She did, and after 2 years, D moved her to a crappy house.
 Holding: No money for P, because D’s promise was just a gratuity/gift; no consideration.
Ormond disagrees though and believe that there was consideration.
 This may have come out different if evaluated from a reliance perspective.
 Compared to Schoenkerman, this was supposed to be a gift instead of a job.
-Ricketts v. Scothorn (NE, 1898)- P (granddaughter Katie) vs. D (grandpa’s executor, Andrew).
Katie’s grandpa told her that he fixed things so Katie wouldn’t have to work (since none of his
other grandkids worked) and he gave her a note saying he would pay her $2,000/yr plus
interest. Katie immediately quit, and after a year, grandpa died. Grandpa expressed regret that
he’d been unable to pay Katie the balance.
 Holding: Katie gets money because of reliance.
 We discuss this from a negligence perspective. Fried says this case has a tort feel
because grandpa’s promise caused injury because he wasn’t careful.
-Allegheny College v. National Chautaunqua County Bank (Cardozo, NY, 1927)- Allegheny College
was raising money and Mary Yates Johnston, in a letter, promised to pay $5,000 (due 30 days

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 after her death). The back of the letter said her gift should be known as the Mary Yates
Johnston Memorial Fund. Mary paid $1,000 while she was alive, and then later cancelled her
promise. The college brought the action 30 days after her death to collect.
 Holding: Estate must pay because there was consideration: after receiving the $1000,
the college named the scholarship after Johnston, creating a bilateral agreement. The
contract came into being upon the acceptance of the $1000; before that, it was an offer.
 Fried says Cardozo succeeds in turning promissory estoppel from an exception into the
rule.
-Siegel v. Spear (NY, 1923)- McGrath (D) told Siegel that he’d set up insurance for Siegel’s
furniture because it would be preferable to Siegel getting his own insurance agent to do it.
Siegel was to pay for the insurance later, but the furniture was burned before the insurance was
bought.
 Holding: D’s promise to get insurance was binding. D undertook to store P’s property
without compensation (gratuitously), but it was after D’s statements and promises
about insurance that the P sent the furniture to the storehouse, so D became
responsible because there was detrimental reliance on the part of P.
 Bailment (when someone, without payment, entrusts the care of their property to
another). The bailment is that the person is supposed to take care of your stuff.
 Fried thinks the court is straining to turn detrimental reliance cases into cases in which
there’s consideration even when there’s not.
-Feinberg v. Pfeiffer Co. (MO, 1959)- P, Feinberg, worked for Pfeiffer Company for a long time
and during a meeting of the higher-ups, they discussed P’s retirement and decided to give her a
salary increase and a retirement fund of $200/mo. for life. P continued working an extra 1.5
years after the salary increase and promise of retirement $. Eventually, a new Pres. (Mr. Harris)
talked to a lawyer and an accounting firm, both of whom told him he didn’t need to pay. The
new President says believed the payments were gifts. P was sent a check for $100 instead of the
normal $200, so she declined that amount and brought this action.
 Holding: P gets the retirement money. It’s true that she didn’t need to continue working
to get the money, but there was promissory estoppel.
 The court feels this is a classic §90 case
 Fried says this isn’t a Webb v. McGowan situation, but Fried thinks that this court got it
right.
-D’Ulisse-Cupo v. Board of Directors of Notre Dame High School (CT, 1845)- School board didn’t
rehire teacher after giving representations that it would rehire her.
 Holding: P doesn’t have a promissory estoppel claim (the representations made weren’t
sufficiently promissory), but a negligent misrepresentation claim (requiring reasonable
reliance), so she can recover money.
 Fried thinks that this court maybe got it wrong, because he thinks that there was a
promise to the teacher. Problem is that P was told she’d get something in the future,
and that makes it more difficult to say that there was a promise in fact.
B. Defective Consideration
1. The Problem of “Inadequate” Consideration
-Batsakis v. Demotsis (TX, 1949)- Eugenia Demotsis borrowed money from Batsakis (she
couldn’t get access to her money while she was in Greece during the war). Batsakis lent her
approximately 500,000 drachmae ($25), but in her letter, Demotsis promised to pay him
back with $2,000. Demotsis says Batsakis required a $2,000 repayment for the loan (p593).

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  Holding: P gets the $2000 plus interest. Arguments of insufficient consideration are
inaccurate here, because D got exactly what she bargained for. It was wartime and
she really needed the money, so accepting was reasonable.
-Waters v. Min. Ltd. (MA, 1992)- P was injured in an accident and when she settled the
claim, she purchased an annuity contract from D, Commercial Union Ins. Co. She then
became involved with a dead-beat bf who suggested she sell the annuity contract. Bf and
others made a contract for Ds to pay $50K for the annuity contract (worth $189K). Ds paid
$18K, deducted $7K towards Beauchemin’s debt, and never paid $25K. P brought suit to
recover on the basis of unconscionability.
 Holding: Contract unconscionable because of gross disparity in the values
exchanged. P only has to return $18K (because that’s what she received).
 Fried says it would seem unjust to allow this contract, because a reasonable person
wouldn’t have made that contract. She was under the influence of her boyfriend.
-American Home Improvement Inc. v. MacIver (NH, 1964)- An agreement was signed by Ds
(homeowners) stating that P would do improvements on the home. At the same time, Ds
signed an application with a finance corp. The finance application was incomplete because
it did not include the interest rate. The application was approved. Ds asked P to stop
construction, which it did, but it had already paid a sales commission of $800 in reliance
upon the contract. P seeks to recover damages for breach by the Ds of an alleged
agreement for home improvements (since Ds ended the improvements). Ds move to
dismiss on the ground that the action could not be maintained because P failed to comply
with RSA 399-B, which requires disclosure of finance charges to the borrower by the lender.
 Holding: D’s motion to dismiss should be granted; case remanded. Transaction was
unconscionable because Ds had to pay total of $2,568 when the cost of
improvements was only $959.
 Also, the extension of credit to the Ds was in violation of the disclosure statute.
-§2-302: Unconscionable Contract or Clause- If a court finds something to be
unconscionable, it can refuse the whole contract or omit the problematic terms. Parties get
the opportunity to explain why it’s not unconscionable.
-§208: Unconscionable Contract or Terms - If a contract or term thereof is unconscionable at
the time the contract is made a court may refuse to enforce the contract, or may enforce
the remainder of the contract without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any unconscionable result.
2. Contract Revisions and the Legal-Duty Rule
-§2-209: Modification, Rescission and Waiver- Modification of a contract does not require
fresh consideration.
-Alaska Packers’ Ass’n v. Domenico (9th Cir, Appeals, 1902)- Ps entered into a contract with
Alaska Packers for $60 and 2 cents for each red salmon caught. Upon arriving at the fishing
site, they refused to work unless they were paid $100. A new contract was signed with the
superintendent.
 Holding: No consideration for the new contract as they had already contracted for
the same thing for less money. This wasn’t “fresh consideration.” The plaintiffs
coerced the new contract knowing that Ds had no other option.
 Why wasn’t this treated as a case of duress? Because P was the bad guy.
-Goebel v. Linn (MI, 1882)- Ice company (P) and brewery (d) contracted for the sale of ice.
The production fell short that year and the price of ice increased dramatically. D fell short

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 on payment one month, P sued, and D says there was no consideration for the agreement
because it was made under duress.
 Holding: The court held that the new contract was enforceable. There wasn’t legal
duress here. The brewery chose to submit to the new terms and the shortage was
not of the ice company’s making.
 Different from Alaska, because this situation was external, whereas Alaska’s was
internal because the fishermen decided to charge more.
-Schwartzreich v. Bauman-Basch, Inc. (NY, 1921)- D hired P to design coats.
a. Contract #1 - $90 a week
b. Cancellation of contract #1, because P was offered more money from a different
company.
c. Contract #2 - $100 a week work for pay.
 Holding: Judgment for P for damages affirmed, because “the parties to a contract
can rescind it by mutual consent.” There was fresh consideration because the
parties decided to drop the first contract.
 There was fairness here because of the fresh consideration.
 Similar to Goebel because of external impact on prices (third party offered more pay
to P).
3. “Illusory” Promises (“Empty Bag “) and Related Fairness Issues
-A statement that appears to be promising something but doesn’t actually limit the
promissor’s future options (e.g. I’ll buy what from you insofar as I want to/ buy I may
terminate this obligation).
-Wickham & Burton Coal v. Farmers’ Lumber Co. (IO, 1920)- The company contracted to sell
coal for $1.50 a ton to Farmers. Under the contract, Farmers was able to order as much coal
as it pleased or none at all. The price of coal rose and Farmers ordered a large amount.
 Holding: Contract is not enforceable because there was no consideration and it was
an illusory promise. There was no reciprocity because the seller was bound to sell
but the buyer was not bound to buy.
-§77: Illusory and Alternative Promises-
-Gurfein v. Werbelovsky (CT, 1922)- D (seller) bound itself to sell the glass at a certain price.
P had a revocation option and was only bound to buy and accept the glass if it was shipped.
P demanded delivery a few times but D refused. D said the agreement wasn’t binding
because P had a revocation option.
 Holding: Contract is enforceable. Buyer’s option to cancel would last only until the
goods were shipped, so there was consideration.
 In Wickham, the buyer was completely free to do whatever, but here, the buyer is a
little vulnerable because he is bound within the contract as soon as the seller ships.
The court said this was enough to make a binding contract.
-Wood v. Lucy, Lady Duff-Gordon (Cardozo, NY, 1917)- Wood contracted with Duff-Gordon
to have exclusive rights to place her endorsements on the designs of others. In return, she
was to receive ½ of all profits. She breached and sold her endorsements to others. D says
the contract wasn’t binding because P doesn’t explicitly promise that he’ll use reasonable
efforts to place her endorsements.
 Holding: There was valid consideration and that the promise was not illusory. It is
implied that Wood bound himself to place the endorsements on the market,
because he wouldn’t make money otherwise. Also, D gave P “exclusive rights,” so
that’s indicative of their agreement. And P did perform.

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  Fried says that Lucy giving Wood exclusive rights is an option contract.
 Cardozo says that “option contracts without consideration, mutuality, are
unforceable,” and Fried dislikes this because he thinks it takes away opportunity (he
gives his author and publisher example).
-Omni Group, Inc. v. Seattle First Nat’l Bank (WA, 1982)- After some back-and-forth, the
Clarks decided to sell 52 acres to Omni ($104K), but then the Clarks halted the sale because
they believed that Omni made an illusory promise when it made its obligation subject to a
satisfactory engineer/architect report/survey (p366).
 Holding: Omni’s duty to buy requiring receipt of a satisfactory feasibility report does
not render its promise illusory. Promisor’s determination of his satisfaction was
based on “good faith” so the promise isn’t illusory.
-§1-203: Obligation of Good Faith- Every contract or duty within the Act imposes an
obligation of good faith in its performance or enforcement.
-§205: Duty of Good Faith and Fair Dealing- Every contract imposes upon each party a duty
of good faith and fair dealing in its performance and its enforcement.
-Gianni Sport, Ltd. v. Gantos, Inc. (MI, 1986)- D (retailer) had an agreement with P
(manufacturer/distributor) that the buyer (D) could terminate any part of a Purchase Order
for goods that haven’t been shipped or which are not delivered on time. D made an order
to be delivered in October and then cancelled in late September. Trial court made D pay
$27K because it found the cancellation clause to be unconscionable (clause was
unreasonable and there was unequal bargaining power).
 Holding: Cancellation agreement was invalid [unconscionable because unreasonable
(a last-minute cancellation on these made-to-order objects would screw P) and
based on unequal bargaining power, and an illusory promise].
C. Freedom of Contract and Public Policy
-Unger, “The Critical Legal Studies Movement”
-Venice (business) v. Belmont (love)
-In a commercial society, a good amount of formality (and the security it brings)
is important. Unger says that the eruption of the Venice world into the Belmont
world is problematic because the two are both partners and enemies.
 Principle 1: freedom of contract
 Counter-Principle 1: restriction on who a contracting partner can be (restrictions
made on things that would subvert the communal aspects of social life)
o Ex. 1: compulsory contracts (not allowed according to the Kessler article)
o Ex. 2: reliance (promissory estoppel) and restitution for unjust enrichment
o Ex. 3: discouragement of non-commercial contracts (like btwn friends)
 Principle 2: freedom of contract terms
 Counter-Principle 2: unfair bargains should not be enforced
-In the Matter of Baby M (NJ, 1988)- Sterns contracted to pay Whitehead $10,000 to carry and
bear a child and then turn it over to Sterns. She was also to get expenses during the pregnancy
and the clinic was to get $7,500 for facilitating the surrogacy. Whitehead tried to jack the baby.
 Holding: Case remanded; 1) custody to the natural father was correct, but 2) the
surrogacy contract is illegal, perhaps criminal, and potentially degrading to women, so
we void the termination of the natural mother’s parental rights and the adoption rights
of the wife/stepparent.
o Natural dad gets rights
o Surrogate (biological) mom gets [visitation] rights

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 o Best interests of child
 Fried says that a completely non-contractual/ Belmontian reasoning determined this
outcome.
 Fried thinks Judge Wilentz is trying to shut down surrogacy contracts in the same way
that Cardozo tried to shut down option contracts.
-Sheets v. Teddy’s Frosted Foods (CT, 1980)- Sheets (Ee) spoke out when he noticed that D (Er)
was putting out food products that didn’t comply w/ FDCA regulations. Shortly thereafter, he
was fired for “unsatisfactory performance.” P’s contract was terminable at will, but he argues
that his termination “was a violation of an implied contract of employment, a violation of public
policy, and a malicious discharge.”
 Holding: Case is remanded because P’s termination violated public policy and seems
wrong.
 Cause of action here is torts.
 Fried says that since he’s an employee at will, it’s hard to determine his damages.
-Price v. Carmack Datsun, Inc. (IL, 1985)- D (auto dealer) discharged P (employee sales rep)
because P wanted to file a claim under the company health-insurance plan after racking up $7K
in medical expenses following an accident.
 Holding: The at-will termination here did not violate a clearly mandated public policy
(because the matter here only involves the P and the Insurance Code sought to protect
insurance companies, not insured individuals like P), so the termination was just.

II. FORMATION
A. The Making of Agreements
-Offer: “The manifestation of willingness to enter into a bargain.”
-Validity:
 Offer made in jest - An offer that the offeree knows or should know was made in jest
is not a valid offer (See Leonard v. Pepsico)
 Preliminary Negotiations – Solicitation of bids is not an offer and cannot be accepted
 Advertisements – Most advertisements are not offers to sell
 Specific terms –If the advertisement contains specific words of commitment,
especially a promise to sell a particular number of units then it may be an offer
1. Objective vs. Subjective Theories in Contracts
-Embry v. Hargadine-McKittrick Dry Goods Co. (MO, 1907)- P’s yearly contract expired on
Dec. 15. On Dec. 23, he told his boss (D) that if he didn’t get a renewal contract then he
would quit on the spot. D replied “Go ahead, you’re all right. Get your men out, and don’t
let that worry you,” OR “Go back upstairs and get your men out on the road.” P then
worked for a little over a year and was fired March 1.
 Holding: Judgment reversed; the contract was valid, because a reasonable person
would believe the contract renewed.
 Leonard from Leonard v. PepsiCo didn’t act reasonably, but Embry did.
 20 Bishops Rule: Doesn’t matter what Embry’s Er intended, because a reasonable
person would believe that he entered into a contract.
-Hotchkiss v. National City Bank of New York (NY, 1911)- Learned Hand’s “20 Bishops Rule:”
intention doesn’t matter, words do.
 The court found that if either party used words or acts that ordinarily accompany
and represent, they are bound whatever their subjective intent. If A knows B had an
apparent understanding of words, he is bound by that understanding.

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2. Intention to be Bound
-Keller v. Holderman (MI, 1863)- Keller (D) wrote a $300 check in exchange for the $15 silver
watch of Holderman (P). Holderman sued to get the money.
 Holding: No contract was ever made because P didn’t expect to sell and D didn’t
expect to buy (no consideration), so there can be no cause of action here.
 Fried says that the interest to society here would be to uphold checks, so the court
could reasonably enforce the deal between the two men, but it doesn’t.
-Moulton v. Kershaw (WI, 1884)- Ds sent a letter saying they were selling salt at a bargain
and they would be pleased to receive an order. P responded, “You may ship me 2,000
barrels … as offered in your letter.” Following day, D withdrew from the agreement and P
sued for $800 in damages.
 Holding: There’s no agreement here, because D issued an invitation to deal, not an
offer (the word “sell” wasn’t used and there was no language of limitation).
 Similar to Wickham v. Farmers, in which buyer didn’t agree to buy any coal and a
specific price wasn’t set. No bargain had been concluded (no mutuality of
obligation, so no consideration/ no promise to the buyer). In Wickham, no contract
because of no consideration; here, no contract because no promise was made (like
in Leonard v. PepsiCo).
 The court is pretty much saying that it won’t force the salt dealer to stumble into a
contract.
-Empro Mfg. Co. v. Ball-Co. Mfg. Inc. (7th Circuit, Appeals, 1989)- Empro sent Ball-Co a
“letter of intent” to purchase Ball-Co’s assets. It had lots of “subject to”s. Ball-Co
dropped the deal and Empro asked for a temporary restraining order, arguing the letter
of intent was binding.
 Holding: Empro gets nothing, because letters of intent do no more than set the
stage for future negotiations on details. The “subject to” and “general terms
and conditions” language suggested that this letter was simply the first step in
an agreement.
 Empro gave $5000 in “earnest money” (which is a way to secure an option), but
Empro also said it could take the money back if it decided not to buy.
Easterbrook says this is evidence that Empro didn’t intend to be bound.
 Fried thinks this is a wonderful opinion by one of our finest judges, Easterbrook.
-Texaco v. Pennzoil (1987)- Pennzoil bid on Getty Oil. They reached a Memo of
Agreement and issued a joint press release but some matters were left open. After the
press release, Texaco made a higher bid and Getty backs out of the deal with Pennzoil
and accepts Texaco’s offer. Pennzoil sues Texaco for knowingly inducing a breach of
contract. The issue was whether Pennzoil and Getty had a binding contract in the
Memo of Agreement.
 Holding (DE court): Pennzoil was awarded damages ($7.53b in actual and $3b in
punitive) because a jury found that Texaco intentionally interfered with a
binding agreement between Pennzoil and Getty and it caused Pennzoil $7.53
billion in damages.
-Texaco alleged that the proceedings in the Texas case (different from above) violated
its constitutional and statutory rights and asked the District Court to enjoin Pennzoil
from taking any action to enforce the judgment. The District Ct. granted a preliminary
injunction (it believed Texaco had a good chance of proving its case) and the Ct. of
Appeals (2nd Cir.) affirmed.

10
  Holding (U.S. Supreme Court): Texaco’s injunctive relief reversed.
 Fried thinks Texaco got screwed. He also thinks this case is a little like Empro.

3. Indefiniteness
i. Default Rules – In certain circumstances, where there is an ambiguity, the
ambiguity will be settled in a certain way but the parties are free to contract
around it
1. Zero Default Rule – There is no deal if the terms are not specified (used
in Joseph Martin)
2. Market Price Default Rule – Terms to be agreed upon set a market price
3. Fair/Reasonable Price Default Rule – Terms set a fair price to be
determined by the court
4. Penalty Default Rule – Rent free?
5. Continuation Default Rule – Continues the current terms (Embry)
ii. Criteria for choosing a default rule –
1. Parties expectations
2. Fairness
3. To incentivize one party or another to spell out the terms
4. Ease of Administration
iii. Immutable Rule – Not free to contract around it. A settled default rule.
-Joseph Martin Jr. Deli v. Schumacher (NY, 1981)- Landlord made a renewal agreement with
“rentals to be agreed upon.” Landlord initially mentioned $650 rent, then bumped it up to
$900 (fair rental value was $545.41). Tenant commenced an action for specific
performance, which the Supreme Ct. denied. Appellate Division reinstated tenant’s
complaint with a precedent-breaking rule: “A renewal clause in a lease providing for future
agreement on the rent to be paid during the renewal term is enforceable if it is established
that the parties’ intent was not to terminate in the event of a failure to agree” (p347).
 Holding: Appellate Division overruled; an agreement discussing renewal at a rental
“to be agreed upon” is not enforceable because it’s not definite enough.
-Lafayette Place Assocs. v. Boston Redevelopment Auth. and Boston (MA, 1998)- LPA sued,
claiming Boston & BRA breached contract for the sale of Hayward Parcel. Boston and the
BRA were found liable for money damages for breaching contract with LPA. Tripartite
Agreement (1978) signed between LPA, the city, and the BRA for a development project.
Phase II was contingent on Boston’s decision to remove a parking structure. Boston says the
Tripartite Agreement wasn’t binding (too indefinite), and besides, Boston didn’t breach it.
 Holding: There was a valid contract between Boston and LPA, but Boston didn’t
breach it. There was sufficient specificity in the Tripartite Agreement, contrary to
Boston’s argument.
 Rule: “If parties specify formulae and procedures that, although contingent on
future events, provide mechanisms to narrow present uncertainties to rights and
obligations, their agreement is binding.”
-§33: Certainty- Contract terms must be “reasonably certain” such that they provide a basis
for determining breach and giving an appropriate remedy. Leaving open terms may show
that an intention to contract is still not intended to be understood as an offer/acceptance.
-§2-305: Open Price Terms- Settlement on price not required; if term is left open, it will be a
“reasonable price” (set by the court). Exception: no intention by parties to be bound; buyer
must return the items or, if unable to, pay reasonable price; seller must return price paid.

11
 -§2-204: Formation in General- (1): conduct counts as contract for sale if it shows
agreement. (2): knowledge of exact moment of contracting not required to enforce. (3):
indefiniteness does not destroy a contract if there is intention to be bound and a reasonably
certain basis for relief.
-Wheeler v. White (TX, 1965)- Wheeler says White breached a contract to obtain the money
for improvements on Wheeler’s land and that White should be estopped from saying the
agreement wasn’t sufficiently definite. White filed “special exceptions” arguing that the
agreement was indefinite and the trial court dismissed Wheeler’s case.
 Holding: Trial Ct. was correct in sustaining the special exceptions, but Wheeler’s
estoppel pleadings state a cause of action, so we reverse and remand.
 This is a §90 case, but different from DeLeo and Allegheny. In those cases, people
promised to make a gift and people claimed to rely on them, but those weren’t
really deals. This case looks a lot more like a commercial deal.
 White isn’t guity of fraud because his present intention was to secure the money.
He changed his mind later.
 The court decides that there’s more of a negligent misrepresentation at play here,
and the result was detrimental reliance.
 There wasn’t a binding contract, but a wrong was committed and damages should
be awarded.
-Hoffman v. Red Owl Stores, Inc. (WI, 1965)- Hoffman relied on Red Owl (Hoffman sold his
bakery, leased a grocery store in Wautoma for practice, and rented a new home) when Red
Owl told him $18K was sufficient to set up a store. Red Owl then upped the price to $34K
and Hoffman terminated negotiations. Jury awarded damages to Hoffman and the circuit
court wanted a new trial for the Wautoma damages.
 Holding: There was no promise, but there was reliance and awards damages based
on promissory estoppel.
o If it was a contract, then he would have gotten expectation damages, but
they hadn’t reached the level of full contract because important details
hadn’t been worked out, Hoffman hadn’t talked to headquarters, and either
party was free to back out.
4. Misunderstandings
-Raffles v. Wickelhaus (England, 1864)- P and D contracted for delivery of a large amount of
cotton. The cotton was to be delivered on the Peerless. There were two ships Peerless and
the cotton came on the ship that sailed at the later date and D refused to accept or pay for
the goods.
 Holding: Judgment for the Ds, because there was “no consensus ad idem, and
therefore no binding contract.
 Fried notes that there’s something fishy, because the buyer didn’t sue when his
October shipment didn’t arrive. Instead, he waited until the December boat arrived
before he opened his mouth; probably because the October cotton price was
cheaper than what he contracted for (so he bought cheap cotton then and sued
later).
 This is different than Hoffman, because here, neither party was more careless or
more careful – there was simply an honest mistake. In Hoffman, Red Owl was more
at fault because it knew that Hoffman would probably need more than $18,000.
-Flower City Painting Contractors v. Gumina Constr. Co. (2nd Circuit, 1979)- P and D had a
contract for house painting. D thought the contract was just for interior painting and refused

12
 to paint the exterior. The industry custom was for contracts for both interior and exterior
painting.
 Holding: Dismissal of Flower’s claim (contract unenforceable) because there was no
consensus ad idem, so no binding contract. Apparently, D was new to the business.
-§20: Effect of Misunderstanding- Consensus ad idem. If parties attach different meanings
to their manifestations of assent, there is no contract. This is unless one party knows or
should know of the other party’s interpretation, in which case the knowledgeable party is
bound to the other party’s understanding.
5. Termination of Offers
a. In General
-§36: Methods of Termination of the Power of Acceptance- Power of offeree’s
acceptance is terminated by rejection/counter-offer, lapse of time, revocation,
death/incapacity, and the non-occurrence of any condition of acceptance under the
terms of the offer.
b. Lapse of Time
-Textron, Inc. v. Froelich (PA, 1973)- P offered a price for steel reinforcing bars. 5 weeks
later, the offeree (D) called and agreed to buy some and two days later he called to
order some more. In response to both calls, the offeror (P) said, “Fine, thank you.” P
believes there was no contract becaue the offer had expired.
 Holding: Reversed and remanded for jury to determine whether there was a
contract. Probably was a contract, because even if the first contract expired,
when the offeree called to order the bars, he became the new offeror and when
the offeror said “Fine, thank you,” he accepted the offer. In other words, a new
contract was formed over the phone.
c. Death or Incapacitation of Offeror (Ofr) or Offeree (Ofe)
-Rules:
-Ofe’s power of acceptance terminated by Ofr’s death/incapacitation whether
or not Ofe knows about it.
-This isn’t true for an option contract, at least where individual performance by
the decedent wasn’t an essential part of the proposed contract.
-As noted in §45, Ofe’s power of acceptance isn’t terminated if Ofe began
performance (beginning preparations don’t constitute performance though).
-Preparations could constitute reliance under §87(2) though.
-Davis v. Jacoby (CA, 1934)- Mr. Whitehead made an offer to Mr. Davis nephew-in-law)
that if he and his wife came to help him with his finances he would leave everything to
Caro (Mrs. Davis). Mr. Davis writes back accepting. Mr. Whiteheads commits suicide
before the Davises can come to CA. They arrive and care for Mrs. Whitehead until her
death.
 Holding: There was a bilateral contract between Mr. W and the Davises, and since
the Davises performed their part of the contract, they deserve compensation for
specific performance.
o The letter rather than the performance was the acceptance.
o Mr. Whitehead’s death does not constitute a revocation because Davis had
already replied and accepted.
 Fried says that this case was wrongly decided, because the court wanted to get the
money to Caro. The Davises didn’t perform before the offer was withdrawn (by

13
 death), so this unilateral contract should be unenforceable (because there was no
longer consideration). The court construed it as a bilateral contract though.
o Fried says this is like the Brooklyn Bridge example. If the Ofr dies before the
Ofe finishes crossing the bridge, then the Ofe is entitled to the money. But
if the Ofe didn’t start crossing the bridge before the Ofr died, then the Ofe
gets nothing.
-§31 (Rest. 1st): Offer Proposing a Single Contract or a Number of Contracts - presume in
favor of bilateral – not unilateral – offers
-§32 (Rest. 2nd): Invitation of Promise or Performance – in case of doubt, offer accepted
by promise or performance
d. Revocation
-Rules:
-Typically should involve communication between Ofr and Ofe, but if Ofe has
reliable info that the Ofr has taken action to revoke then you have “indirect
revocation” (Dickinson).
-Ofr can revoke a “firm offer” (an offer to remain open for a certain period)
before the specified time (because it’s an offer without consideration – so it’s
nonbinding).
-Exceptions:
1. The firm offer has consideration (even nominal consideration), i.e.,
it’s an option contract.
2. Reasonable reliance (Baird is an example that wouldn’t be followed
today)
3. Signed, written offer by merchant to buy/sell goods is irrevocable for
lack of consideration for time stated/reasonable time (this period of
irrevocability can’t be greater than three months)
-Offer for unilateral contract (performance) is not revocable after performance
has begun
-Option contract – a contract where one party has paid to keep the offer open
for a certain amount of time.
-Dickinson v. Dodds (England, 1876)- Dodds extended an offer to sell to Dickinson; offer
to expire on Friday at 9am. Dickinson accepted before then, but Dodds had made a
formal agreement with someone else.
 Holding: Dickinson gets nothing because 1) It was only an offer and not a
binding contract because both parties hadn’t agreed to anything/ no
consideration, AND 2) Dickinson confessed he knew that Dodds had changed his
mind about the offer (no consensus ad idem).
-§25: Option Contracts- An option contract is a promise which meets the requirements
for the formation of a contract and limits the promisor’s power to revoke an offer.
-Petterson v. Pattberg (NY, 1928)- P needed to pay off $5450 on some property, and the
bond and mortgage owner (D) said that if the money was paid in full before May 31 st,
then D would pay P $780. P attempted to pay, but D had already sold the bond and
mortgage, so P had to pay the new owner his $5450 and he didn’t get the $780 he was
expecting. He’s suing for that $780.
 Holding: No recovery for Patterson (P) because “any offer to enter into a
unilateral contract may be withdrawn before the act requested to be done has
been performed” and D’s offer was withdrawn before payment was made, so D
is cool (p321).

14
-§45: Option Contract Created by Part Performance or Tender- If offer is only to be
accepted by performance (unilateral contract), beginning of performance creates an
option contract for offeree. A contract is completed and the offeror has duty to fulfill
his offer only if performance is completed.
-Brackenbury v. Hodgkin (ME, 1917)- Mrs. Hodgkin’s wrote a letter requesting Ps
(daughter and her man) to come live at the home in exchange for income from the
home and the deed to the house when she died. Ps moved to the home and then the
relationship soured and Mrs. Hodgkins told them to leave. Mrs. Hodgkins gave the deed
to her son and he sought to remove the Ps.
 Holding: Ps are entitled to conveyance of the farm, because (1) there was a
binding unilateral contract and Ps are entitled because they performed the
required act (based on §45), (2) equitable interest in the land is in favor of Ps,
and (3) Ps did not breach their duty/performance; all drama was the result of
the mom.
-James Baird Co. v. Gimbel Bros, Inc. (2nd Circuit, 1933)- D sent an offer to contractors to
provide linoleum, but the offer included the wrong amount of linoleum. P placed a bid
right before D was able to withdraw its offer. P sues for damages from breach.
 Holding: No binding contract, because
1. P did not formally accept the offer until after the withdrawal, so the
acceptance was too late (p266).
2. Offer does not become a promise until there is acceptance and
consideration, so promisory estoppel does not apply here (p267).
3. This was not an option contract (P wasn’t asked to place a bid and
then held unbound if P found a better bargain elsewhere)
 Learned Hand believes there’s no contract, so he decides that the subcontractor
goes free. He said there’s no promissory estoppel because that’s for cases like
Siegel and Allegheny (gratuitous/charitable cases, not commercial ones like this.
Here, both parties can take care of themselves).
 Fried says he doesn’t want to imply a contract or give the benefit of the doubt
because he wants to
o Incentivize people to be more precise
o Keep the decision out of the hands of the jury (because who knows
what they’ll do?)
-§2-204: Formation in General- (1): conduct counts as contract for sale if it shows
agreement, (2): knowledge of exact moment of contracting not required to enforce, (3):
indefiniteness does not destroy a contract if there is intention to be bound and a
reasonably certain basis for relief.
-§2-206: Offer and Acceptance in Formation of Contract- Unless unambiguous, contract
can be accepted in ant reasonable manner/medium
-Drennan v. Star Paving Co. (CA, 1958)- P (contractor) accepted bids from subcontractors
for a job at a school. D had the lowest bid, so P used it in his official bid, and was
awarded the school project. P then went to visit D, and D said it would only do the job
for twice what it initially said because its original bid was based on errors. P was
awarded and D appeals.
 Holding: P’s award (new subcontractor’s prize – D’s price) (i.e. “cost of cover”) is
affirmed, because

15
 1. No evidence that D offered to make its bid irrevocable in exchange
for P’s use of its figures in computing his bid. In sum, “there was neither
an option supported by consideration nor a bilateral contract binding on
both parties” (p271).
2. P reasonably relied on D’s promise, so D should be bound (§ 90).
Promissory estoppel applies.
3. There was a “subsidiary promise” (§ 45, Comment B) that if part of
the requested performance was given (acceptance of bid) then the
offeror would not revoke (p271).
4. Even if Ds made a mistake, it’s not P’s fault and P shouldn’t be denied
recovery under § 90.
 This comes out the opposite of Baird.
 Judge Traynor uses promissory estoppel, because the contractor relied on
subcontractor’s bid. We’ve saved the general contractor at the expense of the
subcontractor. Now, the general contractor can go out and gamble/shop
around. The subcontractor can’t go back on his bid though. This is terribly one-
sided.
-§87: Option Contract- An offer is binding as an option contract if a writing so says and has
valid consideration. An offer that should be expected to induce action or forbearance, and
does induce such action or forbearance, is binding as an option contract to the extent
required to avoid injustice.
6. Valid Means of Acceptance
a. General Concepts
-Livingston v. Evans (Canada, 1925)- D offered to sell land to P for $1800. P sent a
counter-offer: “Send lowest cast price. Will give $1600 cash.” D responds, “Cannot
reduce price.” P then accepts the offer, but D had sold it to someone else.
 Holding: D couldn’t sell the land to someone else, because he had a contract
with P. D’s response was a renewal of his original offer. The counter-offer
didn’t terminate the original offer.
b. The Mailbox Rule
-Default rule
-§63: Time When Acceptance Takes Effect- (a) acceptance is valid as soon as Ofe
discharges; (b) for option contracts, acceptance only valid when Ofr receives.
-Continental Europe: acceptance takes effect upon receipt
c. Silence as Acceptance
-Day v. Caton (MA, 1876)- P built a wall that was on his property AND on D’s property. P
says D promises to pay for ½ wall and D denies any “express agreement.” Superior Ct.
judge told jury that if P reasonably inferred a promise to pay from D, then the promise
should stand, and the jury ruled in favor of P. D feels that it’s incorrect to infer said
promise.
 Holding: This determination should be handled case-by-case by a jury. The jury
ruled for P, so it’s affirmed.
o Allowing a beneficial service to be rendered in your favor and not
rejecting it indicates an agreement for you to pay for it.
o Plenty of time went by with D seeing the construction and having
knowledge that he’d probably be expected to pay.
o §69(1)(a)

16
  §69 speaks of offers, but there was no offer here.
-§69: Acceptance by Silence or Exercise of Dominion- Silence can bind a party to a
contract; (1)(a)= expectation of compensation; knowledge of expectation [Day v. Caton];
(1)(c)= prior relationship between parties [Hobbs v. Massasoit]
-Hobbs v. Massasoit Whip Co. (MA, 1893)- P sent eel skins to D; D held on to them for
months; then destroyed them. D argues there was no contract and he doesn’t have to
pay for them. D led P to believe that it wanted eel skins over 22-ft in length. P sent
them. P and D had already had these sales in the past. Holmes is the judge.
 Holding: Jury determined that D’s conduct seemed like an acceptance.
 Conduct over intention; 20 Bishops Rule.
-Comment, “The Privilege of Silence”
 Silence as acceptance
o § 2-207(2) says it can be assumed that an offeree’s additional terms are
assented to if the offeror doesn’t say anything.
o And according to § 69(1)(c), the offeree’s “material alteration” may be
reasonable if prior dealings between the two parties suggest that the
offeror would be cool with it.
o So an Ofe can get away with making a serious alteration even if the Ofr
doesn’t accept (?)
-Austin v. Burge (MO, 1911)- D’s dad-in-law paid for a subscription for D, then stopped
paying. P kept sending newspapers to D although D said it didn’t want them. D paid for
a few post-subscription newspapers, but then D stopped paying and P wanted to
recover.
 Holding: “If he continue(s) to receive and use them, under circumstances where
he had no right to suppose they were a gratuity, he will be held to have agreed
by implication, to pay their value.”
-Morone v. Morone (NY, 1980)- The issues were whether a contract as to earnings can
be implied from a live-in relationship (28 years, woman does household duties) and
whether an express contract between a couple living together is enforceable.
 Holding: There is no implied contract because the services rendered in this case
are normally rendered gratuitously but an express contract between the parties
is enforceable.
 Fried says that NY wasn’t going to imply a contract for a man to pay for a
woman’s house services, but California would have. He thinks this holding is
harsh, especially considering that contracts were implied for a party wall and
newspapers.
d. The “Battle of the Forms”
-Mirror Image Rule: under the common law, the offeree’s response operates as an
acceptance only itf it is the precise mirror image of the offer
-Fried says §59 looks like the mirror image rule, but §2-207 rejects it.
-“Contract Formulation through Exchange of Printed Forms”
 People in sales relationships often prepare their own standard forms, so buyer
and seller usually have different forms.
 Often, neither party expressly assents to the other’s form and there’s no effort
made to reconcile conflicting terms.
 U.C.C. §2-207 gets rid of a formal rule of offer and acceptance and just looks at
the gist of the parties’ communications to determine whether there’s a

17
 contract. In so doing, the court is to overlook any express terms in those
communications that doesn’t fairly reflect the parties’ agreement.
-§2-207: Additional Terms in Acceptance or Confirmation-
1. UCC § 207 – An “expression of acceptance” or “written confirmation”
will act as an acceptance even though the terms are “additional to or
different from” those contained in the offer. Rejects the mirror image
rule
a. Additional terms in acceptance
i. If one party is not a merchant, there is a contract but
the additional term does not become part of the
contract unless the offeror explicitly consents to it
ii. If both parties are merchants, the additional term
automatically becomes part of the contract unless:
1. It materially alters the contract
2. The offeror objects to having the additional
term become part of the contract
b. Acceptance expressly conditional on assent to changes – An
expression of acceptance does not form a contract if it is
expressly made conditional on assent to additional or different
terms
c. Acceptance silent – Where an issue is handled in the offer but
not in the acceptance, the offer controls and the term becomes
part of the contract
d. Conflicting terms – If an issue is covered one way on the offer
and in a conflicting way in the acceptance, most courts find that
the terms knock each other out
e. Divergence – if the acceptance diverges too greatly from the
offer, there is no contract
-Idaho Power Co. v. Westinghouse Electric Corp. (9th Circuit, 1976)- Idaho sent an inquiry
to Westinghouse for the price of a voltage regulator. Westinghouse responded with a
price quotation subject to the terms and conditions on the back (including a disclaimer
limiting Westinghouse’s liability). Idaho responded with a purchase order containing
additional terms (but silent as to liability) superceding all previous agreements. The
regulator failed. Idaho sued for breach of express and implied warranties.
 Holding: The language of the purchase order does not indicate that Idaho was
unwilling to proceed unless Westinghouse assented to the additional or
different terms. Accordingly, Westinghouse was the Ofr and Idaho was the Ofe.
So Westinghouse’s disclaimer (which limited liability) is valid.
B. Written Contracts and the Parol Evidence Rule
-§2-201: Formal Requirements; Statute of Frauds- Mandatory written contract for sale of goods
worth more than $500; written confirmation (and not a contract) is sufficient unless written
objection occurs within 10 days; goods that don’t satisfy the requirements in subsection (1) can
be enforceable if the goods are specific to the buyer, if there’s an admission of contract, or if the
goods have already been transferred (or if there was part payment or if a written confirmation
later accompanied an oral contract).
-Statute of Frauds
 Types of Contracts that must be in Writing:
o K for sale of interest in land (including leases for greater than one year)

18
 o K for sale of goods (all tangible, movable property, not intangible
securities or services)
o K in consideration of marriage, not in consideration of another promise
(ex: dad agrees to give money to daughter if she marries man; non-ex: A
and B orally agree to marry)
o K that cannot be performed within one year of contract’s making
o Promises made to a debtors creditor in order to pay for debtor’s debt
(“suretyship”)
 Components of a Written Agreement:
o Identity of contracting parties
o Description of subject matter of contract
o Terms and conditions of the agreement
o Signature
 If you violate the Statute of Frauds, the majority view is that the contract is
voidable (against the person who didn’t sign), but not void (G174).
o Third party can’t raise a Statute of Frauds defense.
-Integration – A document is an integration of the parties’ agreement if it is intended as the final
expression of the agreement.
 Partial Integration – A document that is intended to be final but that is not
intended to include all details of the parties’ agreement.
o When a writing is a partial integration, no evidence of prior or
contemporaneous agreements or negotiations may be admitted that
would contradict the agreement
 Total Integration – The final expression of an agreement intended to include all
details of the agreement.
o No evidence of prior evidence of prior or contemporaneous agreements
or negotiations may be admitted that would contradict or supplement
the agreement.
 Determining whether the contract is a total or partial integration
o The “four corners” rule [Williston “formal” test] - The judge may decide
only by looking at the document itself. Does the contract look complete
on its face?
o The Corbin “actual intent” test - It is determined by looking at all
available evidence (including extrinsic). What did the parties intend?
 Determining the meaning of an ambiguous term
o The “four corners” rule – the judge may not consult any extrinsic
evidence. The meaning is to be determined only by looking at the
contract itself
o The “plain meaning” rule – The court will not hear any evidence about
the parties preliminary negotiations but may hear evidence regarding
context (what the term usually means in contracts of this sort)
o The “liberal” rule – Evidence of the parties statements during their pre-
contract negotiations is admissible for determining whether a term s
ambiguous
-Parol Evidence Rule: parol evidence will not be admitted to vary, add to, or contradict a
written, integrated contract.
 Parol evidence admitted when

19
 o It doesn’t conflict/contradict
o It’s supported by separate consideration than the rest of the contract
o It concerns a “naturally omitted” term
o The contract is only partially integrated and the parol evidence discusses terms
that aren’t in the contract
o In order to show a lack of consideration (always allowed for this purpose)
o To show fraud, duress, or mistake
o To prove that there was a conditional precedent to the legal effectiveness of the
written agreement (G128)
o To show what words in a written contract mean

Parol Evidence Rule Both 4 Corners Rule

-extrinsic evidence won’t be
allowed in to contradict the
terms of the writing
-for a fully integrated
agreement, you also can’t add
stuff to it (for partially
integrated, you can add stuff)
-both have the purpose/effect of -precludes extrinsic evidence
creating a “hedge around the -encourages intrinsic evidence
writing” (not just writing though) (likes looking at language in
-ambiguity is a trigger for document to define ambiguous
traveling outside the hedge of words)
the words
 Traynor, Corbin, and Posner
say you can’t tell whether a
word is ambiguous unless
you’ve looked at the
circumstances and the
extrinsic evidence.
 ONLY the judge can see the
extrinsic evidence and
determine if there’s
ambiguity

1. Integration and Additional or Inconsistent Terms

-Mitchell v. Lath (NY, 1928)- P and D had a written contract for the sale of land. D orally
promised and agreed, for and in consideration of the purchase, to remove an ice house on
the property. Ice house never got removed and the question was whether the oral
agreement could be enforced.
 Holding: the oral agreement does not fulfill the third requirement for the
admittance of parol evidence (p389), so it won’t be admitted or enforced.
o The oral agreement must be collateral (supported by separate consideration).
o The agreement must not contradict the provisions of the written contract.
o Shouldn’t be something expected to go in the written contract.
 Ct. decides that the ice house is so clearly related that it should have been in the
main contract. Since it wasn’t, it was probably on purpose.
-Hatley v. Stafford (OR, 1978)- D rented land to P to plant wheat, then D took possession
back. The contract is silent as to the duration of the buyout period. P says D orally agreed
that the buyout/ repossession only applied 30-60 days after execution of the lease. The
issue is how long the buyout period is.

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  Holding: There is sufficient reason to let in evidence as to the oral provision because
the contract seems incomplete and the omission of that information seems
natural/reasonable.
 Parol evidence only admitted when
o It is not inconsistent with the contract
o It was such an agreement as might naturally be made as a separate
agreement by the parties
-Hayden v. Hoadley (VT, 1920)- P and D decided to exchange land … written contract for D to
make repairs, but no mention of when … D wanted to bring parol evidence/ oral agreement
that P said D had 2 months to make repairs and didn’t have to spend more than $60.
 Holding: Parol evidence rejected because contract is complete.
 Ct. determined that although a length of time wasn’t explicitly stated in the
contract, the contract was nevertheless complete because “reasonable time” could
be inferred.
 Ct. also thought that an oral agreement about two months to make repairs and a
$60 fee didn’t make sense.
-§209: Integrated Agreements- Integrated agreement is a final expression; to be determined
by a court; completeness and specificity shows it is integrated; unless there is other
evidence.
-§213(1): Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)- A
binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
-§214: Evidence of Prior or Contemporaneous Agreements and Negotiations- Evidence of
prior/contemporaneous negotiations/agreements can be used to provide info about the
agreement in question.
-§216: Consistent Additional Terms- Consistent additional terms can be considered if the
contract wasn’t fully integrated.
2. Ambiguity
-Bethlehem Steel Co. v. Turner Constr. Co. (NY, 1957)- P contracted to furnish and erect
structural steel for a bldg; D was general contractor for bldg. Contract provision: if the
“prices for component materials, labor rates applicable to the fabrication and erection
thereof and freight rates” increased or decreased, there was to be a corresponding
adjustment of the contract prices. P charged D for increase in price of steel. D refused,
saying steel wasn’t covered in the contract provision, because steal was a “component
material.”
 Holding: Summary judgment for P issued by appellate division is affirmed, because a
trial would only be necessary if the contract was ambiguous, and it’s not.
 If P had provided evidence that the price of coal and iron (actual component
materials) had gone up, then it would have had a better shot of getting D to pay an
increased price.
 4 Corners Rule:
o Fried says New York is still pretty 4 Corners-y.
-Robert Indus., Inc. v. Spence (MA, 1973)-
 Takeaway Points:
o “A contract is to be read in light of the circumstances of its execution, which
may enable the court to see that its words are really ambiguous” (p438)

21
 o When a written agreement is ambiguous, look to context/circumstances
“for the purpose of elucidating, but not of contradicting or changing its
terms” (p438)
o Doesn’t follow 4 Corners Rule, more like Traynor Rule.
-P.G.&E Co.. v. G.E. Thomas Drayage & Rigging Co. (CA, 1968)- D was to do work on upper
metal cover of P’s steam turbine. D agreed to perform at own risk and expense and to
“indemnify P against all loss, damage, expense and liability resulting from … injury to
property arising out of or in any way connected with the performance of this contract”
(p434). During project, the cover fell and cost P $25,144.51. P sued for money and D said
the indemnity clause meant to cover injury to the property of third parties, not to P’s
property (contract followed classic contract language to that effect). Trial court said
contract had plain meaning and no extrinsic evidence was allowed (4 Corners Rule).
 Holding: Judgment reversed; the extrinsic evidence about the indemnity clause
should have been admitted (it was relevant and gave support for an interpretation
of the clause).
 Judge Traynor says we should try to figure out what the parties meant and if
extrinsic evidence helps, then it should be admitted [conditionally]. And before
getting to what the parties meant, we want to look at what the words mean.
 Traynor Rule: Look to context; admit extrinsic evidence to figure out meaning of
words/ intention
o Fried says that the Traynor Rule applies to both the Parol Evidence Rule and
the 4 Corners Rule.
o Fried also mentions that the Parol Evidence Rule and the 4 Corners Rule are
really similar. They’re in the same family.
-Fed. Deposit Insur. Corp. v. W.R. Grace & Co. (7th Circuit, 1978)- Judge Posner
 The fact that parties disagree about the meaning of a contract does not mean that
the contract is ambiguous – the words of the contract are not to be ignored.
 It’s therefore critical to allow proof of the words’ meaning(s) to be admitted.
-§2-202: Final Written Expression: Parol or Extrinsic Evidence- Non-contradictory parol
evidence can be admitted.
-§212: interpretation of Integrated Agreement- Interpreted integrated agreement in light of
the circumstances (like Traynor Rule). Jury question if depends on credibility of evidence or
on choice among reasonable alternatives.
-Cofman v. Acton Corp. (MA, 1991)- Confusion about how much one share of stock costs
[$20.54 (D) or $35 (P)]. Case turns on interpretation of settlement agreements, and effect of
reverse stock split on those agreements. Ps were partners at D Acton Corp, which agreed to
pay X times 7500 where X = price of Acton Corp common stock minus $7 (effectively making
$7 the trigger price at which the partners could cash in)
o Acton then went through reverse stock split, so that new value of stocks was
approximately five times old value.
o Ps then demanded payment, saying the stock price was well over the trigger
price of $7 from the agreement. Ds argued that because of the stock split, the
trigger price had been raised.
o Ps argued that the plain language of the agreement supports their view and that
Ds accepted risk of stock split by not negotiating for an anti-dilution clause.
 Holding: Ct. ruled for D. Ct says have to look to parties’ manifested meaning guided
by “form, structure, sense and internally manifested design of the contract itself—

22
 the mutual expression of the parties.” Looking at the agreement, clear that the
parties didn’t contemplate a reverse stock split and its impact at the time of the
agreement. Although Ps say otherwise, Ct says it’s clear that they would not have
been okay with accepting the risk of a normal stock split and long delaying when
they could ever cash in. Judge Keeton says it defies common sense to follow P’s
argument.
 Cynical Acid Wash: when an agreement doesn’t address an issue, consider how
each assertion/interpretation would have fared during negotiations.
-Big East v. Boston College (MA, 2004)- Boston College chose to leave the Big East
Conference and the Big East imposes huge penalties for leaving. Big East tried to make an
amendment to increase withdrawal penalty from $1mil with 12-mo withdrawal notice to
$5mil with 27-mo notice. Boston College says the Big East’s amendment wasn’t valid
because it didn’t follow voting protocol.
-Relevant agreement secionts: Article VII: Amendments (Big East amendment invalid), and
§5.05: Actions Without a Meeting (Big East amendment valid)
 Holding: summary judgment for Boston College. Specific controls over general.
Article VII is more specific straightforward. Judge Van Gestel believes that to allow
§5.05 to prevail would be to make Article VII purposeless.
 Fried represented the Big East.
-Frigaliment Importing Co. v. BNS Intl. Sales Corp. (NY, 1960)- Question of whether “chicken”
is a young chicken suitable for broiling and frying (buyer/P) or stewing/chicken (seller/D).
 Holding: P loses. D wins because (1) D incorporated Government’s definition of
chicken, (2) the $0.33 cost was indicative of fowl, and (3) P wouldn’t have allowed
the second contract for chicken if it was dissatisfied with the first.
 It’s not that D’s arguments were so good, but that P didn’t meet its burden of proof.
-In re Katrina Canal Breaches Litigation (5th Circuit, 2007)- Is “flood” in the insurance contract
(1) a natural event or (2) manmade/ something caused by negligence? Was the flood
caused by the levee break excluded by the insurance policy (since floods are excluded)?
District ct. judge said “flood” was ambiguous and he chose the meaning in favor of the
insured, because in the case of ambiguity, you construe against the drafters
(contraproferentum).
 Holding: The inundation that occurred after the levee break was a flood and was
excluded from insurance coverage; there is no ambiguity.
 Court determined that “flood” was unambiguous by looking to
o Dictionaries
o Generally accepted meanings –“Johnstown Flood,” news articles about
“Katrina flood.”
o Jurisprudence (other cases)
 Ps said that earth movements get distinguished for natural and non-natural causes,
so the insurance policy should distinguish for non-natural flooding too.
1. Ct. counters that “earth movement” doesn’t have the same presence in
common parlance that “flood” does, so “earth movement” requires a technical
distinction and “flood” doesn’t.
C. Mistake
1. Mutual and Unilateral Mistake
a. Generally
Mutual Mistake – Both parties have a mistaken belief

23
  K voidable by adversely affected party if
1. the mistake was to a “basic assumption on which the K was made,”
2. the mistake had a material effect on the agreed exchange of performances,
and
3. the adversely affected party didn’t “bear the risk” of the mistake
 *not voidable where adversely affected party bears the risk of the
mistake
Unilateral Mistake – Only one party has a mistaken belief
 Typically involves a mechanical error
 If non-mistaken party is aware of the error, mistaken party can void the K
o This doesn’t apply to an error in judgment about value (like selling a
$1200 car for $500)
 If non-mistaken party unaware of error
o Binding K; mistaken party can try to void, but probably has to pay
reliance
Existing Fact – The doctrine is applicable only to a belief about an existing fact not about
what will happen in the future
b. Mutual Mistake
-Sherwood v. Walker (MI, 1887)- Judgment for P in justice’s court and circuit court. Ds
bring error. P claims that the title passed; D says contract was executory and hadn’t
passed. 05/15 - D gives order confirmation for “Rose 2d of Aberlone,” believed to be
farrow. 05/21- P goes to pay for cow ($80, because price is based just on the value of
meat) and is denied because the cow is pregnant ($750-$1000).
 Holding: Judgment reversed. No contract because there’s a substantive mistake
(barren v. breeding), and it’s a mutual mistake.
 Dissent: There was a unilateral mistake here. The purchaser was taking a
gamble (probably believed the cow wasn’t barren, just farrow) and he won, so
he should get to keep the cow.
-Beachcomber Cons., Inc. v. Boskett (NJ, 1979)- P bought coin for $500 then found out
they were counterfeit. P and D both believed the dime to be Denver-minted and
genuine. In reality, the coin was nearly worthless.
 Holding: Contract rescinded, P not bound, because “classic case or rescission for
mutual mistake”
 Restatement §502: If both parties have doubt about a certain assumption and
contract anyway, then there can be no rescission because they assumed the
risk. But here, both parties were certain that the coin was genuine. It was a
mutual mistake.
 Fried says Raffles v. Wickelhaus was another case of mutual mistake.
-§152: When Mistake of Both Parties Makes a Contract Voidable- Where a mistake of
both parties at the time a contract was made as to a basic assumption on which the
contract was made has a material effect on the agreed exchange of performances, the
contract is voidable by the adversely affected party unless he bears the risk of the
mistake under the rule stated in §154.
-Smith v. Zimbalist (MN, 1982)- Sale of imitation violins based incorrectly on
assumptions of makers (Stradivarius, Guarnerius). Zimbalist, not Smith, claimed that the
violins were Stradivarius. Charged $8000 (D only paid $2000 up front), but really cost no
more than $300. Smith (P) is suing for the remaining $6000.

24
  Holding: Judgment for D affirmed (D doesn’t have to pay the remaining money)
because “both parties were honestly mistaken as to the ‘identity of the subject
matter’.”
 Fried said Smith could argue that there was a unilateral mistake here (and not a
mutual mistake) because Zimbalist was the one who labeled the violins, and so
Smith should be entitled to the money because Smith didn’t violate a warranty
(a promise that something is what it’s stated to be), but Fried said the court
wouldn’t be receptive to that. The court would rather just leave things alone.
c. Unilateral Mistake
Modern View – Where a mistake is unilateral, it is more difficult to void the contract.
Requirements – must have the three for mutual mistake plus either:
1. Unconscionability – The mistake must be such that the enforcement of the
contract would be unconscionable
2. Reason to know – The other party had reason to know of the mistake or
caused the mistake
-Elsinore Union Elem. School Dist. v. Kastorff (CA, 1960)- A contractor made a mistake in
calculating the bid (so his bid was $11K less than the next lowest bid). The school
district (P) allegedly did not know about the mistake when they accepted (although they
asked D if he was sure about his bid and D said yes). The next morning D checked the
numbers and informed P of the mistake. P refused to let him out of the contract and
wanted to hold D to his erroneous bid.
 Holding: Contract is unenforceable. D made an honest clerical mistake and
attempted a prompt rescission. It was an unfair, inequitable, and unintended
bargain.
 Fried compares this case to Lemoge
o In Lemoge, the guy did the work and then tried to get paid the amount
he would have gotten if (1) he didn’t make the clerical error and (2) his
bid had been accepted. He should have spoken up earlier. Here,
Kastorff (D) tried to rescind immediately and that made a big difference.
 Fried says the cousin case to this is Drennan. The mistaken party doesn’t get off
in Drennan, but he does here. Fried says CA courts are doling out mercy. In this
case, nobody gets hurt if you don’t enforce the K, and in Drennan, the general
contractor would be hurt if the subcontractor’s negligence went unenforced.
-S.T.S. Transport Serv. Inc. v. Volvo White Truck Corp. (7th Circuit, 1985)
 “Courts will generally grant relief for errors which are ‘clerical or mathematical’”
because
o they are difficult to prevent
o there is no useful purpose served by enforcing the mistaken term
o no incentives exist to make the mistakes (it’s not for the mistake-
maker’s benefit)
 “A merely mathematical or clerical error occurs when some term is
o either 1/10th or 10x as large as it should be;
o added in the wrong column;
o added rather than subtracted; or
o overlooked
-Comment
 The Grounds for Rescission

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 o Unilateral mistakes are generally not grounds for rescission, but
exceptions occur (see Elsinore)
o Kemper and Elsinore established that a unilateral mistake can be
authorized when enforcement of the contract would be unconscionable
(p506).
o As in Elsinore, a party who is promptly informed of the other’s discovery
of a mistake should not be permitted to demand enforcement.
 Information and Mistake
o Relief is routinely given in “mistaken bid” cases if the error should have
been reasonably known by the offeree (bid receiver) before acceptance
(see Elsinore, Kemper, and Lemoge) (p507)
-Hinson v. Jefferson (NC, 1975)- P bought a plot of land, intending to build a home – as the
land was restricted to residential use – but couldn’t get a septic system because the land
was subject to flooding. Neither P nor D knew of this. Procedure: D wins, then P wins
(granted rescission and restitution on grounds of “mutual mistake of material fact” and
“total failure of consideration”), and now D appeals. P argues there was a mutual mistake
and since the land was restricted to residential use, it must be able to fulfill that purpose. D
relies on caveat emptor (“let the buyer beware”).
 Holding: P is entitled to full restitution because D breached implied warranty
(decision based on implied warranty, not mutual mistake doctrine).
 Implied Warranty
o Caveat emptor relaxed in case of defect in dwelling of which purchaser was
unaware and couldn’t discover by reasonable inspection
o Implied warranty at time of deed passing that the dwelling and its fixtures
are free from major structural defects.
o Doesn’t extend to defects which are visible or should be visible to a
reasonable man.
o Hatley used the implied warranty doctrine and provides the legal precedent
(seems like they use Hatley, but reject Miller, although both had a type of
builder/vendor)
-McRae v. Commonwealth Disposals Commission (Australia, 1951)- Commission places a
newspaper ad offering an oil tanker on Jourmaund Reef, but neither the reef for the tanker
exists. Ps sent letter and check on 04/11, and on 04/15, Commission accepts (“Your offer to
purchase, the general conditions contained in Form O, and this acceptance, shall constitute
the contract. Kindly acknowledge receipt of this communication”). Other terms were set
out in the letter. P never responded. Commission argues that no contract came into
existence and P says that the 08/15 letter was just an ineffective attempt to add further
terms to an already completed contract. P sued for breach of contract, deceit, and
negligence, was awarded 756 lbs, and wants more.
 Contract Holding: There was a contract, and the Commission contracted that a
tanker existed in the position specified. Since there was no such tanker, there has
been a breach of contract.
 Damages Holding: It’s true that Ps expended a lot of money for salvage operations,
but D says that even if the tanker had been discovered, it may have been found
worthless, so Ps can’t say that their expenditure was wasted because there was no
tanker. Court defeats that argument and say that Ps expenses flowed prima facie
from the fact that there was no tanker, so Ps are entitled to reliance damages.

26
 o Fried says the court puts the burden of proof on D to prove that the 3000lbs
for salvaging was a waste. This is like Res Ipsa Loquitur (the victim doesn’t
have to prove the exact details of his damages, because D is clearly
responsible).
D. Assent to Standardized Forms
-Mundry v. Lumberman’s Mut. Cas. Co. (1st Circuit, 1986)- Burglar took Mundrys’ silver.
Mundrys want more than $1000 in insurance. Policy was changed, new info sent to Mundrys
with two notices about $1000 change before the burglary occurred.
 Holding: Summary judgment for Ds affirmed because Breyer says the company’s notice
was adequate (readable English, good-sized print, and important words bolded).
 Conspicuous warning = no recovery
-Comment: Form “Contracts”-
 Economic/efficient for businesses to use standardized (aka “boiler-plate”) contract
terms (avoids/reduces legal risks, confers leeways and advantages to business, omits
bargaining process, etc.) (p660)
 When a person agrees to standardized/boiler-plate provisions, they actually only assent
to (1) the dickered terms, (2) the broad transaction, and (3) any terms that aren’t
unreasonable, indecent, or materially-altering (p662).
 Any contract with boiler-plate terms results in 2 contracts: (1) the dickered deal and (2)
the collateral deal of supplementary boiler-plate terms.
-§2-314: Implied Warranty: Merchantability; Usage of Trade- A warranty that goods from a
merchant/seller shall be merchantable (fit for their purposes, in proper shape, etc.) is implied.
Other implied warranties may arise from course of dealing or usage of trade.
-§2-315: Implied Warranty: Fitness for Particular Purpose- Implied warranty that goods are fit
for their particular purpose
-§2-316: Exclusion or Modification of Warranties- To exclude an implied warranty of
merchantability or fitness, it must be written explicitly/conspicuously.
-Richards v. Richards (WI, 1994)- Leo Richards was a truck driver and his wife wanted to ride
with him, so she signed the “Passenger Authorization” exculpatory agreement. Wife sustained
injuries in an accident. (This is a case of respondeat superior. That’s why it’s Richards v.
Richards. The husband is a joint tortfeasor with the trucking company).
 Holding: Contract (exculpatory agreement) invalid because it violates public policy (none
of the factors alone would necessarily have warranted invalidation of the exculpatory
contract, but together, they do).
 Fried says Judge Abrahamson is trying to make the agreement seem unfair. Fried
doesn’t like Abrahamson’s argument about unequal bargaining power.
 Fried notes how the Policy of Contract Law (freedom of contract) and the Policy of Tort
Law (compensation for injury incurred by unreasonable conduct of another) conflict
with one another, and in this case, we rule in favor of tort law.
-Broemer v. Abortion Services of Phoenix (AZ, 1992)- 21yo decided to get abortion, given
“Agreement to Arbitrate” to sign (with two other forms), she was apparently really emotional
and didn’t know/ pay attention to what she was signing. P suffered punctured uterus due to
abortion.
 Holding: Agreement to Arbitrate unenforceable against P, because there was inequality
of bargaining power (terms couldn’t be bargained, and the arbitrator would be a doctor
so that skewed in favor of the clinic) and P didn’t know what she was signing (no
informed consent because no one explained it to her and she was under stress).

27
  Court determines that the inequality of bargaining power was unfair and that’s a reason
to deny the agreement’s enforceability, but adhesion contracts are by nature
unbargainable and they’re often allowed, so the court restricts the holding to this case.
-Silverstein v. St. Paul (NY, 2003)- Question of whether or not the September 11 th attacks were
one ($3.5b) or two ($7b) occurrences. Did WilProp insurance or Travelers insurance control?
WilProp: “occurrence” shall mean all losses or damages that are attributable directly or
indirectly to one cause or to one series of similar causes ($3.5b definition). As of September
11th, none of the insurers had issued a final policy form. On September 14 th, Travelers issued its
final policy form. P believes Travelers insurance form (which doesn’t define “occurrence”) is
controlling because the WilProp form was just the starting point for negotiations and the
insurers had agreed to follow the Travelers form.
 Holding: The binders issued by Harford, Royal, and St. Paul were based on the WilProp
form, so the attack on the towers was one occurrence.
 Since the Traveler’s form was ambiguous about “occurrence,” the court decided to look
to extrinsic evidence.
-§209: Integrated Agreements- Integrated agreement is a final expression, to be determined by
a court, completeness and specificity shows it is integrated (unless there is other evidence) to
say it’s not a final expression.
-§211: Standardized Agreements- Fried argues that (3) does all the work. If you have reason to
believe that other party would not agree to a term if it knew the term was present, then the
term is not part of the contract.
III. REMEDIES FOR BREACH OF CONTRACT
A. Damages

EXPECTATION RELIANCE RESTITUTION

Goal: Put P in the position as if Goal: Return P to status quo Goal: Restore value of benefit
K had been performed. ante. conferred on D.
Remedy based off the
Remedies based on the contract (affirmance) contract – theory of unjust
enrichment (disaffirmance)

1. The Basic Measure: Expectation Damages

-Based on K price and aims to put P in the position they would have been in without breach
-Hadley Rules: party injured by breach can only recover damages that
 Arise naturally from the breach
 Might reasonably have been supposed by both parties when K was made
-Modern trend is not to cut off damages on the ground of uncertainty (like amount of lost
profits) unless the uncertainty is fairly severe.
-Duty to Mitigate: injured party can’t recover damages that were reasonably avoidable
 K for sale of goods: if seller doesn’t deliver, buyer can recover for substitute goods
 Employment K: if Er wrongfully terminates Ee, Ee should look for comparable job
 Construction K: contractor can’t add to owner’s duty by continuing construction
after owner breached (Rockingham v. Luten Bridge)
*Expenses incurred while trying to mitigate damages are reasonable (like paying an
employment agency)
-Calculating Damages: (what you were supposed to get/ “warranty” minus what you
actually got)

28
 Gross profit (total K price – direct costs)
+ reliance ($ you spent)
– payments or proceeds ($ you received or saved)
+ consequential/incidental damages (other $ you spent)
-Hawkins v. McGee (NH, 1929)- P went to a surgeon to repair scar tissue on his palm. D
promised to make the hand “100% perfect.” D grafted skin from P’s chest onto his hand and
the skin sprouted hair and the hand was useless.
 Holding: P should be awarded expectancy damages. The aim was to put P in as
good a position as he would have been had D fully performed. Expectation damages
are the difference between what he got and what he was promised.
 Dr. spoke in contract language and solicited P’s dad’s business; that’s why this is a
contract case.
 Fried says this wasn’t a malpractice case because malpractice requires expert
testimony and it’s difficult to get one doctor to testify against another.
 If this was a tort case (which Fried says it would be today), then P could get money
for pain and suffering. Court said pain and suffering were expected with surgery
though and it was part of P’s contribution to the contract.
-Groves v. John Wunder (MN, 1939)- D leased property from Groves and as part of the lease
promised to level the land but D breached and did not level the land (keep uniform grade).
P sues for the cost of completion, $60,000. The fair market value of the land as leveled was
only $12,000 and was probably not substantially different from the cost of the land
unleveled.
 Holding: P was entitled to the cost of completion ($60,000) because to do otherwise
would favor the faithless contractor. This was a willful and intentional breach. The
law doesn’t protect people from making foolish contracts. Freedom of contract
argument.
 Fried believes this case is wrongly decided. The court granted cost of completion for
this commercial deal, but P should have gotten the diminutive value. Ps didn’t care
about the land enough to complete it (they left the land unfinished and uneven for
12 years).
-Peevyhouse v. Garland Coal & Mining Co. (OK, 1962)- Ds leased land from P for the purpose
of mining coal and promised to fill the strip mining holes at the end. Ds breached and left
the land with the holes. The cost of completion was $29,000 but the decrease in the value
of land was $300.
 Holding: P recovers the diminutive value (~$5000). No person can recover a greater
amount in damages that he would have gained by full performance on both sides.
Efficiency/economic waste argument.
 “Where the contract provision breached was merely incidental to the main purpose
in view, and where the economic benefit to the lessor by full performance of the
work is grossly disproportionate to the cost of performance, the damages are
limited to the diminution in value of the premises.”
 Fried says this case was wrongly decided. This was more of a personal transaction
(unique property). Ps cared about the land and should have received cost of
performance.
Restatement Examples:
-“Ugly Fountain”

29
  You build an ugly monument for your beloved, dead dog. The land costs
$100,000, but the monument would drop the property value to $60,000. It
costs $30,000 to build the monument and you pay up front, but the builder
decides he’ll keep the money, not build the fountain, and save you $40,000.
 This wouldn’t fly, because you want the fountain (it represents something
important to you) and our society believes that people should be able to
contract for what they want.
-“Dry Hole”
 You want to build a well and it costs $12,000. It’s clear that there’s no oil there,
so the builder doesn’t want to complete the contract.
 You could try to sue for damages, but you’ll lose because it’s clear that you
don’t really want anything (there’s no oil and no one wants to drill for nothing)
-Acme Mills & Elevator Co. v. Johnson (KY, 1911)- On 4/26, parties made a contract for 2,000
stacks of wheat at $1.03 per bushel to be delivered on 7/29. Johnson failed to deliver the
wheat on time and breached. Before breaching, however, Johnson sold wheat to a different
party on 07/13 for $1.16. On 7/29, the price of wheat was 97 ¢. The plaintiff sued for the
difference between $1.03 and $1.16.
 Holding: There can be no recovery because P suffered no financial harm. He was no
worse off as a result. In fact, he was probably better off because he could buy for 97
¢. (He was asking for restitution damages).
-Laurin v. DeCarolis Construction Co. (MA, 1977)- D sold a wooded lot to P and before title
had passed, D removed the timber and gravel from the land.
 Holding: D must pay P for the value of the goods removed. They were non-fungible
goods and P most likely made the contract with the assumption that they would be
on the land when he received it.
-Jacob & Youngs v. Kent ( )- D contracted to have P build him an expensive vacation home
using a specific brand of pipe (Reading pipe). D used a different brand for the majority of
the piping, because D didn’t pay attention to that provision of the K. Accordingly, P withheld
final payment as a result.
 Holding: D must make the final payment and P need not replace the piping. The
court (Cardozo) decides that D got essentially what he bargained for because there
was no real difference in the piping. Also, it would be unreasonably expensive to
force P to take out the old piping and install Reading piping.
 The dissent believes that this holding violates freedom of contract. D specifically
asked for Reading pipe and that’s what he should get.
 Fried says that Cardozo wants to play both sides of this argument
o He pretty much says this is a “Dry Hole” case, but he doesn’t say it outright
because he says this is an “innocent” mistake
o He wants to save the “Ugly Fountain” case though, by saying that a person
can always contrast to say that every term must be satisfied or recovery is
merited (but that’s not true).
 Fried thinks Cardozo’s judgment is the law though.
-Comment: “Damages as Punishment for Contract Breach”-
-§347: Measure of Damages in General- Normally, damages = loss in value +
incidental/consequential loss – cost/loss avoided
-Louise Caroline Nursing Home, Inc. v. Dix Construction Co. (MA, 1972)- P and D entered into
a contract for work on P’s nursing home, but D halted work and did not finish. P sued for

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 breach and had another contractor finish the job. P wanted the difference between the
value of the unfinished building and the value of the completed house.
 Holding: No damages should be awarded because P suffered no compensable
damage, because the cost of completion is less than what normal expectation
damages would be (house worth contract price minus payments already made by
P). So, P can use the money it didn’t end up spending to complete the construction,
and it will still have a little money left over.
 You don’t get a windfall because you are the victim of a breach. They had already
recovered the cost of completion.
 Fried says this is “reverse-Peevyhouse”
2. Rationales for the Expectation Measure (and the Limitations)
-Goodman v. Dicker (DC, 1948)- Dicker (appellee) applied for a dealer franchise with
Goodman (appellant, local distributor). Goodman induced Dicker to incur expenses, and
then Goodman finally told Dicker that Dicker wouldn’t get the franchise. Lower court
awarded Dicker $1500 ($1150 spent and $350 in lost profits).
 Holding: This is a case of detrimental reliance, and damages should be based on
money spent in reliance – not on lost profits. Damages - $1150.
- D’Ulisse-Cupo v. Board of Directors of Notre Dame High School (CT, 1987)- Failure of a
school board to rehire a teacher despite representations that it would.
 Holding: P doesn’t have a promissory estoppel claim here, but negligent
misrepresentation.
-Note: Promissory Estoppel Damages-
 These reliance damages should return the victim to the status quo ante
 Williston, Reporter of the Restatement, says that if the status quo can be restored,
then there’s no need to enforce the promise, but if the status quo cannot be
restored, then the court should enforce the contract.
-§348: Alternatives to Loss in Value of Performance- Alternatives to loss in value when you
don’t know the specific amount lost: diminution in value or reasonable cost of completion (if
not clearly disproportionate to probable loss in value)
3. Limitations on Recovery of Expectation Damages
-Efficient Breach = when nonperformance benefits the promisor and the promisee doesn’t
actually lose anything
-Example:
B = breacher, V = victim, X = third party
B has to sell widgets to V and he sells/delivers the first half of V’s order. Then X
comes and B sells widgets to X at a higher price, but B is now late in delivering to
V (B breached his contract). V lost $1000 as a result. Because of how much
money B received from X, B can pay V’s $1000 damages and still have money
left over. So, it benefited B to breach and didn’t really damage V.
1. Default Rule: Breacher is free to breach as long as he compensates the difference
between the market price at the time of performance (what you currently have) and
the contract price (what you were supposed to get). So, normal expectation
damages.
2. Posner - Advocate of the efficient breach.
-Efficiency. The goods find their way to those who need them most.

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 -It’s pareto superior = at least one person is better off and no one is worse off,
not Kaldor-Hicks efficiency (those who are better off could help those are worse
off, but those better off don’t have to compensate the others).
3. Freidmann – Opposed to efficient breach
-Breaching party should not be able to capture the increase in price. If a profit is
to be made, it should go to the victim, not to the breacher.
-Keeping B involved adds transaction costs
-Argument that since the widgets are going to be V’s property, B is pretty much
stealing by selling those widgets to X (but V doesn’t actually own the widgets
until delivery; before then, V only has an expectation).
4. Conflict between efficient breach and freedom of contract
-Make money however possible – Posner
-One should keep promises.
a. Avoidable Damages
-Duty to Mitigate: Where P might have avoided a particular item of damage by
reasonable effort, he may not recover for that item.
-Rockingham County v. Luten Bridge (4th Circuit, 1929)-The county revoked a contract to
build a bridge after Luten had spent $1,900 on the construction. Luten continued to
build in defiance and sued for $18,301.07 for completion of the bridge.
 Holding: P can only recover the amount expended prior to the revocation. P
can’t get damages for injury that could have been avoided. Duty to mitigate.
So, Damages = $ for labor + materials + expenses incurred in part performance +
profit that would have been realized.
 Treat the contract as broken when P receives notice and recover such damages
as he may have sustained at that point. Efficiency argument.
-Leingang v. City of Mandan Weed Board (ND, 1991)- City awarded Leingang a contract
to cut weeds on lots of more than 10,000 sq. ft. Leingang brought suit upon discovery
that the City had improperly assigned large lots to the small lot contractor. Leingang
claims $ 1,722 in damages ($1.933 (contract price for the work that should have gone to
P) - $211 (gas, oil, repair and blade replacement saved)). They city argued that only “net
profits” were recoverable minus some overhead.
 Holding: A plaintiff is to be compensated for all detriment cause by the breach.
Constant overhead costs are not included in the cost of performance. Contract
price should only be reduced by expenses saved.
 Note: pure economic damages are not compensable- so workers in Luten
cannot be compensated.
-Parker v. Twentieth Century-Fox Film Corp. (CA, 1970)- P contracted with D to play the
lead in “Bloomer Girl” a musical for $750,000. D cancelled the film and offered her a
part in “Big Country,” a western. P declined the role and sued for the entire contract
price. D claimed P unreasonably failed to mitigate damages by declining the role in “Big
Country.”
 Holding: P is entitled to full expectancy damages. The part in “Big Country” was
“substantially different” and inferior. The employer must show that the
alternative employment was comparable and substantially similar to that which
the employee was deprived. P need not accept inferior work to mitigate
damages.
-Billetter v. Posell (CA, 1949)- P was hired by D to be a floor lady and designer for
$75/week plus a Christmas bonus of $500. D then decided to transfer P to replace a

32
 different floor lady for $55/week. P refused, quit, and sued for $65/week from Jan. 1-
June 30 and for $300 unpaid on the Christmas bonus.
 Holding: P’s damages affirmed. State unemployment money isn’t a satisfactory
replacement, and P doesn’t have to accept work for less pay in order to mitigate
damages.
-§350: Availability as a Limitation on Damages- Duty to mitigate damages = cannot
recover damages you could have avoided without undue risk, burden or humiliation,
unless you made reasonable but unsuccessful efforts to avoid them.
b. Consequential Damages
-Include loss of profit or loss of revenue and may be recovered if such damages were
reasonably foreseeable or “within the contemplation of the parties” at the time the
contracts was made. Part of expectancy.
a. Naturally arising
i. No intervening or exacerbating circumstances
(hindsight)
ii. Ought to know (foresight)
b. Reasonable contemplation
-Hadley v. Baxendale (England, 1854)- Ps were millers. The crank shaft on the mill
broke. They contracted with carriers to transport the shaft and get a new one. They
delivered the shaft to the transporters the next day by noon. The delivery was delayed
by D’s neglect and Ps did not receive a new shaft for several days. As a result, the mill
was stopped and they lost profits.
 Holding: New trial with rule on damages given. P may not recover profits
because the loss was not foreseeable as a result of a breach (no reason for D to
foresee mill stoppage as a result of a breach in delivery). One may only recover
for damages naturally arising from the breach or such as may have reasonably
been in contemplation of the parties at the time they made the contract.
-Lamkins v. International Harvester Co. (AK, 1944)-P bought lights for his tractor and
they were delivered a year late. He sued for non-delivery and consequential damages.
 Holding: D is not liable for consequential damages because dealer did not tacitly
or otherwise consent to be bound for more than ordinary damages. Also, such
damages would be out of proportion to the consideration agreed to be paid
($100 in lost profits for $20 light accessory). Just because one knows that a risk
is present does not mean that party agreed to the transfer of risk.
-Victoria Laundry v. Newman Industries (1949)- Parties contracted for the delivery of a
boiler on June 5th but it was not delivered until November 8 th.
 Holding: Ps can recover for loss of “business profits” D is liable for the losses
that were reasonable foreseeable as a result of the breach and were actually
incurred. Depends on the knowledge possessed by the parties.
o During negotiations, Ps expressed their intention to have the boiler as
soon as possible
o D (engineers) had to know that a boiler was essential to a Laundromat
 Bearing the loss - Put the risk on the person who knew it and should have
spoken
 Default Rue – Shippers pay the difference between express and standard
shipping or $ back.

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 -Hector Martinez & Co. v. Southern Pacific Transp. Co. (5th Circuit, 1979)- D carrier was a
month late in delivering a dragline which P intended to use in strip mining. Trial court,
applying Hadley, dismissed P’s claim for the fair rental value of the dragline for the
period of delay.
 Holding: Reverse trial court’s ruling/ application of Hadley.
 Ct. awards for loss in rental value because a dragline has a value (unlike the
shaft in Hadley, which was not an indispensable element of the mill) and may
have been resold. Also, it’s reasonable that delay would decrease the dragline’s
rental value.
-§2-715: Buyer’s Incidental and Consequential Damages- Buyer’s incidental damages:
inspection, receipt, transportation… any other reasonable expense incident to the
delay/breach. Buyer’s consequential damages: any loss from what seller knew/had
reason to know and which could not be prevented; any injury from breach of warranty.
-§351: Unforeseeability and Related Limitations on Damages- Consequential damages
for foreseeable damages that are: 1) in normal course of events; 2) beyond the normal
course of events, but party in breach had reason to know.
-Valentine v. General American Credit, Inc. (MI, 1984)- P tries to recover mental distress
damages arising out of an alleged breach of an employment contract.
 Holding: a person discharged in breach of an employment contract can’t recover
for mental distress because (1) under the Hadley rule, mental distress would be
recoverable for virtually every breach of contract (which is ridiculous) and (2) it
wouldn’t comport with the economic purpose of employment contracts.
 P’s case would be best as a tort, but she hasn’t proven the requisite purposeful
tortious conduct.
-§353: Loss Due to Emotional Disturbance- No loss for emotional disturbance unless 1)
accompanied by bodily harm or 2) emotional disturbance was a particularly likely result
of the breach
c. Uncertain Damages
-Freund v. Washington Square Press (NY, 1974)- P contracted with D to have his book
published. D breached and P sued for (1) delay in academic promotion (2) loss of
royalties and (3) cost of publication. The court of appeals awarded $10.000 (cost of
publication).
 Holding: The damages granted by the Court of Appeals would put phim in a
better position than he would have been in had there been full performance.
The other damages claimed could not be proven with sufficient certainty to
allow recovery. Damages should be reduced to about $0.06.
 Could maybe have sued for reliance damages (Fried).
-Fera v. Village Plaza, Inc. (MI, 1976)- Ps signed a 10-year lease with D. D breached by
giving the space to another tenant and P refused alternate space as unsuitable. Jury
awarded Ps $200,000 for lost profit (despite that it was a new business so there was no
proof of past profits). An intermediate appellate court ordered a new trial on damages
because P’s proof of anticipated profits were entirely speculative.
 Holding: Jury made a reasonable determination, so the damages they chose
should be reinstated. Where injury is found to some degree, recovery is not
precluded for lack of precise proof (this is NOT the general rule; it actually goes
against §352).

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 -§352: Uncertainty as a Limitation on Damages- No damages for loss that evidence does
not establish “with reasonable certainty.”
4. Alternative Interests: Reliance and Restitution
a. Reliance Damages in Lieu of Expectation Damages
-Damages needed to put the plaintiff in the position she would have been in had the
contract never been made. Usually equal to the amount the plaintiff spent performing
or preparing to perform. Used where expectation damages cannot be accurately
calculated or where there is no contract but some relief is justifiable.
 Profit too speculative – Where expectation damages cannot be calculated
because P’s lost profits are too speculative or uncertain reliance damages may
be used
 Vendee in a Land Contract – Where the plaintiff is a vendee in a land contract
and the defendant fails to convey reliance damages may be used.
 Promissory Estoppel – Where a P successfully brings a suit based on promissory
estoppel, reliance damages may be used (a suit in quasi contract).
 Limits –
a. Contract price as a limit – Reliance damages will almost always
be limited to the price of the contract
b. Recovery Limited to Profits – Most courts do not allow reliance
damages to exceed expectation damages. D bears the burden
of proving what P’s loss would have been.
c. Expenditures Prior to Signing – P will normally not be allowed to
recover reliance expenditures made before the contract was
signed since they were not made in reliance on the contract.
-Security Stove & Mfg. Co. v. American Express Co. (MO, 1932)-P and D contracted to
ship a furnace by a certain to date for P to display at an exhibition. D breached and did
not deliver one of the packages (an essential part). P sued on reliance damages for the
amount spent in preparing for the convention ($801  $1000).
 Holding: Held – P may recover reliance damages. Where the breaching party
has notice of particular circumstances that will result in unusual loss in the case
of breach, the party is responsible for the damages actually sustained.
 Trying to determine expectation damages wouldn’t yield a precise sum.
 Without these reliance damages, P wouldn’t get anything, and that won’t fly.
-§349: Damages Based on Reliance Interest- Can collect reliance damages for
expenditures based on preparation for performance or in performance. Reduced by
amount injured party would have suffered had contract been performed.
-L. Albert & Son v. Armstrong Rubber Co.(2nd Circuit, 1949)- Armstrong (D) contracted to
buy 4 Refiners (machines that recondition old rubber) from L. Albert (P). P delayed
delivery of the last 2 Refiners, so D refused to accept/pay for all 4. P wants the price of
the 4 Refiners. D says P breached the contract and wants reliance costs (~$150,000).
 Holding: P may recover damages for his outlay in preparation for performance
subject to the privilege of D to reduce the award by as much as he can show P
would have lost as a result of performing the contract.
 Ct. cites §333
-§90: Promise Reasonably Inducing Action or Forbearance- Promise reasonably expected
to induce action & forbearance and does induce such action & forbearance is binding if

35
 injustice cannot be avoided otherwise. Charitable subscriptions and marriage
settlements binding even without showing of inducing action & forbearance.
b. Restitution as a Remedy for Breach of Contract
-The plaintiff’s restitution interest is the value to the defendant of the plaintiff’
performance. The goal is to prevent unjust enrichment. No restitution where full or
substantial performance has occurred. Also, in most courts, restitution isn’t limited to
contract damages.
-Normally, if D has committed a material breach, P will prefer expectation damages
because they’re usually larger and easier to prove.
-Major exception is where P made a losing K (market value of what P has to
perform for D is higher than K price).
-Uses:
 A non-breaching party who has partly performed before the other party
breached may bring a suit on the contract and not be limited by the contract
price
 The breaching plaintiff who has not substantially performed may bring a suit in
quasi-contract and recover the value she has conferred on the defendant. Such
damages are limited by the contract price.
-Quantum Meruit = work and labor done
-United States v. Algernon Blair, Inc. (4th Circuit, 1973)- A subcontractor (Coastal Steel
Erectors) began performance of a contract but Blair (general contractor) refused to pay
for the crane rental so the sub ceased work (28% complete). Blair is suing for damages
quantum meruit – the reasonable value of performance undiminished by any loss that
would have been incurred by complete performance.
 Holding: P is entitled to recover damages under quantum meruit (not on the
contract) for the reasonable value of labor and equipment. P could not collect
the full contract price in the case of partial performance.
 The contract price is evidence of reasonable value but it is not conclusive or
limiting. The court is seeking to prevent unjust enrichment
 Case brought by U.S. because of the Miller Act, which protects subcontractors
 Fried says P was in a losing contract, so suing on the contract would have left
him screwed.
 Fried says, “The miracle of restitution is that if you’re the victim of a breach, you
can ignore the contract (which you’ll do if you have a losing contract) and sue
for the value conferred, which is probably more than the K price.
-Kearns v. Andree (CT, 1928)- P worked really hard to give D what he wanted (including
installing ugly wallpaper) so that D would finally agree to buy the property, but then D
refused.
 Holding: the contract was indefinite as to mortgage, so it is unenforceable. Even
though the K is unenforceable, P may recover if there was a reasonable
expectation of compensation for P’s work.
-Oliver v. Campbell (CA, 1954)- P, a lawyer, contracted to represent D in a divorce
proceeding for a fee of $850. D fired the attorney right before the verdict was returned
(so like 99% of the performance was completed). P tried to sue for the reasonable value
of his services ($5,000).
 Holding: P can only recover $300, the remaining balance due on the original fee
because there had been full performance so he is bound by the terms of the K.

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  The remedy of restitution is not available to one who has fully performed.
 *The performances here and in Blair are both non-transferable and non-
refundable.
 Fried says that before substantial performance, all the court has to figure out is
what value has been conferred (e.g. Blair). Alternatively, when there’s
substantial performance, then you’re so close to the K price that it’s just easier
to go with the K price than to figure out some other amount (e.g. Oliver).
 “Dirty Hands Idea” – breacher shouldn’t be able to invoke the K that he has
broken. He shouldn’t be able to wear that armor anymore.
-§373: Restitution When Other Party is in Breach- If a party breaches, the injured party
can collect restitution damages for benefit conferred by part performance or reliance.
This does not hold if there was full performance and the only breach was for payment of
a definite sum.
-Britton v. Turner (NH, 1834)-P contracted with D to work for 1 year for $120. P
breached and left work after 9.5 months and sued for quantum meruit.
 Holding: P is entitled to the reasonable value of the labor for work done,
because his work (farm work) was irrevocably conferred on D. To allow the
party in breach no remedy would unjustly enrich the other party. Where a party
benefits from partial performance, he (D) must pay for the value of such
performance even if the other party breaches.
 P can’t sue on the contract because he breached the contract.
 P can’t get damages exceeding the contract price when P is the breacher.
 Different from Blair because P here is the breacher. Quantum meruit is capped
by proportionate K price. If you’re the breacher suing then you can’t get more
than the contract price, but if you’re a non-breacher suing then you can.
 Fried says that the fairy dust being sprinkled here (and in Vines) is that the court
says that the contractors could use express words to determine damages, but
Fried says that’s bull because sometimes judges ignore that express language.
-Kehoe v. Rutherford (NJ, 1893)- P had contracted to level out some land for D, but P
had to stop when some of the land turned out to be private property. He had been paid
$1,850, but he wanted recovery under quantum meruit ($3153).
 Here, P was in a losing contract (P would get $3,153 for completing 3/5ths of the
work, but only $2,743 for full performance). P’s damages are limited to the
contract price, because It would be absurd to award P the $3,153.
-§2-718: Liquidation or Limitation of Damages; Deposits- Damages for breach by either
party may be liquidated in the agreement but only at an amount which is reasonable in
light of the anticipates or actual harm caused by breach
-Vines v. Orchard Hill, Inc. (CT, 1980)- Ps wanted to buy condo and put down 10% for the
down payment. The contract designated the down payment as liquidated damages.
Then Ps wanted out because P was being transferred to NJ for work, and Ps sought to
recover the down payment. By the time of the trial, the condo’s market value had gone
from $78,000 at the time of the contract to about $160,000.
 Holding: New case to determine whether Ps get to recover and whether the
liquidated damages clause is invalid. In order for the purchaser to recover, he
must prove that the seller was unjustly enriched – that the down payment was
more than seller’s expectancy (penalty clauses are presumptively invalid).

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  The relevant moment for assessing damages is the time of breach (look at the
$78,000 value, not the $160,000 value).
 The default rule forbids parties from creating their own damage clauses –
restricts freedom to contract.
 Fried’s comments:
o 1st Order = contract (breach of contract gives standard damages)
o 2nd Order = liquidated damages
 Judge Peters says that liquidated damages will be enforced if it’s
a reasonable attempt to figure out what damages might be. If it
doesn’t look like a reasonable estimate of what damages will be
at the time of the contract (not at the time of the breach) then
it won’t be upheld.
 Peters also says that for liquidated damages to have a chance, P
must prove that D/seller was unjustly enriched.
o Demonstrating a breach leads to 1st order damages, but you need the
reasonable estimate to get 2nd order damages.
o A penalty is a liquidated damages clause that the court doesn’t think
was a reasonable estimate of what damages would be that at the time
of the contract.
o The liquidated damages clause shifts the burden of proof to the P to
prove that the seller has been unjustly enriched.
o He who attacks the clause (P in Vines and D in Muldoon) has the
burden of showing that it was unreasonable.
5. Contractual Provisions Setting Damages (Liquidated Damages and Penalties)
-Liquidated Damages are valid if
 Damages are difficult to estimate when the contract is made
 The damages in the provision are a reasonable forecast at the time of contracting
Otherwise, you have an unenforceable penalty.
-City of Rye v. Public Service Mutual Insurance Co. (New York, 1974)- City of Rye got
developers to build 6 buildings. In the contract, P required that the developers post a
$100,000 bond and $200/day for each late of lateness. The purpose of the bond was to
compel the developers to finish construction on-time.
 Holding: The bond did not reflect a reasonable estimate of probably monetary harm
or damages (because the damage of late construction posed to P would be
minimal), so it’s not a liquidated damage, but a penalty. Also, there’s no statutory
authority for the city to impose such bonds.
-Muldoon v. Lynch (CA, 1885)- A widow contracted with D to erect a headstone of Italian
marble at her husband’s grave. The agreed price was $18,788 and the contract provided for
a penalty of $10 a day if the contract had not been performed after 12 months. The marble
waited in Italy for 2 years and the widow claimed a deduction in the contract price.
 Holding: This is a penalty clause and is unenforceable because it is disproportionate
to actual damages.
 Think “Ugly Fountain”
-§356: Liquidated Damages and Penalties- Damages for breach by either party may be
liquidated in an agreement, but only if those damages are reasonable forecast.

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 -§2-718: Liquidation or Limitation of Damages; Deposits- Damages may be liquidated in an
agreement, but only if the damages are a reasonable anticipation at the time of contracting.
An unreasonably large unliquidated damage is void as a penalty.
-Lake River Corporation v. Carborundum Company. (7th Circuit, 1985)- Carborundum makes
Ferro Carbo and Lake River distributes it to customers. In order to make a 20% profit, Lake
River imposed a minimum-quantity guarantee. Unfortunately for D, the demand for Ferro
Carbo plummeted, so D was expected to pay $241,000 according to the minimum-quantity
guarantee. D refused, claiming that it was a penalty. There was also an issue of whether P
could keep the product that D had shipped to it as a lien.
 Holding: This is a penalty and therefore unenforceable (the minimum-guarantee
clause would give P 130-400% of its expected profits, and that’s way too much).
 Also, it wasn’t a lien, but some other form of ransom.
B. Specific Performance
-The provision for specific performance is a bar to efficient breach.
-Advantage: you get what you contracted for
-Disadvantages:
(1) bar to efficient breach,
(2) requires a court intervention which courts don’t like because money
damages are easier and quicker, and
(3) the problem of supervision over performance arises (so the court has to stay
involved).
-The default rule is to avoid specific performance except when dealing with real
property, because all real property is sufficiently unique that it may have more value to
a person than the market would assign it.
-We saw this in Peevyhouse
-In the reverse (Groves), there was no unique value to the land; it was
completely commercial for him
-Van Wagner Advertising Corp. v. S&M Enterprises (NY, 1986)- The owner of property leased
billboard space to the plaintiff. The owner then sold the property to S&M who terminated the
lease with 60 days notice. P sues for specific performance because it really wanted that
billboard space. Also, P believes that only the previous owner (and not the purchaser) can
terminate the lease, so S&M shouldn’t be able to terminate P’s lease.
 Holding: There was a breach because according to the terms of the lease, only the
original owner may terminate the lease to Van Wagner. However, the court declines to
order specific performance and instead awards monetary damages because the
damages are quantifiable; uniqueness of property is not a magic door to specific
performance.
 Where monetary damages can be adequately quantified, there is no need for specific
performance. If specific performance imposes an undue burden, it should not be
imposed.
 Fried notes that based on the court’s reasoning that only the original owner can
terminate a lease, it would be possible for P to find itself in this same situation if S&M
sold to property to yet another owner (because then, S&M would be the “original”
owner and would be able to terminate the lease). Fried suggests that it may have been
preferable to grant specific performance so that P could get the billboard and not have
to worry about losing it later.
-Curtice Brothers Co. v. Catts (NJ, 1907)- D, a farmer, agreed to sell his entire tomato crop to P, a
tomato canning company, but then D backed out. P wants specific performance.

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  Holding: Specific performance granted because there was no other adequate/monetary
remedy. It was a short tomato season, and if P didn’t get the tomatoes, they could lose
a year’s worth of work. Also, the farming industry is really important in NJ and the court
doesn’t want farmers to violate these economically important contracts. Also, if the
farmer was sued for lost profits, then he probably wouldn’t be able to afford it.
 Fried says this is like Alaska Packers, which we learned in our discussion of
consideration.
-§360: Factors Affecting Adequacy of Damages- Determine damage adequacy by considering (1)
the difficulty of proving damages with reasonable certainty, (2) the difficulty of procuring a
suitable substitute, and (3) the likelihood that damages would be collected.
-§2-716: Buyer’s Right to Specific Performance or Replevin- Specific performance allowed when
goods are unique
-Eastern Rolling Mill Co. v. Michlovitz. (MD, 1929)- D dropped contract to provide scrap metal to
P.
 Holding: Specific performance was granted to P because it’s easier to enforce the equity
(based on the scrap that was actually made) than determining contract price
(expectation damages for how much scrap will be produced in the future are uncertain).
-Posner, “Economic Analysis of Law”- Not a fan of specific performance.
 Ordering specific performance may not be ideal, because it has an economic cost (as
additional negotiations are not costless). Also, a damages remedy is a one-shot deal,
but specific performance requires more court involvement and supervision.
-Schwartz, “The Case for Specific Performance”- Fan of specific performance. We should make it
more readily available, because (1) damages are often under-compensatory, (2) promisees have
more incentive to sue for damages when damages are fully compensatory, and (3) people would
commonly prefer to make substitute transactions promptly and sue later for damages.

IV. POLICING THE BARGAIN

A. Duress
-Any wrongful act or threat which overcomes the free will of a party.
a. A subjective standard is used to determine whether the party’s free will has been
overborne.
-The defense of duress is available if D can show that he was unfairly coerced into entering the
contract.
-A threat to withhold something that a person needs isn’t in itself duress.
-A contract is voidable under a duress defense if:
 Consent was induced by wrongful threats (i.e., the threats must overcome the free will
of the party)
 Consent follows an unavoidable threat (i.e. the threat would cause definite, unavoidable
damage) to your property/finances (economic duress)
-§§174-176 deal with duress.
-Silsbee v. Webber (MA, 1898)- P’s son was accused of embezzling money from his employer, D.
P executed an assignment of a share of her estate to D. When he sues, she claims the defense
of duress because D threatened to tell her husband, who was allegedly in frail mental condition.
 Holding: Case remanded for trial to determine whether duress existed.
 Dissent says that duress means that you’re really deprived of your free will; you have to
be mass of quivering jelly. Holmes says that that’s not the law, but he doesn’t say what
the law is.

40
 -Austin Instrument, Inc. v. Loral Corp. (NY, 1971)- D had a contract with the Navy to provide
radar sets. D subcontracted to P to get a special part to produce the radar sets. P was awarded
the first subcontract, but not the second subcontract (because other people bid lower). P
replied, “You will either pay more on your existing contract AND accept our bid for the second
contract, or we’ll stop delivery on what you bought.” D couldn’t find another supplier so it
accepted P’s deal reluctantly, and as soon as the last shipment was made, D sued for the price
increase on the first contract. P sued for the amount remaining on the 2 nd subcontract.
 Holding: Duress found. Case remanded to determine Loral’s damages. Duress because
Loral didn’t have an alternative but to accept Austin’s crappy deal. Austin is guilty of
blackmail/extortion.
 P didn’t breach the second contract because it hadn’t been formed, but P breached the
first contract when it decided to withhold D’s goods as a type of ransom.
 Fried mentions that it didn’t make sense for D to fuss about the second contract
because he wouldn’t be able to prove any damage.
-Hackley v. Headley (MI, 1881)- P was to be paid, under contract, $6200 for cutting, hauling, and
delivering logs. D said that he believed P was only entitled to ~$4000, so P could take it or leave
it. P signed the receipt for the $4000 because he feared financial ruin, and now he’s suing for
the rest of the money.
 Holding: Case remanded for new trial. Ct. doesn’t want to say that Headley was under
duress because it would create a dangerous/unequal doctrine to say that duress can be
grounded on a plaintiff’s necessities (being poor) instead of on a defendant’s conduct.
 Where the party threatens nothing he does not have a legal right to do, there is no
duress.
 There is a presumption that someone who settles for less is not acting under duress.
This is the more typical treatment of duress. (*This was in an old outline, but I haven’t
seen anything to specifically support it).
B. Unconscionability
-Henningsen v. Bloomfield Motors (NJ, 1960)- P bought a car from D and a defective steering
wheel led to a car crash. Ps (husband and wife) filed claims based on an alleged breach of an
implied warranty of merchantability. The disclaimer of D’s warranty, however, limited liability
for warranty breach to the replacement of bad parts. The disclaimer was in small font and
difficult to read.
 Holding: The seller may not free itself of liability by a waiver. The buyer is in a much
weaker bargaining position and has little choice but to accept the terms of the contracts
as written (especially since the other car companies had similar disclaimers). Also, no
one explained or pointed out the disclaimer to P, so P didn’t know about it.
 Fried says this is similar to an “implied warranty of habitability” because there are rules
here that are imposed by the government (statute) to protect the public (Fried says the
same thing about Lochner).
-Gilmore – Ethically, we feel that the weak should be protected against the strong, and we find
breaches of contract to be very serious and immoral.
-Superwood v. Siempelkamp. (MN, 1981)- P bought a press from D and the press failed and
couldn’t be repaired. P sued in a federal district court and files claims in negligence, strict tort,
breach of warranty, and breach of contract, and for $600,000 in lost profits and damage to the
press itself.
 Holding: Economic losses that arise out of commercial transactions, except those
involving personal injury or damage to other property, are not recoverable under the

41
 tort theories of negligence or strict product liability. (I’m not sure what the actual
finding was).
-Williams v. Walker-Thomas Furniture Co. (DC, 1965)- P (a poor woman with seven children) and
D contracted for the sale of furniture. In the contract is a clause permitting the seller to
repossess all items until the balance due on all items was liquidated if she defaulted. P
challenges the contract as unconscionable.
 Holding: The court remanded for a determination on unconscionability, because the
clause could be unconscionable and the lower court didn’t think that a contract could be
voided on that ground. It was within the power of the court to declare the contract as
unconscionable as against public policy.
 Why make Walker-Thomas “wrong” (not actually wrong, but the court didn’t say the
contract was unconscionable) and Hennigsen correct? Because there’s a social harm
involved in people being injured (Henningsen) rather than in goods being repossessed
(Walker-Thomas). One shouldn’t be able to exclude liability for physical harm, but
excluding for commercial damages can be done.

Henningsen Walker-Thomas
Unconscionability declared (social Unconscionability not declared (potential
concern) commercial damage only)
Alaska Goebel
No consideration Consideration
Silsbee Austin
Both deal with duress

-Lochner v. New York (U.S. Supreme Ct., 1905)- NY passed a law restricting bakery workers
hours. The employer was charged with violating the statute and challenged the law’s
constitutionality under the 14th Amendment.
 Holding: The baker work hour legislation violates the 14 th Amendment. It’s not
connected to enough to health or safety to constitute a valid exercise of police power.
However, the Court concedes that there are instances where the state can override
freedom of contract (health and safety).
 This decision was later overruled.
 Fried says this is similar to an “implied warranty of habitability” because there are rules
here that are imposed by the government (statute) to protect the public.
-West Coast Hotel v. Parris. (U.S. Supreme Ct., 1937)- Argument that minimum wage regulation
for women is a deprivation of the freedom of contract.
 Holding: Minimum wage legitimate/ not unconstitutional.
 Fried said this case is an example of a million pieces of modern legislation that say what
the relations between parties are even when they don’t make a contract.
C. Duty to Disclose Information
1.Misrepresentation - If one party can show that the other made a misrepresentation prior
to the signing of the contract, he may:
a. Use this as a defense for breach
b. May use it as grounds for recission or damages
c. Elements of Proof:
a. State of Mind – P does not generally have to prove that the
misrepresentation was intentionally made. A negligent or even

42
 innocent misrepresentation will be sufficient to void a contract if it is
made as to a material fact.
b. Justafiable Relance – The party asserting misrepresentation must show
that she justifiably relied on the statement.
c. Fact – The misrepresentation must be one of fact rather than opinion.
2.Non-disclosure - As a general rule, only affirmative statements can serve as the basis for
a misrepresentation action. A party’s failure to disclose will generally not justify the one
in obtaining recission.
a. Exceptions
a. Half Truth – If part of the truth is told but not all so as to create an
overall misleading impression.
b. Positive Concealment – If a party takes a positive action to conceal the
truth.
c. Failure to Correct Past Statements – If the party knows that disclosure of
facts is needed to prevent some previous assertion from being
misleading, and does not disclose it.
d. Fiduciary Relationship – If the parties have a fiduciary relationship, there
is a duty to disclose
e. Failure to Correct a Mistake – If one party knows the other is making a
mistake as to a basic assumption, the former’s failure to correct will be
actionable for a “failure to act in good faith.”
-Laidlaw v. Organ (U.S. Supreme Ct., 1817)- D bought and received tobacco, but then P (seller)
repossessed it, because P didn’t know that the price of tobacco had gone up as a result of the
Treaty of Ghent and D didn’t disclose the information when P asked if there was anything that
would have an effect on the tobacco price.
 Holding: The contract was upheld because there was no misrepresentation. Simple non-
disclosure/omission will not void an otherwise valid contract. This was a case of
unilateral mistake. There was no duty to disclose the information, BUT the jury
instructions were wrong, so the judgment is reversed.
 The fact that D was silent when P asked for information reminds Fried of the party wall
case (Day v. Caton). Caton didn’t agree to anything in that case (silence implied as
acceptance) and here, D’s silence to the question about important information could be
considered to be an answer of “no.” Silence as acceptance when that’s the reasonable
inference.
-Reed v. King (-)- D didn’t tell P that a multiple murder had occurred in a home when D sold the
house to P.
 Holding: If P proves the murder materially altered the value of the house, then there’s a
duty to disclose.
 Fried mentions the 1924 Palmer Supreme Court case.
 In discussing whether or not a murder in a home merits a duty to be disclosed, Fried
says, “It’s not about irrationality but about whether or not it goes against social/public
policy.”
o There’s no duty to disclose about the Black family moving in next door, but
there is probably a duty to disclose about a home murder because there’s no
policy about that but there is policy about race and how it is to be dealt with.
-Eytan v. Bach. (D.C. 1977)- Ps wanted money back for fake paintings they bought. They
believed the paintings were authentic antiques, but they weren’t.

43
  Holding: There’s no duty to disclose about the obvious. At $50/painting (on average), Ps
should have known that they weren’t authentic.
 Similar to Smith v. Zimbalist. Fried notes that the court there decided that there was a
mutual mistake.
 Fried says that the “duty to disclose” doctrine and the “unilateral/bilateral mistake”
doctrine are virtually the same.
-Hill v. Jones (-)-Does the seller have a duty to disclose evidence of past termite infestation to
the buyer in a contract for the sale of real property?
 Holding: The seller does have a duty to disclose and the contract is void for non-
disclosure. This is more of a case of active concealment than a simple duty to disclose.
 The buyer does not usually have a duty to disclose where he has information that would
make the property more valuable than the seller supposed but the seller has a duty to
disclose all material facts.
 There is a general reluctance to impose a duty to disclose where one party did not
disclose information known only to him that he invested in learning.
-§161: When Non-Disclosure Is Equivalent to an Assertion- Duty to disclose when would correct
a mistake as to a basic assumption underlying the sale.

V. PERFORMANCE AND NON-PERFORMANCE

A. Conditions and the Duty to Perform
1. Types of Conditions
Definition- An event that must occur before a particular performance.
Three Types:
 Dependent
 Independent
 Concurring – a condition precedent which exists only when the parties to a
contract are to exchange performances at the same time.
a. Express Conditions
 An event that the parties explicitly agree is a condition to a duty
 Strict Compliance – Strict compliance with an express condition is ordinarily
required
 Avoidance of Forfeiture – Courts often avoid applying strict compliance where
forfeiture would result.
 Satisfaction of a Party – Where a contract makes one party’s duty to perform
expressly conditional on that party being satisfied with the performance, the
court will generally presume an objective standard.
a. However, the intent of the parties controls and it can be a
subjective intent if they so intended.
b. If the condition is the satisfaction of a third party, a subjective
standard usually controls.
c. There is still the duty of good faith.
-Gray v. Gardner (MA, 1821)- Parties contracted for the delivery of whale oil at a certain
price ($12.381.30) with a condition precedent which would entitle the seller to a
subsequent payment ($5,158.87 with 2 mo. interest) on the condition that no greater
quantity of whale oil than came last year arrive in Nantucket harbor between April and
October of that year (so if there was an oil surplus then it would only cost $.65/gal, but

44
 if there was a deficit then it would cost $.85/gal). A ship carrying whale oil arrived in
sight of Nantucket by October 1st but didn’t anchor in the harbor before midnight.
 Holding: D must pay because the ship hadn’t anchored before midnight on the
final day of the condition window. Strict compliance with express conditions.
 Fried said the purpose of this case is to illustrate the concept of condition.
 If the condition had been that the cost of oil would depend on whether or not
the DOW ended in an even number then that would be a gambling contract
and the court wouldn’t uphold it because it violates public policy.
o The Gray contract isn’t a gambling contract because it has a bearing on
the price of oil and it’s an attempt to have a flexible price that depends
on the market.
o And having to be anchored before midnight may seem a little arbitrary,
but “you have to draw the line somewhere” (Fried like this phrasing).

*Random: Substantial performance cases include Jacob & Youngs v. Kent, Plante v. Jacobs, Stewart v.
Newbury, and Oliver v. Campbell.

-The Lady Adams, The Contract, and the Arrival – The Lady Adams was the ship with the
oil from Gray.
 A futures contract sets a definite price for goods to be delivered in the future.
The contract in Gray is the opposite because the goods were delivered
immediately, but the price wasn’t to be set until months later.
 The captain of the Lady Adams learned of the deal between P and D and tried to
speed up the ship, but there was no reason to speed up because his arrival time
would not have had any economic effect on him (he wasn’t making any money
on the deal).
-Comment, Burdens of Pleading and Proof - Gray turns on the distinction between
condition precedent and condition subsequent.
-Parsons v. Bristol (CA, 1965)- Bristol entered into a contract for P to be an architect on a
project. The project was to be completed in two phases. The architect completed Phase
I (design building) and was paid $600. For Phase II (supervise construction) 25% of P’s
fee would be paid up front and 75% would come “only from construction loans.” D
ordered P to commence with work on Phase II and paid him $12,000 (25%), so P drafted
final plans and specs for the building. P completed 95% of the work. Unfortunately, D
was not able to secure a loan, so D told P to stop working and P brought suit to recover
for services performed (quantum meruit/ restitution?).
 Holding: P may not recover. By the terms of the contract, the risk that Bristol
may not secure a loan was contemplated and P chose to proceed knowing that
the funds had not been secured.
 One is entitled to the value he confers when he are wrongfully thrown off the
job, but here, P wasn’t wrongfully thrown off.
 Compare to Algernon Blair
o If you breach before completion of a contract, you are entitled to the
reasonable value of services rendered but damages are not to exceed
the terms of the contract

45
 o If the other party breaches, you get the reasonable value of the work
regardless of the contract terms (unless there has been substantial
performance).
 Fried says this should remind us of Luten Bridge.
 The court (Judge Traynor) thinks D shouldn’t have to pay for a building that
won’t be built (like the bridge to nowhere in Luten Bridge), so the court isn’t
feeling P’s promissory estoppel argument.
 There’s a good faith assumption here that D tried to get the loan and couldn’t
(like there was a good faith assumption in Lady Duff Gordon.
b. Constructive Conditions and the Order of Performance
1. An event that is made a condition of a duty because the court so determines
2. General Rule
a. Where each party makes more than one promise to the other, each
party’s substantial performance of his promise is generally a
constructive condition to the performance of any subsequent duties by
the other party
3. Order of Performance – The intent of the parties generally controls
a. Periodic Alternating – The parties may agree that their performance is
to be alternating. This is true of most installment contracts. Each
party’s obligation to perform his duty is constructively conditioned on
the other’s performance of the prior duty.
b. No order of performance agreed upon
i. If each party’s performance can occur at the same time as the
other’s, the court will normally require the two to occur
simultaneously.
*The next three cases are about independent and dependent promises.
-Nichols v. Raynbred (England, 1615)- Contract for the sale of a cow for 50 shillings.
Nichols (seller) is suing for the price of the cow, but the buyer claims that he never got
the cow.
 Holding: P wins. This was a promise for a promise, so P doesn’t need to deliver
the cow first necessarily. Independent conditions here.
 Since D didn’t pay, P can sue. Since P didn’t perform either, D can sue P too.
 This would be an unreasonable interpretation today (it seems that these are
actually dependent, simultaneous conditions. The performance of one is a
condition of a duty to perform the other).
-Kingston v. Preston (England, 1773)- P entered into a contract to work as an apprentice
for D for a year and a quarter at a rate of £ 200. D also agreed to transfer his business
and stock to P. Deal was that P would accept the stuff and have “good and sufficient
security” in order to then pay D £ 200/mo. D breached by refusing to surrender his
business, but D didn’t transfer his business and stock because P didn’t offer sufficient
security.
-P believes that the promises are mutual and independent, but D believes they’re
dependent.
 Holding: D does not have to surrender his business until he receives payment. P
offering sufficient security was a condition precedent to D’s surrender.

46
  Judge William Murray, Earl of Mansfield, explains that there are three kinds of
covenants: (1) mutual and independent, (2) conditions and dependent, and (3)
mutual conditions to be performed at the same time.
-Lafayette Place Associates v. Boston and BRA (MA, 1998)- LPA wanted to buy Hayward
Parcel and LPA sued, claiming Boston & BRA breached contract for the sale of the land.
 Rule: When performance under a contract is concurrent, Party A cannot put
Party B in default unless the Party A is ready, able, and willing to perform and
has manifested this by some offer of performance.
 Holding: P did not demonstrate that it was ready, able, and willing to close the
sale on Hayward Parcel, so it can’t say that D breached. Neither party tendered
performance, and neither was in breach or default.
o P didn’t specify when, where, or how Campeau (worked with P) was to
tender payment.
o There were contractually specified appraisal and arbitration procedures
and neither was invoked.
o Accordingly, P wasn’t ready, able, and willing to put the D in default.
 Fried explains that this was an option contract and the contract had to be
exercised by a drop dead date. *This is a little like Gray, becauseif you didn’t act
by the specified date then the option was closed.
 Why didn’t Boston want to give up the land? Probably because the option price
for the land was less than what the city thought the land was worth.
 Fried thinks that LPA didn’t have the money it needed to buy the land, so LPA
wanted to put Boston into default so that LPA could gain some assets with
which to buy the land.
 Fried thinks that here, we have mutual conditions to be performed at the same
time (Mansfield’s third type of covenant) and this rejects the Nichols idea of
maybe having the city sue you for nonperformanceand then you sue them in
return for the same.
-Williston, Contracts (§619)- With express conditions, courts should uphold the
manifested intention of the parties. Within constructive conditions, a court can do
what it wants.
-§234: Order of Performances- If performances can be rendered simultaneously, they
should be rendered simultaneously (unless the contract specifies otherwise).
-§238: Effect on Other Party’s Duties of a Failure to Offer Performance- If performances
are to be rendered simultaneous, then it’s a condition of each party’s duties to perform
that the other party perform simultaneously.
-Conley v. Pitney Bowes (8th Circuit, 1994)- P sued D (employer) after he had been
denied disability benefits for continued coverage. Issue: whether P must exhaust
administrative procedures (as required by the terms of the plan) when, contrary to the
requirements of the plan, the letter denying him benefits didn’t inform him of the
appeals procedure.
 Holding: Verdict reversed and remanded (in favor of P), because notice and
instructions were required.
 Notice of the appeals procedure is a condition precedent to the requirement of
exhaustion of the appeals procedure. P need not exhaust the appeals
procedure if D does not inform him of the appeals procedure. A condition upon

47
 a condition. Constructive notice through the plan itself is not enough because
of the contractual right to notice in the letter.
 Fried says that we have a condition on a condition here: a condition that
administrative remedies be exhausted, but a condition that notice and
information be given about that condition.
-Stewart v. Newbury (NY, 1917)- P (contractor) agreed to build a concrete mill building
for D. The contract didn’t specify the terms of payment. P does some work and then
sends a bill (P said the custom was to pay 85%/mo, with 15% being retained until the
work was complete). *This system is called “progress payment” and it’s common in
construction contracts. D refuses to pay the bill. P stopped work on the project and
sued for the work already completed and expectancy damages. P was awarded the
contract price, but not damages for breach of contract.
 Holding: Reversed and remanded because of bad jury instructions (it’s untrue
that payment should just occur on a reasonable basis when payment details
aren’t set in the contract).
 Rule: Without payment set in the agreement, work must be substantially
performed before payment can be demanded.
 *This result suggest that the owner gets the already completed work for
nothing. P could sue for unjust enrichment but recovery would be capped at
the pro rata contract price.
 Fried says this case goes to show that you can’t sue on the contract if you didn’t
substantially perform.
 This case can be compared to Jacob & Youngs.
 Fried says that if he contracted for a Mack truck and you give him a toy, model
truck, then Fried can decide not to pay and you won’t recover because you
didn’t substantially perform. You’re not ready, willing, and able. Fried can
count the deal as off for failure to perform. He says that his example mirrors
the Stewart case.
 If we were Stewart’s lawyers, we’d know he couldn’t get the process payments,
so we would advise him to sue for restitution (quantum meruit) because of the
benefit conferred. P can’t get more than the contract price here (because he
breached by stopping the work).
o This is like Britton v. Turner.
o Algernon Blair is different because D breached contract there and could
get more than contract price; but here, P breached.
-Patterson, Conditions and Contracts-
-Common practice was for an Er to pay only after Ee had performed (condition
precedent). That has been mitigated by statutes requiring that wages be paid at short
intervals, to certain classes of employees, etc.
-§2-307: Delivery in Single Lot or Several Lots- Under otherwise agreed, all contracted
goods should be delivered together and payment is due on tender, but if it’s agreed that
the goods can be delivered in lots, then price can be divvied up for each lot.
2. Conditions and Promises
 DISTINCTION: If an act is a condition on a duty and the act fails to occur, the other
party will not have to perform. If the act is a promise and it does not occur, then
one party has breached and the other party can sue for damages.

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 -Jacob & Youngs v. Kent (NY, 1921)- “You didn’t give me my piping and I have to deal with it”
case
-Howard v. Federal Crop. Ins. Corp. (4th Circuit, 1976)- P sued to recover for losses to their
tobacco crop due to alleged rain damages. The FCIC insured the tobacco crop, and they
require that their inspector get evidence of the damage. Unfortunately, P plowed the field
so the rain damage wasn’t visible to the inspector. D said “the failure of the insureds to
comply worked a forfeiture of benefits for the alleged loss” and they looked to 5(b) and 5(f)
of the insurance policy. District court granted SJ to D and dismissed all three actions.
 Holding: Case remanded because it was improper to grant summary judgment and
to find that 5(f) was a condition precedent constituting forfeiture.
o 5(f) is actually a promise (based on Restatement illustration #2 and the lack
of “condition precedent” language)
o No condition is set in 5(f) to determine whether or not benefits will be
granted.
 Fried believes this case was wrongly decided and that the inspection was a condition
precedent to FCIC insurance coverage.
o Fried says this court sprinkled some Cardozian fairy dust in order to uphold
the policy of finding for the insured over the insurer. Court determined that
inspection is not a condition precedent, but the language of the contract
definitely made it appear to be. Since the court finds this to be “mere
promise” instead of a condition, a party can sue for damages.
 Fried says this case is similar to Jacob & Youngs. Tthere, the court decided not to
uphold a condition. The court decided to treat the pipe request as a promise and
not a condition, and said that if the homeowner could prove damage incurred
(which, of course, it couldn’t) then he could recover for damages.
b. Unjustified Non-Performance and the Problem of Forfeiture
1. The perfect-tender rule and the doctrine of substantial performance
 A constructive condition of the party’s duty to perform is substantial performance
by the other party.
a. If one party fails to substantially perform and the defect could be easily cured,
the other party’s duty is merely suspended until the defect has been cured
b. Materiality – The breach must be material to recover damages
i. The more the non-breaching party is deprived of the benefit which he
reasonably expected, the more likely the breach was material
ii. The greater the part performance which has been rendered, the less
likely it is that the breach will be deemed material
iii. If the breaching party seems likely to be willing and able to cure the
defect, the breach is less likely to be material than where the cure
seems impossible.
iv. A willful breach is more likely to be regarded as material than a breach
caused by negligence and other factors.
v. A delay, even a substantial one, will not necessarily constitute a lack of
substantial performance.
 The Perfect Tender Rule
 UCC § 2-601

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 a. As long as a contract does not involve installments, “unless otherwise agreed…if
the goods or tender of delivery fail in any respect to conform (in any way) to the
contract, the buyer may”
i. Reject the whole
1. Rejection must occur within a reasonable time
2. Rejection must not be preceded by acceptance
a. Will have a reasonable time to inspect
3. May revoke after “acceptance”
a. Must make a stronger showing of non-conformity than
the buyer who rejects
b. Must show that the non-conformity “substantially
impairs” the value of the goods
ii. Accept the whole
iii. Accept any commercial unit or units and reject the rest
b. Cure – Both the buyer’s right to reject and his right to revoke are subject to the
seller’s right to cure the defect
i. UCC § 2-508
c. However, in reality, courts usually only allow buyers to reject the delivery if the
defect is a substantial one.
-Oshinsky v. Lorraine Mfg. Co. (2nd Circuit, 1911)- D refused its order for shirtings because
delivery was late. P alleges that goods were tendered in accordance with the contract.
 Holding: Trial court was wrong; judgment should be directed for D. Trial court said
that delivery didn’t necessarily have to occur “on” the 15 th, but “on or about” the
15th. The language is unambiguous: delivery on/by November 15 th. The delivery
came on November 16th, so D was justified in refusing it.
-Prescott & Co. v. J.B. Powles & Co. (WA, 1920)- Buyer (D) placed order with seller (P) for
300 crates of Australian onions to be delivered in March. The only ship that could deliver in
March was the Sonoma, but it could only fit 240 crates because it was also carrying the
Govt’s wheat cargo. D refused to accept the crates at contract price, so P sold them for less
than contract price and sued for the difference.
 Holding: Seller’s action dismissed. “Delivery of goods [must general] be of the exact
quantity ordered, otherwise the buyer may refuse to receive them.”
 No excuse that wasn’t in the contract will justify a recovery when performance is
partial/incomplete.
 A new contract was made because the old one became void when D decided to
reject the partial performance.
-Ramirez v. Autosport (NJ, 1982)- Judge expresses concerns that the perfect tender rule may
be too strict, allowing for the rejection of foods over trivial matters.
-The U.C.C. retains the perfect tender rule, but mitigates its harshness.
-Beck and Pauli Lithographing Co. v. Colorado Milling and Elevator Co. (8th Circuit, 1892)- D
was to buy more than 300,000 copies of engraved letterhead et. al. P tendered delivery of
all five boxes before January 8th, but D refused to receive or examine them, asserting that
delivery was too late.
 Holding: Unfair for D to reject boxes because they were a few days late. The goods
were made-to-order, and nothing in the contract stressed the importance of time.
 This holding seems very much based on reasonableness, like in Jacob & Youngs.
-Comment: “Goods” and “Services” ()-

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 -Bartus v. Riccardi (NY, 1927)- D order Model A-660 hearing aid from P. P provided the
newer model, Model A-665, which didn’t work for D. P offered to send D Model A-660, but
D refused and wanted to cancel his contract. P is suing for the balance due on the contract
(contract price minus down payment). *D can’t recover on his down payment, because his
claim was untimely.
 Holding: Judgment for P because P attempted to cure the tender in accordance with
§2-508(2). Under the circumstances, P had reasonable grounds to believe that the
newer model would be accepted by D. The P acted within a reasonable time to
notify D of his tender of a conforming model.
-§2-508: Cure by Seller or Improper Tender or Delivery; Replacement-
-Plante v. Jacobs (WI, 1960)- P (builder) sued for unpaid balance of the contract price plus
extras of building a house for Ds. Ds respond that there was no substantial performance,
and counterclaims for damages due to faulty workmanship and incomplete construction.
Both P and Ds were awarded some stuff in trial court, but P won the majority.
 Holding: P’s victory affirmed. Substantial performance was rendered, diminished
value damages should be awarded, and it would be unreasonable to redo the wall
(like Jacob & Youngs v. Kent).
 Recovery on the contract requires substantial performance. Otherwise, you get
quantum meruit.
-Note: Restitution for the “Willful” Defaulter- MA continues to adhere to the overall view
that a contractor’s failure to perform in full bars recovery on the contract, but that one who
both substantially performs and makes a “good faith” effort to perform fully may recover in
quantum meruit.
-This is counter to U.C.C. rule.

b. Other Justifications for Non-Performance

i. Impossibility and Impracticability
 Impossibility – A court will generally discharge both parties where the performance
of a contract has been rendered “impossible.”
a. Destruction of Subject Matter – If the performance involves particular
goods, a particular building or some other tangible thing, which through the
fault of neither party is destroyed or otherwise made unavailable, the
contract is discharged.
i. Discharge is proper only if the party seeking to be discharged
specifically referred to it in the contract. It is not enough that she
intended to use a particular item that was later destroyed.
b. Impossibility of an intangible but essential mode of performance – If an
essential but intangible aspect of the contract becomes impossible, the
parties may be discharged.
c. Death or Incapacity – If a contract specifically provides that performance
shall be by a particular person, that person’s death or incapacity discharges
both parties.
 Impracticability – Modern courts generally equate “extreme impracticability” with
impossibility and the parties will be discharged.
a. UCC § 2-615(a) – A seller’s non-delivery is an excuse if “performance as
agreed has been made impracticable by the occurrence of a contingency or
a non-occurrence of which was a basic assumption on which the contract
was made”

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 b. Most impracticability cases relate to extreme cost increases suffered by
sellers who have signed fixed-price contracts. Sellers generally lose.
 Fried calls these the “All Bets Are Off” cases
o He said that in §266 the writers just give up and that in §272(2), the writers
say, “Here are the rules. If you don’t like them then make them up.”
o Impracticability and Frustration are separate in the Restatement. U.C.C. §2-
615 lumps the two together though.
o §266: Existing Impracticability or Frustration- If a party’s performance is
impracticable or his principal purpose frustrated (without his fault and
unbeknownst to him) at the time the contract is made, then there’s no duty
to render the performance unless the language or circumstances indicate to
the contrary.
o §272: Relief Including Restitution- If following the other rules won’t avoid
injustice, then just grant whatever relief avoids injustice, including
protecting of the parties’ reliance interests.
2. Development of the Doctrine
-Taylor v. Caldwell (England, 1863)- P rented concert space (Music Hall) for four days at
a price of 100 lbs/day, but the Music Hall burned down before the first rental day
without the fault of either party. P wants to recover for damages it sustained (lost
profits).
 Holding: Verdict for D, because both parties are excused (P excused from using
the space and paying the money; D excused from renting/providing the space).
 Implied condition that the parties shall be excused in case, before breach,
performance becomes impossible from the perishing of the thing without
default of the contractor. Same for examples of death or an act of God
removing a necessary personal skill (e.g. an artist going blind).
 Rule: “In contracts in which the performance depends on the continued
existence of a given person or thing, a condition is implied that the impossibility
of performance arising from the perishing of the person or thing shall excuse
the performance” (p531).
 Fried said it would have been difficult to calculate lost profits because we don’t
know how many tickets and how much popcorn would have been purchased.
 P may have also sued for reliance or for the “cost of cover.”
-Tompkins v. Dudley (NY, 1862)- P wanted D to construct a schoolhouse for $678.50 to
be completed on 10/1. The building burned down on 10/5 when it had been
substantially completed but had not yet been turned over. P sues for the money it
advanced and for damages from the non-performance of the contract.
 Holding: D must pay damages for non-performance. The builder created the
liability (because he promised the building would be done and delivered on a
certain day) and his duty was not performed. A party who agrees to do an act
should perform unless absolutely impossible.
 Whoever is the owner at the time of the fire is liable. The builder is in a better
position to insure.
 Fried says the difference between this and Taylor is that Taylor is a less
standardized contract, so it just didn’t enter their heads to include such a
provision to cover their cases in of fire; a provision for a clear allocation of risk.

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  *Jay suggests that Tompkins came out the way it did because D was a
guarantor, not the insurer, so D was effectively impleding the insurer. That
means that D, the builder, got to put the cost on its insurer (so maybe D wasn’t
in a rush to get it turned over on time?). Fried liked this idea.
3. Modern Approach
-American Trading & Prod. Corp. v. Shell Int’l. Marine (2nd Circuit, 1972)- P is
appellant/owner. D is appellee/charterer. The parties contracted for D to hire the
owner’s tank vessel, “Washington Trader,” to ship lube oil from TX to India via the Suez
Canal (D paid $417.327.36). The Suez Canal rate was used in calculating the trip fee, but
while the ship was in transit, the Arab-Israeli war broke out and the canal closed. The
ship then went around the Cape of Good Hope, adding 8,000 miles (i.e. an additional fee
of $131,978.44). P sued D for that additional fee.
 Holding: P is not entitled to the additional fee. The parties may have expected
the Suez to be the route taken but it was not an express condition of
performance. D makes no reference to the route in the contract; the contract
was to deliver the oil, NOT to use the Suez Canal. The implied expectation is not
adequate proof of the allocation of the risk of closure to the promisee.
 The increase in expense was not enough to amount to impracticability – not
unreasonable or extreme difficulty (increase of less than 1/3 of the agreed on
price of $417.327.36).
 Additionally, the owner could have mitigated the loss because they knew of the
risk of closure and continued on the route anyway (ship master – working for
owner, was told on May 29th of the crisis, but two days later, he continued
towards the Canal), adding additional miles and expense.
 Owner had the responsibility to insure and didn’t.
 Fried says there’s no impossibility here, just more time and expense.
 Fried references §266.
-Mishara Constr. Co. v. Transit-Mixed Concrete Corp. (MA, 1974)- P was the general
contractor for a housing project. D was the subcontractor that provided concrete.
Contract was made in 09/66 and things were cool until labor disputes began the
following year. A picket line was maintained from 1967 until the project was completed
in June, and D made very few deliveries despite requests from P. After notice to D, P
bought contract from elsewhere at a higher price. P wants to recover for the cost of
cover. Jury found for D, and P is upset because P wanted jury to be told that D “was
required to comply with the contract regardless of picket lines, strikes, or labor
difficulties.”
 Holding: Affirmed; the trial court properly ignored P’s desired jury instruction
because D’s compliance with the contract should be conditioned on the severity
of the strikes.
-Dawson, “Judicial Revision of Frustrated Contracts”
 Westinghouse Electric Example: Westinghouse had agreements to supply 49
nuclear plants with uranium at prices of $8-10/lb, but then the price of uranium
skyrocketed to $40/lb and if Westinghouse performed its contracts fully then its
damages would be at least $2 billion. Westinghouse breached its contracts, and
the judge ruled that it was liable for all expectancy damages. Ultimately, the
parties settled though (which was good for Westinghouse).

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  Dawson asks whether it’s appropriate for judges to rewrite contract terms when
contracts appear complex or unworkable, and he answers “no,” because (1)
judges are not qualified for that and (2) no source gives a court the power to do
that.
-Aluminum Co. of America (ALCOA) v. Essex Group, Inc. (in Spiedel reading)- ALCOA was
processing aluminum and tried to breach its contract.
 Holding: Court didn’t let ALCOA out of its contract, but the court reworked the
contract to split the difference between the parties.
 Fried said there’s typically reluctance for courts to do this because contracts
aren’t things to be imposed on parties. And Dawnson says courts shouldn’t.
ii. Frustration of Purpose
 Where a party’s purpose in entering into a contract is destroyed by supervening
events, most courts will discharge him from performing.
a. Foreseeability – The less foreseeable the event that thwarts the purpose,
the more likely the courts are to discharge the parties.
b. Totality – The more totally frustrated the parties are, the more likely they
are to be discharged.
-Krell v. Henry (England, 1903)- Edward VII Coronation Case. D leased a room from P for
June 26-27th in order to watch the procession of the King. Cost was £75 (to be paid on June
24th) with £25 down payment. The coronation and procession did not occur because of the
King’s illness; info of his illness came on the morning of June 24 th. D declined to pay the
remaining £50 and P is suing for it. *D had a claim to get his down payment, but he
withdrew it.
 Holding: D doesn’t have to pay because there is an implied condition that the event
should occur for performance of the contract. The procession was regarded by both
parties as the foundation of the contract.
 One must ascertain from the surrounding circumstances what the purpose of the
contract was by asking: (1) what was the foundation of the contract? (2) Was the
performance prevented? (3) Was the event that prevented the performance not
contemplated at the time of the contract. If the answer to all three questions is
“yes,” then both parties should be discharged from further performance of the
contract.
 Compare to Raffles v. Wickelhaus and Sherwood v. Walker – Here there was a deal
but is has been discharged due to frustration, but in those two cases, there was no
deal due to mistake.
 Court gives the “cab to horse race” example: say a person hires a cab to drive him to
the horse race for 20 pounds, but the horse race has been cancelled. The person
can’t get his 20 pounds back because even if the driver knew that the guy’s purpose
was to see the horse race, the cab driver’s purpose was just to provide
transportation (which he did). So the horse race wasn’t the common
foundation/purpose.
-Comment: “Relief Following Discharge”
 The court in Chandler v. Webster (1904) said that in Krell, “the parties were to be
left at the point where they contracted to be at the moment when the unexpected
event occurred” (so D’s down payment, but not the remaining £50 would have been
due).

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  This “suspension in midair” approach has been rejected by almost all American
courts and was rejected by England in the Fibrosa case:
o An English manufacturer/seller was to deliver and install textile machinery
for Fibrosa (Polish company), but couldn’t do so because of the German
invasion of Poland and Britain’s declaration of war. Fibrosa had paid
£1000/4800. Fibrosa demanded the £1000 back and the House of Lords
awarded it, without any deduction for the seller’s loss in working on that
made-to-order project (seller got screwed).
 The Law Reform (Frustrated Contracts) Act of 1943 allowed restitution of money
paid, and of the value of any “benefit” conferred through part performance of a
frustrated contract. And if the court considers it just, then it may allow deduction of
expenses incurred by the receiver of the benefit if these expenses were incurred
before the supervening event and were “in, or for the purpose of, the performance
of the contract.”
 Rest. §272 Comment (b) says that recovery in impossibility and frustration cases
“may go beyond mere restitution and include elements of reliance by the claimant
even though they have not benefitted the other party.” (p560)
 Fried says that §377 and §272(2) say, “We’re just going to split the difference in a
way that seems fair.”
-Chase Precast Corp. v. John J. Paonessa Co. (MA, 1991)- P entered into two contracts to
supply D with concrete median barriers for highway improvements. Residents protested the
concrete barriers and the government told D that it didn’t want anymore concrete. D had
already compensated P for the concrete delivered (about 50%) and P suffered no out-of-
pocket expenses.
 Holding: Judgment affirmed, P cannot recover the profits it lost from the
cancellation of its contract with D.
 D bore no responsibility for the government’s elimination of the concrete barriers
 P knew the barriers were for the government and that the government had the
power to decrease the quantity of contract items
 “All parties were well aware that lost profits were not an element of damage in
either of the public works projects at issue”
 Doctrine of Frustration of Purpose (§265): Where, after a contract is made, a
party’s principal purpose is substantially frustrated without his fault by the
occurrence of an event which the non-occurrence of which was a basic assumption
on which the contract was made, his remaining duties to render performance are
discharged, unless the language or the circumstances indicate the contrary (p563).
iii. The Code
-§2-614: Substituted Performance-
a. If original manner of delivery (including loading/off-loading site, type of carrier, etc.)
is commercially impracticable but another commercially reasonable substitute is
available, that substitute must be tendered and accepted.
b. If payment fails due to government regulation, seller can withhold until buyer
tenders sufficient substitute payment. If delivery already happening, the payment
of the regulation discharges the buyer’s obligation unless the regulation is
discriminatory/oppressive/predatory.
-§2-615: Excuse by Failure of Presupposed Conditions-

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 a. Delay in delivery, or non-delivery, is not a breach if it is caused by a contingency
the non-occurrence of which was a basic assumption of the contract or a
contingency which complies in good faith with a government regulation
b. If the contingency affects only a part of the seller’s capacity to perform, seller must
allocate production/deliveries among his customers
c. Seller must notify the buyer seasonably that there will be a delay, non-delivery, or
allocation
-§2-616: Excuse by Failure of Presupposed Conditions-
a. In § 2-615 cases, after notification, buyer can terminate and discharge any
unexecuted portion of the contract or modify the contract by agreeing to take
available quota in substitution
b. Then seller must respond to buyer in a reasonable time (at least < 30 days) or else
contract lapses

VI. THIRD PARTIES

A. Third Party Beneficiaries
-Lawrence v. Fox (NY, 1859)- Holly owed $300 to Lawrence and lent that $300 to Fox, who was
to give $300 to Lawrence the following day. Lawrence didn’t receive his money, so he sued Fox.
Jury found for Lawrence for the $300 plus interest and Fox appealed.
 Holding: Judgment affirmed (for P), because “Fox, upon ample consideration received
from Holly, promised Holly to pay his debt [of $300] to Lawrence; the consideration
received and the promise to Holly made it as plainly his duty to pay Lawrence as if the
money had been remitted to him for that purpose.”
 Dissent says that Lawrence wasn’t a party to the promise and shouldn’t be able to sue
for the money (no privity between P and D).
 Lawrence was a creditor beneficiary.
-Seaver v. Ransom (NY, 1918)- P is the niece of Beman, a woman who wanted to leave her house
to P, but didn’t have time to include it in her will (because she feared death would interfere) so
her husband, Judge Beman, promised to leave the house to P in his will. Judge Beman didn’t
fulfill his promise, so when he died, the house didn’t go to P. P sued for the value of the house
and won because equity was in her favor.
 Holding: Judgment affirmed (for P). The contract was made for P’s benefit and she
alone is substantially damaged by the breach. Judge Beman made a promise to pass
along the gift and it’s the tendency of American authority to sustain gifts.
 Seaver was a donee beneficiary.
-§302: Intended and Incidental Beneficiaries: A beneficiary is intended is performance is
supposed to provide him with payment (creditor beneficiary) or if performance is supposed to
give him some benefit (donee beneficiary). An incidental beneficiary is a beneficiary who isn’t
intended.
-Anderson v. Fox Hill Village Homeowners Corp. (MA, 1997)- P slipped and fell on property (a
retirement community) that D is responsible for maintaining.
 Holding: Judgment for D, because P is an incidental third party beneficiary. There is no
indication, express or implied, that any obligations were imposed for the benefit of
employees of the nursing facility (like P). Since P isn’t an intended third party
beneficiary, but instead an incidental third party beneficiary, she can’t sue on the
contract.

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  P also can’t sue on Torts, because there would only be a duty owed to P based on a
contract (no duty by a landowner to remove a natural accumulation of snow/ice), and
since P isn’t an intended beneficiary of the contract, she has nothing to sue on.
-H.R. Moch Co. v. Rensselaer Water Co. (NY, 1928)- D is a water works company that had a
contract with the city of Rensselar to supply water. P’s warehouse burned down because D
didn’t supply enough water with enough pressure to put out its fire.
 Holding (Cardozo): Judgment for D, because P is an incidental third party beneficiary.
D’s contract is with the city, not individual members of the public. There’s no specific
intention to benefit or contract with individuals.
 Cardozo also says that P’s action isn’t maintainable as one for common law tort because
placing liability on D would unduly and indefinitely extend the zone of duty.
 Fried notes a few common rules:
o No private right of action against public works companies
o No private right of action against Medicare/Medicaid
o Implied private right of action in Securities laws
-Doyle v. South Pittsburgh Water Co. (PA, 1964)- D supplied water to the city of South
Pittsburgh. P’s home burned down because D didn’t make sure that fire hydrants were
operative.
 Holding: Judgment for P because it’s foreseeable that D’s breach of duty would injure a
third person (like P) so D owes a duty to those third persons. Also, not holding D liable
here would lead to inattention and indifference on the part of public works companies.
 This case is atypical. This is not how things usually work.
-Robson v. Robson (IL, 1981)- Father and son, who shared equal portions of P.B. Services, Inc.,
made a contract that when either of them died, a monthly endowment would be given to his
widow. Ray Jr. divorced P and changed the contract to remove her as the beneficiary of the
monthly endowment. Ray Jr. then died and P (his ex-wife, Birthe Robson) sued to get the
money.
 Holding: Judgment for D, because P is a donee beneficiary, and unlike a creditor
beneficiary, a donee beneficiary does not have an automatically vested right to a certain
interest/gift and her reliance is not to be presumed. Since the contract rights didn’t
vest, P didn’t detrimentally rely, and Ray Jr. used his right to alter/rescind the contract
before it vested, P cannot get the money.
 Fried says that the court’s justification on vesting is strange and begs the question,
because how do we know if the gift is vested? He doesn’t like that the court is trying to
use this vesting distinction in its argument.
 Also, the Robson case says that you can modify against a donee beneficiary, but not a
creditor beneficiary, but the Restatement doesn’t say this.
-§311: Variation of a Duty to a Beneficiary:
(1) can’t change the duty to a beneficiary if a term in the promise forbids it
(2) without a forbidding term, things can be discharged or modified
(3) #2 gets ignored if beneficiary justifiably relied on the promise before the change was
implemented
(4) If the promisor (B) gives something to the promisee (A) to discharge/modify B’s duty
to X (i.e. B gives A $100 to keep the watch that A intends for X) then X can assert a right
to that consideration (the $100).
B. Assignment*
-Langel

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-§ 328
-Herzog
-Macke
-Crane
-Allhusen
-Homer v. Shaw

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