I.

MULTIPARTY TRANSACTIONS

A. Manifesting Assent through an Agent: Types of Authority

1) Definitions
a. Principal=person/party on whose behalf the agent is acting, has the authority to bind the
agent
b. Agent=person/party who is acting on behalf of principal and is subject to the control of
principal
2) The agent has the power to bind the principal to K made if agent has appropriate authority:
a. Inherent Authority=authority arising from the agency relationship
b. Apparent Authority=third party reasonably believes an agent has, based on third party’s
dealings w/the principal, even though principal did not confer or intend to confer the authority.
Apparent authority can be created by law even when no actual authority has been
transferred. Also called ostensible authority or authority by estoppel.
c. Actual Authority=Authority that a principal intentionally confers on an agent or authority that
the agent reasonably believes he or she has as a result of the agent's dealings with the
principal. Actual authority can be either express or implied.
i. Express=given to the agent by explicit agreement, either orally or in writing. Also
termed stipulated authority.
ii. Implied=intentionally given by the principal to the agent as a result of the principal's
conduct, such as the principal's earlier acquiescence to the agent's actions. Also
termed presumptive authority.
3) Elements of agency relationship=
a. Mutual consent to a relationship
b. Agent acts on behalf of the principal
c. Agent is subject to control of principal
A principal is bound by the acts of their agent within the apparent authority which they knowingly or
negligently permit the agent to assume or which the principal held out the agent to possess. pp. 563-
567 Sauber v. Northland Insurance Co.
Apparent authority emanates from the actions of the principal such that an agent cannot, simply by his own
words, invest himself with apparent authority. Jennings v. Pittsburgh Mercantile Co. (Page 567)
B. Third-Party Beneficiaries
Privity=doctrine provides that a K cannot confer rights or impose obligations arising from that K on any
person/agent who is not a party to that K.
Intended beneficiaries and incidental beneficiaries
Intended beneficiaries are those who is the recipient of the benefit of the K, they can sue on the contract
despite not being in privity in the K
Incidental beneficiaries cannot sue on a K , pp. 581-582 Specht v. Netscape Comms
Types of intended beneficiaries:
donee beneficiary=3rd party, not a party to K, but for whose benefit the K is entered with the intention that
the benefits derived therefrom be bestowed upon the person as a gift. pp. 570-574 Seavor v.
Ransom
creditor beneficiary= they aren’t really intended, but can still sue on K, creditor who receives the benefit of K
between a debtor and another party, pursuant to which the other party is obligated to tender payment
to the creditor. pp. 575-581 Sisters of St. Joseph of Peace, Health and Hospital Serv. v. Russell
A and B have a K→A has performed but B has yet to pay A→A owes C money (C is a creditor of A)→ B
promises A that B will pay C instead of A→B breaches promise→C sues B as a creditor beneficiary
Once the 3rd party’s rights have vested, the original parties cannot modify or rescind a K in such a manner
that would derogate the 3rd party beneficiary’s rights, without the 3rd party’s consent. Jurisdictions
differ as to whether the 3rd party’s rights vest:
At the time the K is made
At the time the 3rd party learns of the K and agrees to accept the benefit flowing from it (if the 3rd party
does not expressly reject the benefits, he is deemed to have accepted them)

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Upon a change in position, even if only slight, by the 3rd party beneficiary in reliance upon the K (this is the
majority approach set forth in Rest. §311 (3)).

Restatement Sections

§1: (1) agency is fiduciary relation which results from manifestation of consent by one person to another
that the other shall act on his behalf and subject to his control, and consent by the other so to act (2)
one for whom action is to be taken is principal (3) one who is to act is agent.

§ 302 Intended and Incidental Beneficiaries pp. 574

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended
beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the
intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the
beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised
performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

§ 315 Incidental Benefit p.582

An incidental beneficiary acquires by virtue of the promise no right against the promisor or the
promisee.

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II. DOCTRINE OF CONSIDERATION

Principles of Enforceability
What is the promisor asking for in exchange for the promise?
1) A performance ($10 if you wash my car)
2) A promise to perform ($10 if you promise to wash my car)
3) A forbearance (don’t drink/smoke/gamble until 21)
4) Promise to forebear
A. Six Core Principles of Enforceability – Pg 586
Party Based Theories
1) Will Principle= commitments are enforceable because the promisor has willed/freely chosen to be
bound by their commitment. Subjective because it inquires as to the promisor’s actual state of mind
at the time of K formation. parties consent to be bound voluntarily “meeting of the minds, therefore
enforceable exception: objective manifestation of consent unless subjective intent can be proven to
be contrary
2) Reliance Principle=K enforcement is an effort to protect promisee’s reliance on the promises of
others. Not all cases of injury resulting from reliance on the word or act of another are actionable.
Liable for harm caused by verbal behavior (oral or written)
3) Restitution Principle= to prevent unjust enrichment of promisor (one of benefited and now wants out)
Problems w/Party Based Theories=each principle must implicitly rest on unarticulated considerations
apart from will, reliance, or restitution to distinguish enforceable from unenforceable commitments.
Theories of K obligation based solely on any one of these principles will fail in their basic mission to
distinguish adequately between those commitments that are worthy of legal protection and those that
are not. Party-based theories are also one-sided, respecting the intentions on only one party and
cannot assess inter-relational quality of making a K.
Standards Based Theories
4) Efficiency Principle= if benefits of enforcement exceed benefit of unenforcement (max. of social
wealth)
5) Principle of Substantive Fairness= only enforce contracts that are fair – “just” prices and terms
ALL STANDARDS BASED PRINCIPLES FACE 2 PROBLEMS=(1) IDENTIFYING AND DEFENDING
THE APPROPRIATE STANDARD BY WHICH ENFORCEABLE COMMITMENTS CAN BE
DISTINGUISHED FROM THOSE THAT ARE NOT (2) STANDARDS BASED PRINCIPLES ARE TYPES
OF PATTERNED PRINCIPLES OF DISTRIBUTIVE JUSTICE AND CONSTANTLY INTERFERE WITH
INDIVIDUAL PREFERENCES.
Process-Based Theory
6) Bargain Principle= mutuality of inducement (also look at fairness of bargain, look for consideration)
exception: “I promise to take out the trash” =no bargain, not enforceable. THE BARGAIN
PRINCIPLE IS THE PREDOMINANT THEORY OF ENFORCEABILITY IN MODERN Ks.
Problem w/Process Principle=Process principles cannot explain why certain kinds of commitments are
not and should not be enforceable.
B. Enforceability Basics
1) W/o expressed K, court should inquire whether conduct demonstrates implied K, agreement of
partnership/joint venture, or some other tacit understanding. Court may employ doctrine of quantum
meruit or equitable remedies when warranted by facts. pp. 585-614 Marvin v. Marvin
2) Domestic services are assumed to be gratuitous, Pg. 585 Morone v. Morone
3) Expressed Contracts – promise said in words, acceptance by oral, silent, written acceptance
4) Implied Contracts – contract inferred from acts in light of surrounding circumstances (fear: holding
people to agreements they never agreed to make)
Quantum meruit="as much as he has deserved". In the context of K, means "reasonable value of
services".
While promissory estoppel allows recovery when consideration is lacking, unjust enrichment or quantum
meruit relaxes even further P’s burden of showing that D made a promise. Quantum meruit properly
applies to mistake in law contracts and provides a distinct theory of recovery.
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An implied in fact contract must have (1) mutual agreement and (2) intent to promise, both of which are not
oral but implied from the facts
. An implied in law contract, or a quasi-contract, neither promise nor privity must exist, either real or
imagined. Obligation arises from the “law of natural immutable justice and equity”, and not from the
facts or consent. The acts of the parties, however, must be voluntary. An implied in law contract
requires:
no offer and acceptance (i.e. not a contract), no express promise
benefit conferred upon x by y,
appreciation by y of such benefit, and
retention by D of such benefit in a way that results in unjust enrichment
History of the Doctrine of Consideration pp. 615-619
Consideration – the inducement to a contract. The cause, motive, price, or impelling influence which
induces a contracting party to enter into a contract. (Black’s)
Unilateral Contract – promise for performance
Bilateral Contract – promise for promise
The Bargain Theory of Consideration – Pg 618
Consideration=K will not be enforceable unless it is supported by consideration.
Consideration=value given by one party in exchange for performance, or a promise to perform by another
party. A promise is supported by consideration if
It causes a legal detriment, promise gives up something of value
Forbearance of an action that the person is legally entitled to – pp. 622 Hamer v. Sidway
Promise must be bargained for, i.e. promise motivated by the legal detriment suffered by the promisee
Distinguishing Bargains from Gratuitous Promises
Conditioned gift vs. something being bargained for in regards to consideration.
Conditioned gifts need to have a real condition to be enforceable
In order for there to be consideration the one promise or performance has to induce the performance or
promise of the other person, has to be a circular thing. A conditioned gift is only ½ of the circle
Consideration is needed to enforce a contract but not a promise. Not bound to give a gift until you get it but
once you give it you can’t get it back.
In order for a contract to be enforceable, there must be mutual consideration between the two parties. This
means that there must be an exchange of a promise or benefit between both parties. If there is not
mutual consideration and only one party is receiving a benefit, the agreement is not enforceable at
law. pp. 620 Johnson v. Otterbein University.
Exception is when you make promises to charitable institutions, cant back out of a pledge to PBS when you
call and make it and stuff like that. Not something that we want to enforce societally, it is a policy
decision. *Johnson was decided prior to the charity exception*
For promises to be enforceable, detriment must have been bargained for
Chief reason for this criteria is to distinguish between a bargain – reciprocal nature of thing promised and a
gratuitous promise – getting something for nothing, no consideration
Gifts are generally unenforceable because the promise if not bargained for and the promisee suffers no
detriment
Courts generally refuse to police promises to give gifts because of
Judicial administration, i.e. people make promises all the time that they break; and
Personal context gives you more trust and because trust is lacking in commercial arena need more formal
mechanisms
Past Consideration: Is not enforceable
If service is rendered prior to the making of a K it is past consideration & not enforceable. Pg. 639 Moore v.
Elmer, promise to pay her mortgage if clairvoyant prediction is true
Where the detriment has been suffered before the promise is made, it is not bargained for and therefore it is
not consideration
There are instances in which courts will enforce without finding consideration based on a moral obligation
There are exceptions to the notion that past consideration is no consideration at all when a benefit has been
conferred in the past
Other exceptions to the notion that past consideration is no consideration are in cases of statute limitations,
infancy, or bankruptcy
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Moral Consideration – Pg 640: Moral obligation may support a promise in the absence of traditional
consideration, but only if the promisor has been personally benefited or enriched by the promisee’s
sacrifice and there is, as a consequence, a just and reasonable claim for compensation
No benefit promise + moral obligation + material benefit = valid consideration. p. 652-655 Webb v
McGowan, sacrifice of self to save boss’s life
“It is only when the party making the promise gains something, or he to whom it is made loses something,
that the law gives the promise validity....” nothing more than moral obligation. Mills v. Wyman, promise
to pay for nurse's prior care of deceased son.
Contract Modification and the Preexisting Duty Rule – Pg 656
Preexisting Duty Rule: a common-law rule of contracts: a party's offer of a performance already required
under an existing contract is insufficient consideration for modification of the contract. This rule is not
applicable to sales contracts in jurisdictions that have enacted the Uniform Commercial Code. It is
also not applicable where there has been a rescission of the contract followed by a new contract.
A modification to an existing contract is only binding if there is consideration for the modification, for good
faith, the validity of contract modification is going to come down to whether it is a change necessitated
by a change in circumstances or if it is one party exploiting another
If a party is legally obligated to perform a certain duty and seeks to modify contract to receive additional
compensation for same duty, the modification fails for lack of consideration. Pg. 656 Stilk v. Myrick,
due to desertion, captain promises to increase wages of existing crew, pp. 658-665 Alaska Packers’
Assn. v. Domenico
Exception to preexisting duty rule – the subsequent agreement imposes upon the one seeking greater
compensation an additional obligation, therefore there is new consideration because there were
unforeseeable circumstances that both parties were aware of, so the modification is binding. Pg. 666
Brian Construction v. Brighenti, excavation underestimate, recontracted
Adequacy of Consideration – Pg 672
Want of consideration – Nudum Pactum – (Nude Agreement) (Lack of Consideration, Insufficient
Consideration, Absent Consideration)Want (or lack) of consideration – nothing whatsoever given in
exchange for the promise
There was no consideration intended to pass, lacks sufficient consideration
Not a defense against a sealed instrument, nothing to enforce it or back it up
Failure of consideration – Pactum Vestitum – (Clothed Agreement) – Testing for PROCESS PROBLEM
(even sealing the instrument here will not cure this problem).
Failure of consideration – person did not get what they bargained for
Inadequate consideration – thing not worth as much as you thought, an inadequate consideration
A defense upon a sealed instrument
Courts will not examine adequacy but they will examine the sufficiency, i.e. nominal considerations
So long as promisee suffers some detriment or something is found to be bargained for, courts are not
concerned with the adequacy.
Once consideration found, look no further for evidence concerning values exchanged except when there is
gross disparity in value and may be presumptive evidence of fraud
Items need value to be exchanged and for there to be consideration. Needs to have real (not sentimental)
value for item to count as consideration. Newman & Snell’s State Bank v. Hunter pg. 672

UCC & Restatement Sections

§17: requirement of a bargain

(1) formation of a contract requires a bargain in which there is a manifestation of mutual assent to the
exchange and a consideration, except for
(2) special conditions in §§ 82-94

§18: manifestation of mutual assent: manifestation of mutual assent means that each party either makes
a promise or renders a performance
§ 71. Requirement for Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.

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(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for this
promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or some other person. It may be given
by the promisee or by some other person.
§ 81. Consideration as a Motive for Inducing Cause
(1) The fact that was bargained for does not of itself induce the making of a promise does not prevent it
from being consideration for that promise.
(2) The fact that a promise does not of itself induce a performance or return promise does not prevent the
performance or return promise from being consideration for the promise.
§86: promise for a benefit received (minority view)
(1) a promise made in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice;
(2) a promise is not binding if:
(a) the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly
enriched;
(b) to the extent that its value is disproportionate to the benefit.
§79: adequacy of consideration (mutuality of obligation) if the requirement of consideration is met there
is no additional requirement of:
(1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(2) equivalence in values exchanged, or;
(3) "mutuality of obligation"
§364: Effect of unfairness where specific performance would be unfair because the exchange is grossly
inadequate, court will deny SP. Permits court to refuse equitable relief on grounds of unfairness, even
in situations where they would not necessarily refuse to award damages
§89 modification of an executory contract a promise modifying a duty under a contract not fully
performed on either side is binding:
(a) if the modification is fair and equitable in view of the circumstances not anticipated by the parties when
the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the
promise.
a circumstance can be considered unanticipated even though it was considered - provided that the contract
did not price it accordingly
§2-209(U) modification, rescission and waiver
(1) modification needs no consideration
(2) a signed document with a clause excluding modification or rescission except by signed writing cannot be
changed, but except as between merchants such a requirement on a form contract must be signed by
the other party
(3) requirements of Statute of .Frauds must be satisfied if the contract is within it
(4) although an attempt at modification or rescission does not satisfy (2) or (3), it can operate as a waiver
(5) a party who has made a waiver....[not important]

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III. INTENTION TO BE LEGALLY BOUND (Page 681)

Formalities to Manifest Intention to be Bound – Pg 684

Formality – something that is done to symbolize or convey a certain message – another way to express an
intention to be bound
Functions of formalities include:
Evidentiary – Compliance with formalities provides reliable evidence that a given transaction took place.
Cautionary – The ceremony of melting sealing was onto parchment followed by impressing the melted wax
with a signet ring was imposing. Before performing the required ritual the promisor had ample
opportunity to reflect and deliberate on the wisdom of his act. Therefore the document can be
accepted by the legal system as a serious act of volition. Kind of like the Will Principle.
Channeling – Everyone is made aware that the use of a given device will attain a desired result. The
judicial task of determining the parties’ intentions is facilitated. The seal means there is an intent to be
bound, everyone knows what that means, like a wedding ring, everyone knows what the ring
represents.
Clarification – When the parties write everything out (have to in situations of a seal) they are more likely to
work out details not contained in their oral agreements.
The Seal (Page 686) – Serves its function through the formality.
Prior to the rise of assumpsit (meaning contract), the seal dominated the English common law of contract.
In the past, it was used for formal agreements (in writing and sealed)
It is well settled that a seal imports consideration.
In saying that the seal imports consideration, means we don’t need to find a bargain, no need to look for the
bargain, because the seal imports the consideration. But actually what it really does, through
formality, is it shows an intent to be bound. The seal makes it an enforceable promise. Pg. 681 Aller
v. Aller, Wagner v. Lectrox
Formalities show an intent to be bound (ex. The seal, The Uniform Written Act is also an example of
showing intent to be bound outside of using the bargain theory).
Nominal Consideration Page 693
a. Consideration need to be sufficient to be found to support a promise
b. Nominal considerations are binding with respect to options contracts, § 87 pg 696, but are
not recognized in attempts to make gifts enforceable, §71, pg 696,
A contract will be vitiated for lack of consideration where the consideration given by one party is only
nominal and intended to be so. Has to be a real bargain, cannot be a pretense of a bargain pp. 693-
695 Schnell v. Nell,
Acceptance of recital of nominal consideration ($1 paid in hand plus other good and valuable
consideration”) is adequate to bind the offeror
It is the existence of a bargain that matters, not whether the bargain is equal or unequal from the standpoint
of an objective observer
False Recitals – Pg 698
False Recital is a nominal exchange that is not actually exchanged; those don’t work under Section 71,
exception being Section 87. False Recital is the token but it is not actually exchanged.
The recital of a one dollar consideration for an option contract gives rise to an implied promise to pay which
can be enforced by the other party. Option Ks can be held open with a nominal or false recital, like $1,
a recital is evidence that consideration is given in an option K pp. 698 Smith v. Wheeler, § 87
Written Expression of Intention to be Bound – Pg 700
Written Obligations Act=A written release or promise hereafter made and signed by the person releasing or
promising shat not be invalid or unenforceable for lack of consideration, if the writing also contains an
additional express statement, in any form of language, that the signer intends to be legally bound.
a. Even though Modern view says enforceable contracts need mutual assent and consideration,
this acts purpose is to enforce non-bargained for promises.
b. Uniform Written Obligations Act does not apply to Commercial Transactions, just to familial
type transactions. Cannot use Lack of Consideration as a defense in Written Obligation
cases, operates just like a sealed instrument.

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 c. This essentially says that the contract can still be enforced even though there is no
consideration as long as in the actual contract the person makes the written promise and
also explicitly states in writing that they intend to be legally bound. pp.700 Thomas v. First
National Bank of Scranton, pp. 712 Federal Deposit Insur. Corp. v. Barness,
d. The absence of consideration does not render a separation agreement unenforceable where
the agreement provides that the promisor intends to be legally bound. p. 711 Kay v. Kay
e. The Uniform Written Obligations Act was intended to replace the seal that is why to fall under
that act, the terms must specifically say “the signer intends to be legally bound.” If it does not
then it will not fall under this Act. p. 713 First Federal Savings and Loan Ass’n v. Reggie
Concerns about the Uniform Written Obligations Act –
It will be used as a defense against bargained for exchange.
Concerns about Form over Substance (just sign here, don’t look at the rest—same problem with seal)
Does not address process problems (bargain-for theory does)

Lack of Intention to be Legally Bound – Pg 713

If there is no intention to be legally bound then the K is not enforceable, there has to be a reasonal belief
that the party intended to be bound
Can infer intent to be bound if no disclaimer or if not prominently displayed (inconspicuous) – if you don’t
want to be bound you need to explicitly state that.
A disclaimer can overcome an intent to be bound
An employee handbook does not constitute a valid contract if the employer has clearly and conspicuously
disclaimed intent to enter into a contract limiting the right to discharge employees. pp. 713-715
Ferrera c. A.C. Nielsen
With Formalities, you can try to show your intent but these formalities may not always be recognized

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Restatement & UCC Sections

UCC 2-205 - FIRM OFFERS (Page 685)

An offer by a merchant to buy or sell goods in signed writing which by its terms gives assurances that
it will be held open is not revocable, for lack of consideration, during the time stated or if no time is
stated for a reasonable time, but in no event may such a period of irrevocability exceed three months;
but any such term of assurance on a form supplied by the offeree must be separatenly signed by the
offeror.

§ 88 – Guarantee (Page 700)

A promise to be a surety is binding if “the promise is in writing and signed by the promisor and recites
a purported consideration.”

§87: option contract (i.e., bilateral promise) Page 700

an offer is binding as an option contract if it:
(1) is in writing and is signed; recites the purported consideration, and proposes an exchange on fair terms
within a reasonable time;
(2) an offer which the offeror should reasonably expect to induce action or forbearance of a substantial
character by the offeror before acceptance and which does induce such action or forbearance is
binding as an option contract tot he extent necessary to avoid injustice.
§95: Requirement for sealed contract or written contract or instrument
(1) In the absence of statute a promise is binding without consideration if
(a) it is in writing and sealed; and
(b) the document containing the promise is delivered; and
(c) the promisor and promisee are named in the document or so described as to be capable of identification
when it is delivered.

(2) When a statute provides in effect that a written contract or instrument is binding without consideration or
that lack of consideration is an affirmative defense to an action on a written contract or instrument, in
order to be subject to the statute a promise must either
(a) be expressed in a document signed or otherwise assented to by the promisor and delivered; or
(b) be expressed in a writing or writings to which both promisor and promisee manifest assent.

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IV. THE DOCTRINE OF PROMISSORY ESTOPPEL

The Development of Promissory Estoppel as a Substitute for Consideration

Promissory estoppel serves as a “consideration substitute” in contract law that renders certain promises
otherwise lacking in consideration binding and enforceable. In such cases, the promisee’s reliance is
treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be
viewed as a legal device that prohibits the promissor from denying the existence of a contract for lack of
consideration.
1) Basics
a. an offensive action of asking for compensation for detrimental reliance on a promise even if
there was no consideration
b. When there is a promise on one side and a cost – but not a return promise or a performance
– on the other
c. Treats the promisee’s reliance as an independent and sufficient basis for enforcement
d. Remedy is usually limited than the customary amount of expectation damages
2) Equitable Estoppel
a. A Doctrine that precludes a person from asserting a right to which he or she was entitled due
to his or her action, conduct or failing to act, causing another party to justifiably rely on such
conduct to his or her detriment
b. Patent example – you have a patent and notice a competitor is infringing upon it but isn’t
eating up a lot of your market share so you allow them to continue but then years later when
they become a very big company you try to sue them, the court will Estop you from
continuing because you should have stopped the small competitor when you were first aware
they were infringing as you had grounds.
c. Promissory estoppel requires a promise, equitable estoppel requires a misrepresentation of
material facts
3) Measure of damages –
a. according to doctrine, court can only give reliance damages because PE is built around notion of
reliance
b. restitution may be available if he has conferred something of value to D
c. modern trend towards awarding expectation damages unless lost profits involved are too
speculative pr uncertain
d. expectation damages more likely in cases where promisor acted in bad faith
4) Essential elements
a. there is an inducement by promisor reasonably expected to produce an action or reliance
(reasonably foreseeable to the promisor that promisee would rely on the promise); and
b. action or reliance actually takes place (actual reliance in a reasonable way); and
c. that action leads to some detriment on the part of the promisee; and
d. injustice cannot be avoided without enforcement of the promise.
5) Family promises
a. inducement is a value conferred in return for promise
b. inducement is a step in the bargaining process
c. When the payee changes her position to her disadvantage, in reliance on a promise, a right
of action on the promise arises. Rickets v. Scothorn (Page 721)
6) Promises to Convey Land:
a. Where the promisee takes possession of the land and makes improvements upon it, with the
knowledge and assent of the promisor
b. A promise which the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and which does induce such
action or forbearance, is binding if injustice can be avoided only by enforcement of the
promise. Greiner v. Greiner (Page 728)
c. If reliance is serious enough don’t need formality; if formality is serious enough don’t need
reliance, don’t need consideration if either of the two are there.

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 d. Promises to convey land may be subject to specific performance. Since each piece of land
is unique, equity demands that a conveyance be treated as if the decedent had made a gift.
7) Charitable Subscriptions: cannot revoke charitable donations because the charity relies on having
the funds
a. The only way to avoid paying charitable subscriptions is giving specific conditions and then if
the party does not meet that specific conditions
8) Promises to Pension
a. Pensions given by companies or gratuitious promises will be enforceable without
consideration as long as detrimental reliance can be shown. pp. 736-742 Feinberg v.
Pfeiffer Co.,
b. A promise that the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and that does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the
promise.
9) Construction Bids – Pg 742
a. By virtue of the reasonably foreseeable inducement of an action or forbearance of a
substantial character on the part of the offeree before acceptance [Restatement § 87(2)], e.g.,
where a general contractor receives bids from a subcontractor and relies on such bid in
preparing its own bid for a project
b. The doctrine of promissory estoppel shall not be applied in cases where there is an offer for
exchange as the offer is not intended to become a promise until a consideration is received.
James Baird Co. v. Gimbel Bros., Inc., (Page 742)
c. An offer that the promissor should reasonably expect to induce action or forbearance of a
definite and substantial character by the promisee, and which does induce such action or
forbearance, is binding if injustice can be avoided only by enforcing the promise.
d. Reasonable reliance on a promise binds an offeror even if there is no other consideration.
Drennan v. Star Paving Co. (Page 745)
e. Firm offers can sometimes be implied promises to hold an offer open and have received
criticism on the grounds that one party (the subcontractor) is bound while the other party (the
general contractor) is not. Nonetheless, the modern trend is to enforce such promises.
10) Extensive contract negotiations in which one party gradually increasingly commits itself in reliance
on the negotiations resulting in a binding contract, the other party negotiates through a low ranking
representative who lacks full authority to seal the agreement
Promissory Estoppel as an Alternative to Breach of Contract
Not trying to enforce the contract, they are trying to amend the wrong done to the harmed party, no contract,
but trying to find a way to enforce the promise
Preliminary contract negotiations where one party encourages the other to engage in activities that would
facilitate entering into a contract but which would be detrimental to such party if the transaction is not
in fact consummated, e.g., relocation, purchase of property, or borrowing money [see, e.g.,pg 752
Hoffman v. Red Owl Stores]
A promise that the promisor should reasonably expect to induce action or forbearance of a definite and
substantial character on the part of the promisee, and which does induce such action, is binding if
injustice can be avoided only by enforcement of the promise.
Even if the court finds that there is no contract, they can still award damages through promissory estopell or
they can estop a party from denying a promise.
The development of the law of promissory estoppels is an attempt by the courts to keep remedies abreast
of increased moral consciousness of honesty and fair representations in all business dealings.
Justice and fair dealing require that one who by his language or conduct leads another to do what he would
not otherwise have done, shall not subject such person to loss or injury by disappointing the
expectations upon which he acted. Goodman v. Dicker (Page 749)
Usually awarded expectation, but can be awarded the other 2 forms of damages.
Limits of Promissory Estoppel
Promise – Pg 772

11
The action or forbearance induced by the promisor must be definite and substantial in character in order to
invoke the doctrine of promissory estoppel to enforce a promise. There needs to be an actual
promise, not just an option that a person will be eligible for through their performance. pp. 772-775
Blatt v. Univ. of Southern California
Action in reliance upon a supposed promise creates no obligation on an individual or corporation whose
only promise is wholly illusory. pp. 775-778 Spooner v. Reserve Life Insur. Co.,
There also needs to be a real detriment faced, if the action taken to fulfill the alleged promise benefited the
party then there is no detriment to the reliance. pp. 775-778 Spooner v. Reserve Life Insur. Co.,
Needs to be an actual promise, not puffery. pp. 779- 787 Ypsilanti v. General Motors
Reasonable Reliance – Pg 792
In order for the court to enforce a promise made under the Doctrine of Promissory Estoppel, the plaintiff
must demonstrate that the injury suffered was substantial economically, that such loss was
foreseeable to the promisor, and that the plaintiff reasonably and justifiably relied to his detriment.. pp.
792-795 Alden v. Presley

Restatement Sections

§90 – Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of
the promisee or a third person and which does induce such action or forbearance is binding if injustice can
be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice
requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the
promise induced action or forbearance.

Remedy: The available remedy is usually limited to only that which is necessary to avoid injustice.

§ 75: Consideration for a promise

Consideration for a promise is:
An act other than a promise, or
A forbearance, or
The creation, modification or destruction of a legal relation, or
A return promise,

§ 87 – OPTION CONTRACT (Page 749)

An offer which the offeror should reasonably expect to induce action or forbearance of a substantial
character on the part of the offeree before acceptance and which does induce such action or
forbearance is binding as an option contract to the extent necessary to avoid injustice.

12
V. CONDITIONS

The Effect of a Condition

1) Condition=an event which must occur before a particular performance is due is called a condition
of that performance.
a. Express Condition – A certain fact may operate as a condition, because the parties
intended that it should and said so in words.
b. Implied in Fact Condition – The parties intended that it should, such intention being
reasonably inferable from conduct other than words.
c. Constructive Condition (Implied in law) – Court believes that the parties would have
intended it to operate as such if they had thought about it at all, or because the court
believes that by reason of the mores of the time justice requires that it should so operate.
2) Condition precedent=the happening of an uncertain occurrence, which is necessary before a
particular right or interest may be obtained or an action performed.
3) A condition which is an act or event other than a lapse of time must be literally complied with. pp.
857 Internatio-Rotterdam v. River Brand Rice Mills
4) Some general guidelines for conditions:
a. Forfeitures are frowned upon as a matter of law.
b. Insurance policies are construed against the insurer.
c. Contract provisions will not be construed as conditions precedent unless the contract
explicitly says so.
What Events are Conditions?
Is the event a condition or a promise, or both?
Where it is doubtful whether words create a promise or an express condition, they are usually interpreted as
creating a promise, thereby avoiding a forfeiture. pp. 862 Howard v. Federal Crop Insur. Corp.
A condition is distinguished from a promise in that it creates no right or duty in and of itself but is merely a
limiting or modifying factor, if the condition is not fulfilled, the right to enforce the contract does not
come into existence.
A condition is an act or event, other than a lapse of time, which affects a duty to render a promised
performance that is specified in a contract. A condition may be viewed as a qualification placed upon
a promise. It discharges a duty and makes is not an absolute requirement by allowing for the condition
to be waived
A promise or duty is absolute or unconditional when it does not depend on any external events. Nothing but
a lapse of time is necessary to make its performance due. When the time for performance of an
unconditional promise arrives, immediate performance is due. A dependent or conditional promise is
not effective until the occurrence of some external event that the parties have specified.
An implied condition is one that the parties should have reasonably comprehended to be part of the contract
because of its presence by implication.
Is the event a condition or a promise, or neither? Pg 866
Time can never be a condition
A condition means an event not certain to occur; the only thing that is certain to occur is the passage of
time
The question whether a stipulation in K constitutes a condition precedent is one of construction dependent
on the intent of the parties. pp. 866 Chirichella v. Erwin
A condition precedent has been defined as “a fact, other than mere lapse of time, which, unless excused,
must exist or occur before a duty of immediate performance of a promise arises.”
Although no particular form of words is necessary to create an express condition, words or phrases like “if”
and “provided that,” are commonly used to indicate that performance has expressly been made
conditional.
Time can be an essential term in the agreement which can result in breach if not met but it is not a
condition. Ex: 30 day notice, notice is the condition not 30 days
Avoiding Conditions: The operation of a condition is sometimes harsh, therefore the courts have
developed doctrines to avoid the effect of a condition:
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Waiver and Estoppel
“Waiver” is often inexactly defined as “the voluntary relinquishment of a known right.” When the “waiver” is
reinforced by reliance, enforcement is often said to rest on “estoppel.”
A condition in a contract may be waived, but no waiver is implied by mere acceptance of the proffered
performance. pp. 868 Clark v. West
No formal agreement or additional consideration is required to waive a condition precedent to performance.
Modification of a promise typically requires a new consideration, while the waiver of a condition does not
The doctrine of waiver is to relieve against forfeiture. It requires no consideration for a waiver, nor any
prejudice or injury to the other party.
Estoppel requires reliance, both in equitable and promissory estoppel there is reliance. Waiver doesn’t
require reliance, it is unilateral, but Estoppel requires both parties to do something. Waiver is when
there is a condition that is supposed to be met, but the person imposing the waiver can voluntarily
waive the condition. To waive the condition, it does not require a modification.
The doctrine of waiver is distinct from doctrine of equitable estoppel
A “waiver” is the voluntary abandonment or relinquishment by a party of some right or advantage.
The doctrine of equitable estoppel, or estoppel in pais, is that a party may be precluded by his acts from
asserting a right to the detriment of another party who, entitled to rely on such conduct, has acted
upon it.
Excuse to prevent forfeiture
Court may excuse the nonoccurrence of a non-material condition where forfeiture would otherwise result,
unless the conditioning event was a matter of the parties’ exchange.
Court tries to prevent forfeiture of rights as much as possible.

14
Restatement Sections
§ 227 Standards Governing Conditions p. 866
(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the
nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture,
unless the event is within the obligee's control or the circumstances indicate that he has assumed the
risk.
(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is
doubtful whether
(a) a duty is imposed on an obligee that an event occur, or
(b) the event is made a condition of the obligor's duty, or
(c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the
event occur, the first interpretation is preferred if the event is within the obligee's control.
(3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred
over an interpretation under which the non-occurrence of the event is a ground for discharge of that
duty after it has become a duty to perform.

§ 229 Excuse of a Condition to Avoid Forfeiture p. 871 To the extent that the non-occurrence of a
condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that
condition unless its occurrence was a material part of the agreed exchange.

§ 261. Interpretation of Doubtful Words as Promise or Condition (Page 864) Where it is doubtful
whether words create a promise or an express condition, they are interpreted as creating a promise;
but the same words may sometimes mean that one party promises a performance and that the other
party’s promise is conditional on that promise.

§ 84 – PROMISE TO PERFORM A DUTY IN SPITE OF NON-OCCURRENCE OF A CONDITION (Page

871)
1. Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an
antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is
made before or after the time for the condition to occur, unless
a. Occurrence of the condition was a material part of the agreed exchange for the performance of
the duty and the promisee was under no duty that it occur; or
b. Uncertainty of the occurrence of the condition was an element of the risk assumed by the
promisor.
2. If such a promise is made before the time for the occurrence of the condition has expired and the
condition is within the control of the promisee or a beneficiary, the promisor can make his duty again
subject to the condition by notifying the promisee or beneficiary of his intention to do so if
a. The notification is received while there is still a reasonable time to cause the condition to occur
under the antecedent terms or an extension given by the promisor; and
b. Reinstatement of the requirement of the condition is not unjust because of a material change of
position by the promisee or beneficiary; and
c. The promise is not binding apart from the rule stated in Subsection (1).

UCC 2-209 – MODIFICATION, RESCISSION AND WAIVER (Page 872)

1. An agreement modifying a contract within this Article needs no consideration to be binding.
2. A signed agreement which excludes modification or rescission except by a signed writing cannot be
otherwise modified or rescinded, but except as between merchants such a requirement on a form
supplied by the merchant must be separately signed by the other party.
3. The requirements of the statute of Frauds section of this Article (Section 2-201) must be satisfied if the
contract as modified is within its provisions.
4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or
(3) it can operate as a waiver.
5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by
reasonable notification received by the other party that strict performance will be required of any term

15
 waived, unless the retraction would be unjust in view of a material change of position in reliance on
the waiver.

VI. BREACH (Pg. 879)

In the absence of an express condition, courts have developed a number of doctrines that may justify one
party unilaterally putting an end to the contract:
Constructive Conditions (conditions that are implied in law)
Anticipatory Repudiation
Material Breach
Constructive Conditions Pg. 879
Condition Precedent – The happening of an uncertain occurrence, which is necessary before a particular
right or interest may be obtained or an action performed.
Constructive Conditions: Condition not expressly stated that is imposed by the court when filling gaps, the
breach of which can relieve the other party of its duties. See § 226.
Is backward-looking inquiry into presumed intentions at time of formation, as distinguished from material
breach, which is forward-looking inquiry into the likelihood of performance occurring in the future.
Breach of a covenant by one party to a contract relieves the other party’s obligation to perform another
covenant which is dependent thereon, the performance of the first covenant being an implied
condition precedent to the duty to perform the second covenant. Kingston v. Preston (Page 879)
1) There are three kinds of covenants:
a. Mutual and independent – either party may recover damages from the other, for the injury he
may have received by a breach of the covenants in his favor, and where it is no excuse for
the defendant, to allege a breach of the covenants on the part of the plaintiff. Either party
can sue for failure to perform and it is no excuse to say the other party did not perform. The
plaintiff here is trying to assert this.
b. Conditions and dependent – the performance of one depends on the prior performance of
another, and, therefore, till this prior condition is performed, the other party is not liable to an
action on his covenant. One party’s performance is conditioned on the prior performance of
the other party. The other party is not liable until the condition is met.
c. Mutual Conditions to be performed at the same time – if one party is ready, and offered, to
perform his part, and the other neglected, or refused to perform his, he who was ready, and
offered, has fulfilled his engagement, and may maintain an action for the default of the other.
Usually for sales of goods and land.
Where two concurrent acts are to be done, the party who sues the other for non-performance must aver that
he had performed, or was ready to perform, his part of the contract. Morton v. Lamb (Page 882)
Constructive conditions are allowing one party not to perform, rather than suing for damages, they can just
not perform. (Car for sale, $25k, and buyer does not bring the money, so the seller rather than giving
the car and suing for damages, just doesn’t perform, just doesn’t give the car).
Where there is substantial performance with defects of trivial or inappreciable importance, the measure of
damage is not the cost of replacement but the difference in value. pp. 873 J.N.A. Realty Corp. v.
Cross Bay Chelsea, Inc.,
Prospective Nonperformance
Anticipatory Repudiation – Pg 892
Anticipatory repudiation occurs when one party cancels a contract if, before the time of performance arrives,
the other party indicates that they do not intend to perform and intends to repudiate contract.
A party has 2 interests in having a contract performed:
Future Performance – more like anticipatory repudiation, questioning if the other party to the contract really
will perform due to things recently discovered about the party and their situation, can demand
adequate assurances (in writing) in this situation. The interest in future performance has been
harmed, can sue immediately and mitigate. But there must be some type of manifestation that they
will not perform to rise to the level of anticipatory repudiation.
Present Performance – more related to material breach, the current performance is not necessarily what
you thought it would be, can also require adequate assurances (in writing) in this situation.

16
Allows the injured party to go ahead and mitigate before the due date of performance with the original party
that already advised in advance they will not perform. This is just like constructive condition, allowing
a party not to have to perform but further because it further allows the party to mitigate also and sell to
someone else.
If you have already performed and all you are waiting for is the cash for your delivery then you have to wait
for the date specified in the K to sue for breach. If it is an exchange of goods or services and there is
anticipation of repudiation then you can mitigate.
When either party repudiates a contract with respect to performance not yet due..., the aggrieved party may:
await performance;
resort to remedy for breach;
in either case, suspend his own performance. (immediate action, no need to wait for date of performance to
arrive, unless only money left in exchange)
The doctrine of anticipatory repudiation gives rise to two dangers:
Concerns the vulnerability of the party who accuses the other of repudiation
concerns the potential misuse of the doctrine by a party seeking to justify its breach. (Harrell v. Sea Colony)
A mere request to cancel a contract does not constitute anticipatory breach thereof. Harrell v. Sea Colony,
Inc. (Page 895)
Adequate Assurances of Performance – Pg. 901
Adequate assurance occurs when one party wishes to withhold performance because he suspects, for
some reason, which the other party may not perform.
When reasonable grounds for insecurity arise with respect to the performance of a party under a
commercial K, the other party may in writing demand adequate assurance of due performance and if
commercially reasonable may suspend any performance for which he has not received the agreed
return. Scott v. Crown (Page 901)
If a party is warranted in demanding adequate assurances of performance, therefore, and none is
forthcoming, the requesting party may treat the failure to respond as a repudiation of the contract.
The rule is closely related to the duty of good faith and fair dealing present in every contract. Whether a
party has a reasonable belief that the other party cannot perform is determined by the totality of the
circumstances surrounding the agreement.
When you ask for assurance, you can’t modify the contract or its terms at all
UCC 2-609(1) states that a failure to provide adequate assurances within a reasonable time not exceeding
thirty days after receipt of a justified demand for such assurances constitutes repudiation.
Material Breach – Pg 905
In deciding whether the promisee can unilaterally put an end to the contract, instead of seeking to find a
“constructive condition,” courts sometimes try to determine whether a particular breach by the
promisor was “material.”
Only if breach is material does it relieve the non-breaching party of its duty to perform under the contract.
(i.e. if you have substantially performed, there’s no material breach, if you have materially breached, you
have not substantially performed)
In determining whether a breach is material, a court is no longer interested solely in the parties’ presumed
intentions at the time of formation. It is now also concerned with whether the nature of the breach
jeopardized the promisee’s confidence in receiving additional performances in the future.
If the breach is not material, the non-breaching party still has to perform but they can sue for damages. If
it’s not a material breach, than it is substantial performance and you can get damages (cost of
completion or loss of value).
Is forward-looking inquiry into the likelihood of performance occurring in the future, as distinguished from
constructive condition, which is a backward-looking inquiry into presumed intentions at time of
formation.
A rescission of a contract for breach by the other party must relate to a vital provision going to the very
substance or root of the agreement, and cannot relate to a subordinate or incidental matter. B & B
Equipment Co. v. Bowen (Page 907)
The ratio of the part performed to the part to be performed is an important question in determining material
breach. Lane Enterprises, Inc. v. L.B. Foster Co. (Page 910)
The Perfect Tender Rule

17
Definition: qualified in that the UCC preserves the perfect tender rule to the extent of permitting a buyer to
reject goods for any non-conformity. But that rejection does not automatically terminate the contract.
Seller may still effect a cure and preclude unfair rejection and cancellation by the buyer. See UCC
§2-608.
When there is a material breach, party in breach can “cure” within a specific time period (insignificant delay)
If a seller delivers nonconforming goods, buyer can (§2-601):
Reject goods, within a reasonable time with notification (§2-602)
if time of performance has not expired, seller may cure (§2-508(1))
if seller had reason to believe goods were acceptable, he may have a reasonable time to substitute a
conforming tender
Accept, thereby signifying that he would retain despite non-conformity, by not rejecting or by acting in a way
inconsistent with seller’s ownership (§2-606)
buyer can no longer reject (§2-607(2)) but
buyer may revoke his acceptance within a reasonable time after discovery of non-conformity if it
substantially impairs its value but goods must have been accepted (§2-608)
on the reasonable assumption that its non-conformity would be cured, and it has not been seasonally cured
or
without discovery of the non-conformity if the acceptance was induced either by the difficulty of discovery
before acceptance or by the seller’s assurances.
revocation must occur within a reasonable time after the buyer discovers or should have discovered the
ground for it and before any substantial change in condition of the goods
Cost of Completion v. Diminuiation in Value – Pg. 929
Cost of performance and diminution of value are both ways of calculating “expectation damages”, i.e. both
put injured party where they would have been had contract been performed
Where a contract provision breached is merely incidental to the main purpose, and where the economic
benefit which would result to lessor by full performance of the work is grossly disproportionate to the
cost of performance, the damages which lessor may recover are limited to the diminution in value
resulting to the premises because of the nonperformance. Peevyhouse v. Garland Coal Mining Co.
(Page 934)
Owner entitled to money which will permit him to complete, unless cost of completion is grossly and unfairly
out of proportion to good to be attained – when that is true, the measure is the difference in value.
When there is a breach, cost of completion is normal measure of damages but when substantial
performance and cost of performance exceeds loss in market value, that’s when must determine what
we are going to pay out.
Triggers
Economic/commercial intent  diminution of value
Premium on performance  cost of performance
Bad faith  cost of performance
Economic waste  diminution of value
Contract for sale of goods  diminution of value
Disproportionate to injury §348(2)(b)  diminution of value
Where a contractor willfully and fraudulently varies from the terms of a construction contract, he cannot sue
and have the benefit of the equitable doctrine of substantial performance. Groves v. John Wunder Co.
(Page 929)

Restatement & UCC Sections

§348 Alternatives to Loss in Value of Performance p. 940
(2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not
proved with sufficient certainty, he may recover damages based on
(a) the diminution in the market price of the property caused by the breach, or
(b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly
disproportionate to the probable loss in value to him…

18
[Comment c: in construction cost of completion usually less than loss in value, which is hard to prove – even
if greater, better to give a small windfall than undercompensate, but if much greater, should use
difference in market price and property value]
§ 2-601: Buyer’s rights on improper delivery
... if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may
(a) reject the whole
(b) accept the whole
(c) accept any commercial unit or units and reject the rest
ties into § 1-106, which defines conforming goods to be in compliance with contract obligations
§ 2-508: Cure by seller of improper tender or delivery, replacement
(1) where any tender ... is rejected because non-conforming and the time for performance has not yet
expired, the seller may seasonably notify the buyer of his intention to cure and may then within the
contract time make a conforming delivery.
(2) where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe
would be acceptable with or without money allowance the seller may if he seasonably notifies the
buyer have a further reasonable time to substitute a conforming tender.
comment 2 - reasonable grounds for belief required to avoid surprise to seller
comment 2 - form contract - if term out of line with normal usage or prior course of dealing is not called to
seller’s attention, then seller might have reasonable grounds to believe that goods tendered would
have been accepted
§ 2-601. BUYER'S RIGHTS ON IMPROPER DELIVERY (Page 925-928)
Subject to Sections 2-504 and 2-612, and unless otherwise agreed under Sections 2-718 and 2-
719, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:
(a) reject the whole;
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
§2-609: Right to adequate assurance of performance – Pg. 904
(1) with reasonable grounds for insecurity arise party demands adequate assurance in writing and may, if
commercially reasonable, suspend performance for which he has not received agreed upon returns
(2) reasonableness for grounds of insecurity determined according to commercial standards
(3) acceptance of improper delivery doesn’t waive right to demand adequate assurance in future
(4) if no assurance after 30 days, contract is repudiated.
UCC 2-610 – ANTICIPATORY REPUDIATION (Page 900) When either party repudiates the contract with
respect to a performance not yet due the loss of which will substantially impair the value of the
contract to the other (interest in future performance), the aggrieved party may
For a commercially reasonable time await performance by the repudiating party; or
Resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the
repudiating party that he would await the latter’s performance and has urged retraction; and
In either case suspend his own performance or proceed in accordance with the provisions of the Article on
the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished
goods. (2-704)
UCC 2-611 – RETRACTION OF ANTICIPATORY REPUDIATION (Page 900)
Until the repudiating party’s next performance is due he can retract his repudiation unless the aggrieved
party has since the repudiation cancelled or materially changed his position or otherwise indicated
that he considers the repudiation final.
Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party
intends to perform, but must include any assurance justifiably demanded under the provisions of this
Article (2-609 – Adequate Assurances).
Retracting reinstates the repudiating party’s rights under the contract with due excuse and allowance to the
aggrieved party for any delay occasioned by the repudiation.

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VII. LACK OF CONTRACTUAL CAPACITY

Rebutting the Prima Facie Case of Contract

Certain classes of people have only a limited power to contract
Those who have limited power to contract (e.g. infants, mentally incapacitated people) can enforce
contracts they enter into, but cannot have those contracts enforced against them
The legal and physical ability to enter into a contractual agreement, typically characterized by the ability to
understand the consequences of one’s actions.
Deficiencies in Contractual Capacity
Incompetence
Contracts of mentally incompetent people are voidable. Normally the question is whether the mind is so
affected as to render the person wholly and absolutely incompetent to comprehend and understand
the nature of the transaction. However, these standards fail to take into account those people who
are unable to control their conduct due to mental illness even though their cognitive ability seems
unimpaired, as in the case of Mrs. Ortelere. pp. 958--966 Ortelere v. Teachers’ Retirement Board of
New York
Infancy
Public policy issue: we do not want adults taking advantage of minors;we want kids to go home if they can
and if no one will contract w/them they will go home
Contracts for necessities are enforceable but recipients can be forced to pay restitution. Minors must give
back what was received (physical objects, regardless of if it is a necessity); precludes recovery for
services.
Necessaries are those things that are requisite for the maintenance of existence, and depend on the social
position and situation in life of the infant and his parents.
The usual rule is that the other parties knowledge is irrelevant. Child’s misrepresentation of age is usually
irrelevant (but varies), but many of the states will allow tort case against the child for the
misrepresentation pp. 967-974 Webster Street Partnership, Ltd. v. Sheridan, 368 N.W.2d 439 (1985)
Emancipated minors
Emancipated Minors do not have the capacity to K; they still need a guardian to K on their behalf because
they are still a minor, still underage. However, they are responsible for necessities.
If a minor willingly misrepresents age, court may:
Require greater restitution
Allow party who was lied to to bring a tort action of misrepresentation against infant
who is still allowed to disaffirm; or
Allow contract avoidance on grounds of fraud

20
Restatements Sections
§12. Capacity to Contract
1. No one can be bound by contract who has not legal capacity to incur at least voidable contractual
duties. Capacity to contact may be partial and its existence in respect of a particular transaction may
depend upon the nature of the transaction or upon other circumstances.
2. A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties
thereby unless he is
a. Under guardianship, or
b. An infant, or
c. Mentally ill or defective, or
d. Intoxicated

§15. Mental Illness or Defect

1. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental
illness or defect
a. He is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
b. He is unable to act in a reasonable manner in relation to the transaction and the other party has
reason to know of his condition.
2. Where the contract is made on fair terms and the other party is without knowledge of the mental illness
or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has
been so performed whole or in part or the circumstances have so changed that avoidance would be
unjust. In such a case a court may grant relief as justice requires.

§ 14. Infants – Unless a statue provides otherwise, a natural person has the capacity to incur only voidable
contractual duties until the beginning of the day before the person’s eighteenth birthday.

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 VII. OBTAINING ASSENT BY IMPROPER MEANS

A. Misrepresentation
Fraud: If one party induces another to rely on a promise based on false information that is considered fraud.
A party is prohibited by law to supply false information if he/she has reason to believe the other party
will rely on it.
an assertion that is not in accord with the facts that induces assent
an innocent misrepresentation can constitute voidable contract - §162
Where one party has superior knowledge, statements made within the area of such knowledge may be
treated as statements of fact. Vokes v. Arthur Murray, Inc. (Page 991)
This is a three part test:
A misrepresentation that is fraudulent/material (intentional, known to be false, not confident in truth, no
basis for assertion)
that is reasonably relied upon and induces assent and
reliance is justified
under this court – only dishonest opinions are fraudulent misrepresentations pp. 988-991 Byers v. Federal
Land Co
Usually, opinions are not actionable except in cases where:
there is a fiduciary relationship between parties or
where there has been some artifice or trick employed by representor or
where parties do not in general deal @ “arms length” or
where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact
represented
Voidable – a statement of a party having superior knowledge may be regarded as a statement of fact
although it would be considered as opinion if parties were dealing on equal terms.
equitable fraud does not have the knowledge requirement, material misrepresentation – defense in
contracts not torts
legal fraud – fraudulent misrepresentation – defense in both torts and contracts
B. Duress
fear of loss of life, loss of family member, mayhem, imprisonment
duress and pre-existing duty rule do much the same work in the area of contract modification
and whether they will be enforced
a contract is voidable on the grounds of duress when it is established that the party making
the claim was forced to agree to it by means of a wrongful threat precluding the exercise of
his free will
issues regarding “free will” and “wrongful threat”
A transaction is voidable because of duress only when one of the parties thereto is forced to
act in a manner inconsistent with his own free will. Hackley v. Headley –- Page 999
A contract modification is voidable on the ground of duress when the party claiming duress
establishes that its agreement to the modification was obtained by means of a wrongful
threat from the other party which precluded the first party’s exercise of free will. Austin
Instrument v. Loral Corp. (Page 1004)
absence of free will in practical terms means an inadequate market or inadequate legal
remedy
if there is a market and the party claiming duress had an option to turn to the market and did
not, the duress claim is going to fail – e.g. a threat, even if improper, does not amount to
duress so long as the victim has a reasonable alternative to succumbing and fails to take
advantage of it
UCC 2-209 provides that an agreement modifying a contract for the sale of goods does not
require additional consideration in order to be enforceable as long as it is executed in good
faith. United States v. Progressive Enterprises (Page 1008)
most frequently alleged form of duress in contract litigation occurs when one part threatens
to breach the contract unless it is modified in his favor, or a new one drawn up
remedy for contract voided on claim of duress is restitution

22
Test for duress is:
Threat made or pressure exerted that
deprives V of free will such that
V acts contrary to his inclination and best interest and
threat is wrongful (illegal, immoral, or exerted in bad faith)
If duress exists, V is relieved of duty to perform.
C. Undue Influence
if case doesn’t fit all the requirements of duress, it may still be argued as voidable under undue influence or
unconscionability
Can be grounds for voiding a contract where a non-mentally ill party’s capacity to negotiate is diminished
and the other party with knowledge of this diminished capacity takes advantage of it.
Indicators of undue influence: pp. 1012-1023 Odorizzi v. Bloomfield School District
Discussion of the deal at an unusual or inappropriate time
Consummation of the transaction in an unusual place
Insistent demand that the business be finished at once
Extreme emphasis on untoward consequences of delay
Use of multiple persuaders by dominant party on one servient party
Absence of third party advisors to the servient party
Statements that there is no time to consult financial or legal advisors.
Distinguished from duress because in undue influence, changes persons will, whereas in duress, someone
is forced to do something against their will
D. Unconscionability – Pg 1024
1) Fallback position when contract seems “unfair” and no other doctrine gets the unduly burdened party
out from under their obligation
2) The defense of unconscionability to action on a contract is judicially recognized. Williams v. Walker-
Thomas Furniture Co. (Page 1024)
3) Where, in light of the general commercial background of a particular case, it appears that gross
inequality of bargaining power between the parties has led to the formation of a contract on terms to
which one party has had no meaningful choice, a court should refuse to enforce such a contract on
the ground that is unconscionable. Wille v. Southwestern Bell Telephone Company (Page 1033)
4) A licensing agreement is not procedurally unconscionable, nor does it fail to provide fair notice of its
contents, merely because it is contained as part of a license in a pop-up window on an Internet site.
In re RealNetworks (Page 1035)
5) Not a well defined doctrine by any stretch of the imagination
6) Unconscionability is measured from the time of the contracting
7) Virtually the only successful use of unconscionability has been by consumers in contracts of
adhesion, as the sophistication of the parties often plays a major role in the judge’s determination as
to whether there was unconscionability
8) Two elements of unconsionability:
a. Procedural – refers to situations in which one party was induced to enter into the contract without
having any meaningful choice
i) : “when a party of little bargaining power, and hence of little real choice, signs a commercially
unreasonable contract with little or no knowledge of its terms, it is hardly likely that his
consent, or even an objective manifestation of his consent, was ever given to all the terms.”
Unequal bargaining power – procedural unconscionability
Comment d to §208, p1137 lists factors that point to procedural unconscionability
Belief by the stronger party that there is no reasonable probability that the weaker party
will fully perform the contract
Knowledge of the stronger party that the weaker party will be unable to receive substantial
benefit from the contract
Knowledge of the stronger party that the weaker party is unable reasonably to protect his
interests by reason of physical or mental infirmities, ignorance, illiteracy, or inability to
understand the language of the agreement
factors:

23
 • did party know what they were getting into – “unfair
surprise”
• fine print, complex convoluted language
• lack of opportunity to study contract
• lack of understanding of particular party
• disparity of sophistication
• language difficulties
• voluntariness of the deal
• are terms negotiable?
• Different kinds of market pressures/timing requirements
b. Substantive – “oppression”, a clause is substantively unconscionable if it is unduly unfair
and one-sided. Most often excessive price, or an unfair modification of either the seller’s or
buyer’s remedies.
i) “In determining reasonableness of fairness, the primary concern must be with the terms
of the contract considered in light of the circumstances existing when the contract was
made.” Terms unreasonably favorable to one party – substantive unconscionability
an exception to the rule that courts do not look at the adequacy of consideration
factors:
commercials terms reasonable or one sided
price/costs  profits to one party
typical commercial practices
9) Be aware of the fundamental tension between unconscionability doctrine and the basic principal of
freedom of contract
Factors to consider:
• gross inequality of bargaining power
• terms unreasonably favoring the
stronger party
• no meaningful choice for the weaker
party
• no real alternative
• so one-sided at the time the contract
was made
• highly technical language
• does the case also raise/allude to
issues of duress or fraud?

24
UCC & Restatement Sections
§2-302: Unconscionable contract or clause if court finds contract is unconscionable, it may:
2) refuse to enforce the contract;
3) enforce the remainder of the contract w/o the
unconscionable clause;
4) limit the application of the unconscionable
clause.
§174: when duress by physical compulsion prevents formation of a contract: If conduct that appears
to be a manifestation of assent by a party who does not intend to engage in that conduct is physically
compelled by duress, the conduct is not effective as a manifestation of assent.
§175: when duress by threat makes a contract voidable
(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the
victim no reasonable alternative, the contract is voidable by the victim.
(2) If a party's manifestation of assent in induced by the one who is not a party to the transaction, the
contract is voidable by the victim unless the other party to the transaction in good faith and without
reason to know of the duress either gives value or relies materially on the transaction.
§176: when a threat is improper
(1) a threat is improper if
(a) what is threatened is a crime or tort, or the threat itself is such if it got the property
(b) what is threatened is a criminal prosecution
(c) what is threatened is the use of the civil process in bad faith
(d) the threat is a breach of duty of good faith and fair dealing under a contract
(2) a threat is improper if the resulting exchange is not and fair terms, and
(a) the threatened act would harm the recipient and would not significantly benefit the actor
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior
unfair dealing by party making the threat
(c) what is threatened is otherwise a use of power for illegitimate ends
§177, p.1129: When undue influence makes a contract voidable
(1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising
the persuasion or who by virtue of the relation between them is justified in assuming that that person
will not act in a manner inconsistent with his welfare
(2) If a party’s manifestation of assent is induced by undue influence by the other party, the contract is
voidable by the victim
(3) If a party’s manifestation of assent is induced by a 3rd party, the contract is voidable by the victim
unless the other party to the transaction in good faith and without reason to know of the undue
influence either gives value or relies materially on the transaction.

25
IX FAILURE OF BASIC ASSUMPTION

Mistakes of Present Existing Facts

1) Mutual Mistake – Pg 1049: The adversely affected party may void a contract based on mutual
mistake made at the time of the contract formation where:
a. the mistake concerned a basic assumption on which the contract made;
b. the mistake materially affects the agreement; and
c. the adversely affected party does not bear the risk of the mistake. [Restatement § 152]
2) Means that both parties are wrong about the same fact
3) Mistake Defined: §151 a mistake is a belief that is not in accord with the facts as they exist at the
time the K was made
4) Rescission – The cancelling of an agreement and the return of the parties to their positions prior to
the formation of the contract.
5) Mistakes in integration the remedy is reformation, they go back and make the contract what it was
supposed to be in the first place.
a. Mistake: both said or thought the same thing but it was wrong, this is a contract defense, but
there is still a K, the parties did agree.
b. With lack of capacity it is only that singular party that can get out based on the situation, with
mutual mistake both could potentially get out just need to figure out who.
6) Misunderstanding: objectively ambiguous term, like the Peirless ships case, this is a mutual assent
issue it means that there is no K
7) Where the parties to a contract for the sale of personal property are mutually mistaken as to a
material fact which affects the substance of the whole consideration, the contract is unenforceable.
Sherwood v. Walker (Page 1049)
8) A party may not seek to modify an agreement based on mutual mistake as to the quantity or quality
of the goods being exchanged, absent a guaranty in the contract’s provisions assuring their
acceptability. Nester v. Michigan Land & Iron Co. (Page 1059)
9) In the absence of evidence of fraud on the part of the vendee, a mutual mistake as to the nature and
value of a thing sold will not afford a basis for rescission of the contract for sale. Wood v. Boynton
(Page 1062)
10) Where both parties to a contract are mutually mistaken as to a basic supposition upon which the
agreement was predicated, thereby affecting the parties’ obligations pursuant to the contract, the
court may grant the equitable remedy of rescission where the particular circumstances warrant.
Lenawee County Board of Health v. Messerly (Page 1065)
11) Risk can be allocated contractually, but you cant do it with undue influence, or duress or lack of
capacity. Cant contract around default rules of contracts. With mutual mistake you can contract
around it. Can contract around extent of liability/ Failure of basic assumption is like Rose of
Aberlone: contracting for something that is at the substance of the agreement, that isn’t what they
thought it was, mutual mistake and unilaterial mistake are a kind of failure of assumption.
12) Court will not grant rescission once contract is already performed (unlike Sherwood). In absence of
fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a
rescission of a sale. Wood v. Boynton, uncut diamond sold for $1. pp. 1062
13) Who bears the risk
a. Ct, in mistake of two innocent parties, determines who should bear the risk based on §154.
Existence of assumption of risk clauses in contracts determines who bears risk. Pg. 1065 :
Lenawee County Board of Health v. Messerly, condo is actually worthless but sold with as is
clause

Unilateral Mistake and the Duty to Disclose

Circumstances where contract is voidable is much narrower, most unilateral cases are subcontracting cases
Where a party knows that a mistake has occurred with the other party then they cannot accept, because
there is no meeting of the minds. pp. 1074-1076 Tyra v. Cheney, 152 N.W. 835 (1915)
Where a party has no knowledge of a mistake and relies on the bid or contract price, then the contract is not
void. See promissory estoppel. p. 1076-1077 Drennan v. Star Paving Co., 333 P.2d 757 (Cal. 1958)

26
A party is under no obligation to say anything at all, but if they do it cannot be false. If the knowledge is
readily available then there is no duty to disclose. pp. 1077-1081 Laidlaw v. Organ, 15 U.S. (2.
Wheat.) 178 (1817):
Changed Circumstances
Impossibility and Impracticability
Different from mistake in that the false assumption is about an event in the future from the time of contract.
But decision on how to treat silence is essentially identical: discern an implicit term; or impute the best
possible term.
Impossibility of performance voids contract and excuses both parties from performing, provided that one
party is not at fault, or that the risk is not assumed by one party. pp. 1087-1091 Taylor v. Caldwell
If, after a contract is formed, circumstances arise which make a party's performance impossible or
impracticable, his duty to render that performance is discharged. In order to prove impracticability:
an event must have occurred that makes performance, or performance in the contemplated sense,
impossible or impracticable;
the party seeking relief must not have been at fault in causing the event to occur;
non-occurrence of the event must have been a basic assumption upon which the contract was made; and
the party seeking relief must not have assumed the risk of the event occurring. [Restatement § 261]
Applying the same criteria, UCC § 2-615 provides that a seller's delayed delivery or non-delivery of goods
based on impracticability is not a breach. The proposed revision expands the availability of the
impracticability excuse to "performance" and "non-performance" of any and all sellers' contractual
duties.
The defense of impossibility of performance due to death applies even when the death is the fault of the
person obligated to perform the personal services contract. CNA & American Casualty v. Arlyn
Phoenix (Page 1092)
Events that may make performance of the contract impossible include
death or disability of a person indispensable to performance of the contract. pp. 1092-1094 CAN &
American Casualty v. Arlyn Phoenix
destruction of the subject matter of the contract or other thing necessary for the performance of the contract,
provided the destruction is not the fault of the party asserting impossibility
failure of a specific thing necessary for performance to come into existence
supervening governmental action that makes performance of the contract illegal
where performance would subject the party to potential harm
shortages or significant price increases in materials due to embargo or war
other circumstances that would involve "extreme or unreasonable difficulty, expenses, injury or loss."
[Restatement § 261, comment d]
Frustration of Purposes
a. Not directly covered by the UCC
Whole purpose of why you bargained is gone, the consideration is gone The change in event must be
the purpose of the contract in order to claim frustration of purpose pp. 1099-1104 Krell v. Henry
b. Supposed to pay for something but don’t want it anymore (not due to market conditions) but it is
because something unforeseeable changed. Both parties had the same assumption, but only
one party is harmed by it
c. If it is the fault of a party then that party bears the risk, and it is breach not frustration of purpose
d. Less sympathy for this than impracticability
Unanticipated events that reduce the value of performance to the promisee
If, after the contract is formed, circumstances arise which substantially frustrate a party's purpose
in entering into the contract, the party's remaining duties are discharged, provided:
the party seeking discharge was not at fault
the nonoccurrence of such event was a basic assumption on which the contract was made; and[§§
262-263],
the language or the circumstances do not prohibit excuse based on frustration of purpose.
[Restatement § 265]
This principle does relieve a party for mere "economic" or "commercial" frustration, where all that is
frustrated is the party's ability to make a profit but not the actual purpose of the contract

27
Remedies:
if court determines that the promisor is not entitled to relief based on frustration of purpose, than promiser is
liable for damages for breach of contract.
If successful claim, duty of promisor claiming frustration is discharged. Neither party can recover damages
for breach.
If either party has partially performed and the contract is divisible, can allow recovery by contract rate
If either party has performed and contract is not divisible, can collect via restitution.

RESTATEMENT SECTIONS

§151 a mistake is a belief that is not in accord with the facts as they exist at the time the K was made

§152: when mistake of both parties makes a contract voidable (MUTUAL / BI-LATERAL)
(1) if both parties made a faulty assumption which has a material effect on the agreed exchange of
performances, the contract is voidable by the affected party unless he bears the risk of the mistake
under the rule of §154;
(2) to determine whether a mistake has had a material effect on the exchange of performances, account is
taken of any relief by way of reformation, restitution, or otherwise.

§154: when a party bears the risk of a mistake

a party bears the risk of a mistake when:
(1) the risk is allocated to him by agreement of the parties;
(2) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts
to which the mistake relates but treats his limited knowledge as sufficient;
(3) the risk is allocated to him by the court on the grounds that it is reasonable to do so.

§ 153. When Mistake of One Party Makes a Contract Voidable (Unilaterial Mistake) Where a mistake of
one party at the time a contract was made as to a basic assumption on which he made the contract
has a material effect on the agreed exchange of performances that is adverse to him, the contract is
voidable by him IF he does NOT bear the risk of the mistake stated in § 154 AND
the effect of the mistake is such that enforcement of the contract would be unconscionable, OR
the other party had reason to know of the mistake or his fault caused the mistake.

§ 161. When Non-Disclosure is Equivalent to an Assertion A person’s non-disclosure of a fact known to

him is equivalent to an assertion that the fact does not exist in the following cases only:
where he knows that the disclosure of the fact is necessary to prevent some previous assertion from being
a misrepresentation or from being fraudulent or material.
where he knows that the disclosure of the fact would correct a mistake of the other party as to a basic
assumption on which that party is making the contract and if non-disclosure of the fact amounts to a
failure to act in good faith and in accordance with reasonable standards of fair dealing.
where he knows that the disclosure of the fact would correct a mistake of the other party as to the contents
or effect of a writing, evidencing or embodying an agreement in whole or in part.
where the other person is entitled to know the fact because of a relation of trust and confidence between
them.

§ 160. When Action is Equivalent to an Assertion (Concealment) Action intended or known to be likely
to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

§ 261. Discharge by Supervening Impracticability Where, after a contract is made, a party’s performance
is made impracticable without his fault by the occurrence of an event, the non-occurrence of which
was the basic assumption on which the contract was made, his duty to render that performance is
discharged, UNLESS the language or the circumstances indicate to the contrary.

28
§ 263. Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for
Performance. If the existence of a specific thing is necessary for the performance of a duty, its failure
to come into existence, destruction, or such deterioration as makes performance impracticable is an
event, the non-occurrence of which was a basic assumption on which the contract was made.

UCC § 2-613. Casualty to Identified Goods

Where the contract requires for its performance goods identified when either party when the contract
is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the
buyer, or in a proper case under a “no arrival, no sale” term (§ 2-324) then
(a) if the loss is total the contract is voided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer
may nevertheless demand inspection and at his option either treat the contract as avoided or accept
the goods with due allowance from the contract price for the deterioration or the deficiency in quantity
but without further right against the seller.

§ 265. Discharge by Supervening Frustration: Where, after a contract is made, a party’s principal
purpose is substantially frustrated without his fault or by the occurrence of an event, the non-
occurrence of which was a basic assumption on which the contract was made his remaining duties to
render a performance are discharged, unless the language or the circumstances indicate to the
contrary.

29
MASTER NOTES

I. MULTIPARTY TRANSACTIONS

What is the importance of the distinction between actual authority and implied authority? One is manifested
to a third party one is manifested to the agent

K is not needed to create an agency relationship, only need consent. Not assent and consideration.

Inherent authority/Authority by estoppel/apparent authority pretty much all mean the same thing. For our
purposes, we will call it apparent authority.

New England Educational Training Service, Inc. v. Silver Street Partnership

Supreme Court of VT (1987) Casebook p. 559

IMPLIED AUTHORITY: Attorney-client negotiations

FACTS: Defendant owns the land and has a mortgage on it.

didn’t know about the mortgage because it was misindexed. filed for foreclosure when no negotiation
measures worked. Testimony in the case showed that the principal of Silver Street (Heaton) hired Evans
(attorney) to solve problem and gave him general authority to act. Evans said the same thing and added
that they never accepted the $10K offer that he was originally authorized to give. PP: Trial court granted
summary judgment in the foreclosure action to the plaintiff because the settlement agreement made by
the parties’ attorneys was enforceable. states that the agreement had not been expressly authorized by the
principal.

ISSUE: Whether an attorney could without express authority bind his client to a settlement amount and
agreement? JUDGMENT: Reversed RULE:
The retention of an attorney to represent one’s interest in a dispute with instructions to conduct settlement
negotiations,
without more, does not confer implied authority to reach an agreement binding on the client.

ANALYSIS: - It is for the client to decide whether he will accept a settlement offer. -
An attorney has no authority without the permission of his client to dismiss a case with prejudice or do any
act that will have the effect of irrevocably renouncing or barring his client’s right of action.
- argument: Defendant’s counsel had permission, or authority, from his client to enter into the agreement.
-Court: There was no evidence showing that there was express authority to enter into the particular
agreement -

IMPLIED AUTHORITY: It is actual authority circumstantially proven from the facts and circumstances
attending the transaction in question. - argument: The retention of an attorney with express authority to
negotiate a settlement, which defendant’s attorney had in this case, combined with extensive history of
negotiations, implies the power to reach a binding agreement. -

Court: Distinction between authority to conduct negotiations and his authority to bind the client to a
settlement agreement without express permission.

The retention of an attorney to represent one’s interest in a dispute with instructions to conduct settlement
negotiations, without more, does not confer implied authority to reach an agreement binding on the client -
30
APPARENT AUTHORITY: Must be evidence that there is conduct on the principal’s part which could
reasonably be relied upon by as a manifestation of the authority of its agent to conclude a binding
settlement agreement

Retention of an attorney with instructions to negotiate towards settlement could not be reasonably relied
upon as the basis for apparent authority to settle the case.

An “atmosphere of offers” is not a substitute for conduct on the part of

the principal which can support a finding of apparent authority to settle. NOTES: 1.

The employment of an attorney, by itself, does not imply authority to settle the client’s case. Courts have
found the authority in the following cases:
a. Leffler v. Bi-State
: Where an attorney had represented to the opposing party that he had the authority to settle then it was
incumbent upon the principal to prove that the attorney did not have the authority
b. Barton v. Snellson
: A settlement entered into by an attorney was binding on the client although the
attorney had never expressly stated that he had the authority to settle his client’s claim because he acted
and gave the other party the reasonable impression that he did have such authority. 2.

Ratification: A client may be bound if the court finds that, knowing of her attorney’s action, she ratified the
purported settlement.

a. Thompson v. D.C. America

: The court held that the plaintiff was bound by the terms of the settlement
agreement forwarded by defendant’s attorney on the ground that by accepting the payment from his own
attorney he ratified the attorney’s conduct.
3.

Courts are hesitant to uphold no authorization where a third party has been misled. Artha Management v.
Pereira
A client challenging his own attorney’s authority to settle a case bears the burden of proving by affirmative
evidence that the attorney lacked authority. APPARENT AUTHORITY AND ESTOPPEL: Restatement §8:
Apparent authority is the power to affect the legal relationships of another person by transactions with third-
person, professedly as agent for the other, arising from and in accordance with the other’s manifestation to
such third
persons. Comment (a) -

Power may be greater or smaller than that resulting from the authority given. -

There may be no fiduciary duty if apparent authority is found.

Only exists with regard to those who believe and have reason to believe that there is authority (there can be
no apparent authority created by an undisclosed principal.

investigation regarding that agent’s authority.

-

Promissory estoppel is for people who are in privity.

31
Sauber v. Northland Insurance Co. Pg 563

Facts: McDonald sold the car to Sauber, Sauber called the insurance company to ensure that the insurance
would transfer fine and the person who answered the phone said yes. Sauber got into an accident and tried
to file a claim and the D’s said that the person who answered the phone didn’t have the authority to say that.

Issue: Can one presume the person answering the phone has the authority for any duties assumed by the
employee?

Holding: Yes.

Analysis: When an employee of a business is authorized to answer calls coming over the telephone, the
burden of proving lack of authority should rest on the one who has placed the employee in the position,
where others would rely on the apparent authority. McDonald cannot deny the authority.

• By putting someone in the position to answer questions of the coverage, you clothe them with the
authority.
• This is apparent authority - the third party acted in good faith, with a person who discussed apparent
authority.

Jennings v. Pittsburgh Mercantile Co.; Pa. 1964; agency authority case

One member of a board (agent) cannot bind the board; agency law applied to corporate form

Facts: D is looking to sell property and had Jennings and his partner work as agents looking for a deal. His
partner is an attorney, Cantor.

An agent cannot manifest apparent authority, only a principle can.

Court did not look to prior dealings because they were not similar in nature, and because they said that
Jennings was on notice and should have known better that the person could not act on behalf of the
company.

Third Party Beneficiaries to a K

Intended beneficiaries have standing to sue on a K in which they are not in privity
 Creditor beneficiary:
 Donee beneficiary:
Incidental beneficiaries do not have standing to sue on the K

Seaver v Ransom. Ct of App NY [1918]

Historical Development of 3rd Party Beneficiaries

32
Relevant Facts: Mrs. Beman was about to die. She owned a house and a lot. Her husband drew up a will
according to her instructions. Pl was her niece who sometimes lived with the Bemans. When the will was
read Mrs. Beman isolated an err, she had wanted the house to go to the Pl, but it was identified as going to
her husband. B/c she was failing fast her husband asked her to sign the will, and stated that he would leave
enough in his will to make up the difference. After he died there was no provision to this effect. Dfs are the
executors. ***FACTS NOT QUITE RIGHT****

Issue: Whether the Pl can recover against an agreement whereby Mr. Beman induced his wife to execute
the will by his promise to give Pl $6000?

Holding: Yes

Procedure: Judgment, after trial, for PL, and from an interlocutory judgment overruling demurrer to the
complaint, Df appealed. Affirmed.

Law or Rule(s): Privity between a Pl and Df is necessary to the maintenance of an action arising out of a
breach of duty on the contract. The right of the beneficiary to sue on a contract made expressly for his
benefit has been fully recognized.

Court Rationale: Where a legatee promises the testator that he will use property given to him by the will for
a particular purpose, a trust arises. Equity compels the application of property obtained, but cannot impress
a trust except on property obtained by the promise. Beman was bound by his promise, but no property was
bound by it. No trust in Pl’s favor can be spelled out. A general rule sustaining recovery at the suit of the 3rd
party would include few classes of cases. The desire of the childless aunt to make provision for a beloved
and favorite niece differs imperceptibly in law or in equity from the moral duty of the parent to make
testamentary provision for a child. The contract was made for the Pl’s benefit. She alone was substantially
damaged by its breach. Because the testatrix bequeathed the promise to the Pl, and not b/c close
relationship or moral obligation sustained the contract, the Pl could have recovered in law against Mr.
Beman for the value of the house.

Plaintiff’s Argument: The promise was made for the benefit of the Pl, for consideration of the property
retained by Mr. Beman which was breached.

Defendant’s Argument: Pl was not in privity of contract, and the property being held was a trust where the Pl
was not a part of.

Sisters of St. Joseph v. Russell

Facts: D goes to Ps hospital to receive treatment. He is unsure of which company/employer to file workers
comp with. They are saying that Aetna and Russell are parties, and that Aetna owes the P. D is saying he
never personally said he would pay any bills but did accept treatment. Court looks at what the agreement
says.

Issue:

A third party's right to enforce a contractual promise depends on the intent of the parties to the contract.
Sisters of St. Joseph of Peace, Health, and Hospital Serv. v. Russell, 318 Or. 370, 374 (1994). There are
three categories of third-party beneficiaries: donee beneficiaries, creditor beneficiaries, and incidental
beneficiaries. Id. Incidental beneficiaries are not intended third-party beneficiaries. Only donee beneficiaries
and creditor beneficiaries may enforce contractual promises intended for their benefit. Id.

A third party is a donee beneficiary if the promisee's intent in obtaining the promisor's promise to perform

33
was to make a gift to the third-party or to confer on the third party a right to performance that was not due or
claimed to be due by the promisee to the third party. Id.

Marvin v. Marvin, 18 Cal.3d 660 (1976)Pg 605

Nonmarital partner of actor Lee Marvin sues him when he kicks her out of the house they shared.

Marriage is a very brightline rule in the US, you are married or you are not. Each state has a way to divide
the property and common law principles.

FACTS: Michelle Marvin and the actor Lee Marvin lived together for six years before he "compelled" her to
leave his household in 1970. She sued, saying that the two of them had entered into an oral agreement that
while "the parties lived together, they would combine their efforts and earnings and would share equally any
and all property accumulated as a result of their efforts whether individual or combined." Furthermore, they
agreed "to hold themselves out to the general public as husband and wife and that Michelle would render
her serviced as a companion, homemaker, housekeeper and cook to Lee." She sued, asking the court to
determine her contract and property rights and to impose a constructive trust upon one half of the property
acquired during the course of the relationship (essentially, she asserted her community property rights). The
trial court granted judgment on the pleadings for the defendant, this leaving him with all property
accumulated by the couple during their relationship. Court of appeals said that just because she needs
money and he can pay doesn’t mean the consent is there, where is the will principle, was there reliance?
Then it went to the Supreme Court, who reversed Crt. of Appeals. She never did get any money BUT the
idea of it being POSSIBLE did come out of this.

MICHELLE MARVIN ARGUES: The trial court erred in denying her a trial on the merits, given the principle
established in California law that nonmarital partners may lawfully contract concerning the ownership of
property acquired during the relationship.

LEE MARVIN ARGUES:

• The alleged contract is "so closely related to the supposed 'immoral' character of the relationship
between plaintiff and himself that the enforcement of the contract would violate public policy.
Essentially, he argues that Michelle Marvin was nothing more than a concubine.
• Awarding Michelle Marvin any property would be counter to public policy because it would deprive
Betty Marvin, the actor's lawful wife, of her share of the community property. Under California law,
he cannot give away Betty Marvin's share of the community property.
• Michelle Lee has no cause of action independent of express contract and deliberately elected to
remain outside the bounds of the community property system (Cary, a case that held that property
accumulated by nonmarital partners in an actual family relationship should be divided equally, erred
in holding that California's Family Leave Act vitiated the force of the prior precedents).

COURT SAYS: Judgment of the trial court reversed (case should not have been dismissed on the
pleadings).

HOLDINGS:

 Nonmarital partners are not entitled to division of community property, but the courts will instead
enforce express agreements between the parties to the extent that these agreements do not rest on
an unlawful meretricious consideration.

34
  In the absence of an express agreement, the courts may look to a variety of other remedies in order
to protect the parties' lawful expectations.

RATIONALE:

• Nonmarital partners may lawfully contract concerning the ownership of property acquired during the
relationship.
• A contract between nonmarital partners is unenforceable only to the extent that it explicitly rests
upon the immoral and illicit consideration of meretrocious sexual services.
• A standard which inquires whether an agreement is "involved" in or "contemplates" a nonmarital
relationship is vague and unworkable, in that virtually all agreements between nonmartial partners
can be said to be "involved" in some sense in the fact of their mutual sexual relationship, or to
"contemplate" the existence of that relationship.
• Awarding the plaintiff some of the property to which Marvin's first wife would be entitled is not
counter to public policy, because Betty Marvin could have asserted her community property rights
but did not.
• Adults who voluntarily live together and engage in sexual relations are nonetheless as competent as
any other persons to contract respecting their earnings and property rights.

Marvin v. Marvin, 557 P.2d, 106 (1976),

Morone v. Morone, 429 N.Y.S.2d 592 (1980);

Morone v. Morone. Court of Appeals of New York, 1980. 50 N.Y.2d 481, Pg 612

This is more like quantum merit, but the court said it wasn’t unjust enrichment.

Facts: The Morones were never officially married but lived together for many years. The “wife” sued for the
value of the household services she provided her “husband” on two theories: (1) as a contract implied-in-
fact between the cohabitating couple and (2) as an express contract formed between the two. The trial
court dismissed the complaint in full, and the intermediate appellate court affirmed on a slightly different
basis. The “wife” appealed to the Court of Appeals of New York.

Issue: Can a contract in regard to sharing earnings and assets be implied from the relationship of a
cohabitating, unmarried couple?

Rule: Personal services rendered between the couple will not constitute a contract implied-in-fact because
such services are ordinarily understood to be gratuitous.

Analysis: The court says that social change in the status of marriage and cohabitation has also led to
changes and uncertainty in the law. The court first finds that unmarried people living together can make
contracts just like anyone else, but domestic services between the two will not be presumed to form any
contractual bond. It’s not the role of the court to get involved in the post-mortem of an intimate relationship,
not legally recognized as marriage, and try to infer after the fact a contract that was never formed
expressly. The court notes that the state of New York had previously outlawed common law marriage,
partly because it caused too much needless litigation.

Absent an expressed agreement, they are not going to enforce.

Conclusion: The “implied-in-fact” part of the complaint is dismissed.

Specht v. Netscape pp. 581-582 Specht v. Netscape Comms., 150 F. Spp. 2d 585 (2001)

35
Look back in old notes.

The effect of a promise on an incidental beneficiary you get no standing, no rights.

Notes: There is kind of a cautionary principle where you are supposed to be thinking about the promise that
you are making and whether or not you want to be bound by it. Also has an evidentiary element, shows that
you were supposed to be bound. We used a seal, and it ended up being used so much it lost its significance
and meaning. Now it has lost a lot of its function. Also, it was used because people weren’t literate. Click
wrap agreements have assent purpose but not a consideration element.

1) Party Based Principles

a. Will Principle: Protects promisor, limitations: It is subjective
b. Reliance Principle: Protects promise
c. Restitution Principle:
d. Problem with party based principle
2) Standards Based Principles
a. Efficiency principle
b. Principle of substantative fairness
c. Problems with standards based principles
3) Process Principles
a. Bargain principle: how we are going to evaluate things to see if there is consideration. Do
people intend to be bound by their bargain?
i. Limitations: sometimes interpret to restrictively the requirement to have consideration
b. Process principles often fail to look at substance

Agreements that are not commercial in nature are hard to enforce without an express K or marriage.

p. 582 Rest 2d of Contr § 315 Incidental Benefit

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II. DOCTRINE OF CONSIDERATION
• On what principles should contracts be enforced?
• Why should some contracts been enforced and others not?

A. Principles of Enforceability

What is the promisor asking for in exchange for the promise?

1. A performance ($10 if you wash my car)

2. A promise to perform ($10 if you promise to wash my car)
3. A forbearance (don’t drink/smoke/gamble until 21)
4. Promise to forebear

Party Based Theories

1) Will Principle= commitments are enforceable because the promisor has willed/freely chosen to be
bound by their commitment. Depends its moral force upon the notion K duties are binding because
they are freely assumed by those who are required to discharge them. Subjective because it
inquires as to the promisor’s actual state of mind at the time of K formation.
2) Reliance Principle=K enforcement is an effort to protect promisee’s reliance on the promises of
others. Not all cases of injury resulting from reliance on the word or act of another are actionable
and the reliance principle does not offer a clue as to what distinguishes those that are.
“Reasonable” and “justifiable” reliance becomes issue=vague standards. Fails to resolve the basic
question concerning enforceability: which potentially reliance-inducing actions entail legal
consequences and which do not? Does not explain cases in which the expectations of the
promisees are legally protected despite the fact they did not rely on the promise.
3) Restitution Principle=Enforcing commitment prevents unjust enrichment of a promisor who seeks to
go back on their word. K enforcement can be viewed as forcing such persons to disgorge the
benefits obtained from the promisee. Situations in which promisors have been enriched by the
actions of the promisee/third person are more rare either than cases in which promisors have
subjectively willed to be bound or in which promisees have relied to their detriment on a promise.
Restitution principle (more than reliance) cannot alone provide comprehensive account of K
obligations unless a great many cases in which Ks are currently enforced are wrongly decided.
Enrichment is not the only requirement, but also unjust enrichment.
Problems w/Party Based Theories=each principle must implicitly rest on unarticulated considerations
apart from will, reliance, or restitution to distinguish enforceable from unenforceable commitments.
Theories of K obligation based solely on any one of these principles will fail in their basic mission to
distinguish adequately between those commitments that are worthy of legal protection and those that
are not. Party-based theories are also one-sided, respecting the intentions on only one party and
cannot assess inter-relational quality of making a K.
Standards Based Theories
4) Efficiency Principle=Since enforcement of Ks uses scarce resources, practice can be justified on
efficiency grounds only if benefits to be gained from enforcement exceed costs. Less abstract
efficiency becomes=more difficulties are encountered. Efficiency alone can’t completely explain why
certain commitments should be enforced unless it is also shown economic efficiency as opposed to
the pursuit of other social goals is or should be the exclusive goal of legal order.
5) Principle of Substantive Fairness=Focuses on whether the contracting process was fair or unfair and
attempts to evaluate the substance of a transaction to see if it is fair. Principle presupposes a
standard of value by which the substance of any agreement can be directly and objectively
evaluated. Principle requires us to fall back on two incomplete approaches: (1) focus on rare
agreements that shock the conscience or tend to become process based (2) looking for information
asymmetries, i.e. unequal bargaining power.
ALL STANDARDS BASED PRINCIPLES FACE 2 PROBLEMS=(1) IDENTIFYING AND DEFENDING
THE APPROPRIATE STANDARD BY WHICH ENFORCEABLE COMMITMENTS CAN BE
37
 DISTINGUISHED FROM THOSE THAT ARE NOT (2) STANDARDS BASED PRINCIPLES ARE TYPES
OF PATTERNED PRINCIPLES OF DISTRIBUTIVE JUSTICE AND CONSTANTLY INTERFERE WITH
INDIVIDUAL PREFERENCES.
Process-Based Theory
6) Bargain Principle=To constitute consideration, a performance or return promise must be bargained
for and a performance or return promise is bargained for if it is sought by the promisor in exchange
for his promise and is given by the promisee in exchange for that promise. It is not what is
bargained for that is important; all that matters is that each party’s performance or promise is
induced by the other’s. THE BARGAIN PRINCIPLE IS THE PREDOMINANT THEORY OF
ENFORCEABILITY IN MODERN Ks. If web of consideration is woven too loosely, it will increasingly
capture social agreements where legal enforcement is not contemplated. Process principle’s
exclusive focus is the process that justifies K enforcement and can conceal substantive values that
must support any choice among possible processes and thus treats procedure as an end rather than
a mean.
Problem w/Process Principle=Process principles cannot explain why certain kinds of commitments are
not and should not be enforceable.

pp. 585-614 Marvin v. Marvin, 557 P.2d, 106 (1976),

Morone v. Morone, 429 N.Y.S.2d 592 (1980);

Posner v. Posner, 257 So. 2d 530 (1972)., Pg 613:

D got the P to sign an agreement, but they didn’t know how much money the D had. So, it constituted
something like a fraud because material facts were withheld, the validity of the documents are in question
so the P was not restricted to the alimony that was within the antenuptual agreement. The court said that a
bad bargain can be enforced, but that this is not a bad bargain this is more like fraud.

Week 2: (January 18-22)

B. History of the Doctrine of Consideration: needed a way to enforce contracts w/o always
needing a seal. Assumpsit – exchange and bargain

pp. 615-619

C. The Bargain Theory of Consideration Pg 618

1. Distinguishing Bargains from Gratuitous Promises

Conditioned gift vs. something being bargained for in regards to consideration.

Consideration is needed to enforce a contract but not a promise. Not bound to give a gift until you get it but
once you give it you can’t get it back.

In order for there to be consideration the one promise or performance has to induce the performance or
promise of the other person, has to be a circular thing. A conditioned gift is only ½ of the circle.

Exception is when you make promises to charitable institutions, cant back out of a pledge to PBS when you
call and make it and stuff like that. Not something that we want to enforce societally, it is a policy decision.

Johnson v. Otterbein University, 41 Ohio 527 (1885) pp. 620-622

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Facts: The Defendant, Johnson, signed and delivered a promissory note to the Plaintiff, Otterbein
University. The promissory note stated that Johnson would pay the trustees of the University $100 in three
years. The note was a donation, used by the University to satisfy its current debt. However, after the three
years on the note had passed, Johnson refused to make payment. The University brought this suit to
recover payment on the promise. The trial court submitted judgement for the University for the $100. The
appellate court affirmed. The Supreme Court of Ohio reversed on the grounds that there was no
consideration on the agreement.

Rule of Law: If a contract does not have mutual consideration between the two parties it is not enforceable
(i.e., a promise to pay money as a gift may be revoked at any time before payment).

Issue(s): Can a gratuitous promise be enforced?

Holding and Reasoning: No. In order for a contract to be enforceable, there must be mutual consideration
between the two parties. This means that there must be an exchange of a promise or benefit between both
parties. If there is not mutual consideration and only one party is receiving a benefit, the agreement is not
enforceable at law. It was not an exchange for something, like for his name on the building, so it is
distinguished. This is bargain theory (although it came before bargain theory was created). Motivation of
the gift was to give money to the institution, not to get something in return.

Hamer v. Sidway, 27 N.E. 256 (1891) pp. 622-629

Facts: William E. Story and his nephew, William E. Story II, agreed that the uncle would pay his nephew
$5000 if the nephew would refrain from drinking, using tobacco, swearing, and playing cards and billiards
for money until he turned 21. When the nephew turned 21 his uncle sent him a letter that indicated that the
nephew had earned the $5000 and that he would hold the money with interest until the nephew became
capable of taking care of it responsibly. The nephew accepted the terms. The uncle died twelve years later
without having transferred the funds to his nephew.
The nephew assigned the funds to Louisa Hamer (P) who brought suit against the executor of the uncle’s
estate, Franklin Sidway (D). At trial judgment was entered in Hamer’s favor which was reversed on appeal
in Sidway’s favor. Hamer appealed.

Issue: Is forbearance from permissible legal conduct sufficient consideration to create a valid and
enforceable contract? (Did Willie’s not doing these things act as consideration?)

Holding and Rule: Yes. The mere abstention from a permissible legal conduct is sufficient consideration to
make a promise based on that forbearance a valid contract. Consideration is not measured as a benefit to
the promisor. When an offer is ambiguous regarding whether acceptance shall be in the form of
performance or an exchange of promises, determining if the offeror was indifferent to whether acceptance
be by performance or promise is accomplished by interpreting the language of the offer under the
circumstances in which it was made. The court held that in this case, the language of the offer made it clear
that the uncle sought acceptance by performance and not by a promise to perform.
D contended that the contract was invalid because it lacked consideration and that there is no consideration
unless the promisor is benefited. The court stated that consideration may consist in either a some right,
interest, profit, or benefit to one party, or some forbearance, detriment, loss, or responsibility given,
suffered, or undertaken by the other. It is immaterial whether the consideration does in fact benefit the
promisee or a third party or is of substantial value to anyone. Refraining from something that one is entitled
to do is a sufficient detriment to create an enforceable contract.
Disposition: Reversed in favor of Hamer (P).
Note: Under Restatement 2nd 32 if an offer is ambiguous it can be accepted by a promise or actual
performance. If acceptance is through performance the contract is unilateral, if through promise the contract
is bilateral.

pp. 636-638 Rest 2d of Contracts § 24, Rest 2d of Contracts § 71,

39
Why might a court be reluctant to inquire as to the benefit or detriment of the promise or item? It is
subjective.

Section 17 on page 304: Requirement of a bargain SS

Rest 2d of Contracts §81

Week 3 (January 25-29)

Notes:

§ 17. Requirement Of A Bargain

(1) 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 a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal
contracts or under the rules stated in §§ 82-94.

§ 71. Requirement Of Exchange; Types Of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be
given by the promisee or by some other person.

§ 86. Promise For Benefit Received

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly
enriched; or
(b) to the extent that its value is disproportionate to the benefit.

Comment:
a. “Past consideration”; “moral obligation.” Enforcement of promises to pay for benefit received has
sometimes been said to rest on “past consideration” or on the “moral obligation” of the promisor, and there
are statutes in such terms in a few states. Those terms are not used here: “past consideration” is
inconsistent with the meaning of consideration stated in § 71, and there seems to be no consensus as to
what constitutes a “moral obligation.” The mere fact of promise has been thought to create a moral
obligation, but it is clear that not all promises are enforced. Nor are moral obligations based solely on
gratitude or sentiment sufficient of themselves to support a subsequent promise.

Comment:
a. Other meanings of “consideration.” The word “consideration” has often been used with meanings different
from that given here. It is often used merely to express the legal conclusion that a promise is enforceable.
40
Historically, its primary meaning may have been that the conditions were met under which an action of
assumpsit would lie. It was also used as the equivalent of the quid pro quo required in an action of debt. A
seal, it has been said, “imports a consideration,” although the law was clear that no element of bargain was
necessary to enforcement of a promise under seal. On the other hand, consideration has sometimes been
used to refer to almost any reason asserted for enforcing a promise, even though the reason was
insufficient. In this sense we find references to promises “in consideration of love and affection,” to “illegal
consideration,” to “past consideration,” and to consideration furnished by reliance on a gratuitous promise.

Consideration has also been used to refer to the element of exchange without regard to legal
consequences. Consistent with that usage has been the use of the phrase “sufficient consideration” to
express the legal conclusion that one requirement for an enforceable bargain is met. Here § 17 states the
element of exchange required for a contract enforceable as a bargain as “a consideration.” Thus
“consideration” refers to an element of exchange which is sufficient to satisfy the legal requirement; the
word “sufficient” would be redundant and is not used.

b. “Bargained for.” In the typical bargain, the consideration and the promise bear a reciprocal relation of
motive or inducement: the consideration induces the making of the promise and the promise induces the
furnishing of the consideration. Here, as in the matter of mutual assent, the law is concerned with the
external manifestation rather than the undisclosed mental state: it is enough that one party manifests an
intention to induce the other's response and to be induced by it and that the other responds in accordance
with the inducement. See § 81; compare §§ 19, 20. But it is not enough that the promise induces the
conduct of the promisee or that the conduct of the promisee induces the making of the promise; both
elements must be present, or there is no bargain. Moreover, a mere pretense of bargain does not suffice, as
where there is a false recital of consideration or where the purported consideration is merely nominal. In
such cases there is no consideration and the promise is enforced, if at all, as a promise binding without
consideration under §§ 82-94. See Comments b and c to § 87.

41
2. Past Consideration

Moore v. Elmer, Supreme Court of Massachusetts, 61 N.E. 259 (1901) pp. 639-640

Facts: Moore (P) performed services as a clairvoyant for Elmer (D) and predicted that he would die before
1900. Elmer then later gave Moore a signed letter promising to pay her or her heirs the balance of her
mortgage note if her prediction proved true. Elmer died before 1900 and Moore sued for enforcement of the
promise. He gave nothing to show consideration.

Issue: Is past consideration valid consideration sufficient to create an enforceable contract?

Holding and Rule (Holmes): No. Past consideration is not valid consideration sufficient to create an
enforceable contract, unless the parties agreed prior to performance that compensation would be given
later.

The court held that under these facts there was no consideration. Moore voluntarily performed a service as
a clairvoyant for Elmer and then Elmer gave her the note. The court held that the promise was not
enforceable because there was no statement in the note of prior indebtedness, and because there was no
understanding that the sittings had been given in exchange for payment later. Court also said that if there
was consideration it would be a bet and thus also wouldn’t be enforceable.

Disposition: For Elmer.

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3. Moral Consideration: Moral obligation may support a promise in the absence of traditional
consideration, but only if the promisor has been personally benefited or enriched by the promisee’s
sacrifice and there is, as a consequence, a just and reasonable claim for compensation

- Moral consideration is not always enough, if a person has a moral obligation than preexisting
consent is not enough.
- There are exceptions; charitable subscriptions cannot be reneged on.
- Do not use the phrase adequacy when dealing with amount of consideration, which is whether there
was sufficient consideration (was there any at all)
- Everything happened after the fact, there was no consideration prior to performing the services.

Mills v. Wyman, Supreme Court of Massachusetts, 20 Mass.(3 Pick.) 207 (1825) pp. 640-648

Facts: Levi Wyman returned from a voyage at sea and fell sick among strangers. Mills (P) gave Levi
Wyman shelter and comfort until he died. After Levi’s death his father Wyman (D) wrote to Mills and told him
he would pay all of the expenses for the care of his son. Wyman later refused to pay and Mills sued. At trial
the court directed a non-suit in favor of D because there was no consideration. P appealed.

Issue: Is a moral obligation sufficient consideration to make a promise enforceable? Is past consideration
sufficient consideration to make a promise enforceable?

Holding and Rule: No and no. The court stated that moral obligation is sufficient consideration in some
cases but not under these facts. Moral obligation is sufficient consideration under the following
circumstances: debts barred by the statute of limitations, debts incurred by infants, and debts of bankrupts.
In such cases, enforcing promises based on preexisting equitable obligations may be enforced because
they merely remove an impediment created by the law to enforce debts that are due, but which public policy
protects debtors from being compelled to pay.

In this case, however, the services provided to D’s son were not bestowed at his request. The son had left
his father’s family and was not under D’s care when he died. The court held that the general position that
moral obligation is a sufficient consideration for an express promise is to be limited in its application to
cases where at some time or other a good or valuable consideration has existed.

Disposition: Affirmed.

Page 304, § 17 of restatement, and § 71 on pg 637 and § 86 on page 655.

Webb v. McGowin, Supreme Court of Alabama, 168 So. 196 (1935) pp. 649-652

Key takeaway: There was a material and direct benefit, a moral obligation, a moral obligation is sufficient
consideration to support a subsequent promise to pay where the promisor has received a material benefit,
although there was no original duty or liability resting on the primosor.

Facts: Webb (P) and McGowin (D) worked at a mill. Webb was releasing a 75-pound block of wood to the
floor of the mill below when he noticed McGowin standing where the block would have fallen. Webb fell with
the block in order to save McGowin’s life and broke his arm and leg and ripped his heel off, leaving him
permanently disabled and incapable of performing either physical or mental work. McGowin promised to
pay Webb $15 every two weeks for the rest of Webb’s life. Webb received the payments until McGowin died
eight years later. Webb sued the executors of McGowin’s estate when the payments stopped. At trial, D
obtained a nonsuit against P and P appealed.
43
Issue: Can moral consideration create an enforceable promise if the promisor has received a material
benefit constituting a valid consideration for his promise?

Holding and Rule: Yes. In this case, the fact that P saved McGowin from death or grievous bodily harm was
a material benefit to McGowin. Upon receiving this benefit, McGowin became morally bound to compensate
P and as such expressly agreed to compensate P. When the promisee cares for, improves and preserves
the property of the promisor, even without a request to do so, it is sufficient consideration for the
subsequent agreement to pay for the service because of the material benefit received directly by the party.
Once P saved McGowin from death or grievous bodily harm and McGowin subsequently agreed to pay him
for the service rendered it became an enforceable contract.

Disposition: Reversed.

Notes:
- Some jurisdictions do not allow moral consideration.
- The court’s ruling in this case is in the minority. If you didn’t enforce the moral obligation then
people would promise things knowing they wouldn’t have to pay for it later.
- They believe there is an intent to be bound here when you look at the facts, and the heirs will be
bound to it as well.

Webb v. McGowin, Supreme Court of Alabama, 168 So. 199 (1936) p. 652-655
Agreed with lower court.

pp. 655-656 Restatement (Second) of Contracts §86

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D. Contract Modification and the Preexisting Duty Rule

• How is the “preexisting duty rule” related to the doctrine of consideration?

• What factors are considered to determine whether the preexisting duty rule
applies? (hint: coercion, opportunistic behavior)

Pre-Existing Duty Rule: a common-law rule of contracts: a party's offer of a performance already required
under an existing contract is insufficient consideration for modification of the contract
This rule is not applicable to sales contracts in jurisdictions that have enacted the Uniform Commercial
Code. It is also not applicable where there has been a rescission of the contract followed by a new contract.
- The commentary to Restatement § 73 (which states the preexisting duty rule) says even when
there is no consideration on account of the preexisting legal duty rule, promissory estoppel can
form a basis for enforcement in appropriate situations.
- § 74(1) deals with creditor pressure as opposed to debtor pressure. Someone asserts a claim
against you (“pay me or I’ll sue”), and in response to that threat you promise to pay them to settle
the claim. If the claim was made in good faith, we will uphold the settlement agreement.
- § 73 deals with debtor pressure (“I’m going to pay you less than I owe”). I threaten to default in
order to get you to take only part of the debt to satisfy that debt.
- The preexisting legal duty rule operates with respect to liquidated debts, but not in respect to
non-liquated debts. What’s liquidated debt? It means a debt that is undisputed as to both
liability and amount. When there is a good faith dispute as to either liability or amount, the
preexisting legal duty rule doesn’t operate.
- That is to say, when we disagree about whether I really owe you anything, or we disagree about
how much I owe you, the matter is ripe for compromise or settlement and we’ll enforce
agreements to that effect.
- However, your promise to take less than 100% in satisfaction of my debt (that we both agree
upon), without more, will be assumed unenforceable.
- How does the court get around this? They will not judge the adequacy of consideration.
Statutory modification of the preexisting legal duty rule
- Also, the preexisting legal duty rule may be changed by statute. One thing that all fifty states
have done is to eliminate the preexisting legal duty rule for the sale of goods under UCC § 2-
209.
- When you make the contract for the sale of goods, you need consideration. Once the contract is
made, however, it can be changed without any further consideration. For example, the buyer
can agree to pay more than the agreed price or the seller can agree to sell for less than the
agreed price. This can be done without any consideration under the UCC.
- In the comments, the text is construed to mean that modifications must be made in good faith:
UCC § 1-203 says that all contracts impose the obligation of good faith. Therefore, you can’t
modify a contract in bad faith (with extortion or coercion or duress).
- You can abolish the preexisting legal duty rule, but as soon as you do, you must substitute
something else in its stead. What you substitute it with might do a much better job of protecting
the interests we’re trying to protect.
- In the commentary of Restatement § 73, it is suggested that when the only consideration for a
promise is something you already owed, you probably have a situation of bad faith anyway. If
you use the preexisting legal duty rule, you don’t have to inquire into whether the promise was
made under duress. This rule is a cheaper, faster solution than the more contemporary UCC §
2-209 approach.
- Notice the differences in the statutory approaches to the preexisting legal duty rule: Virginia
appears to be more liberal than California in that they don’t require a writing in order to modify an
agreement.

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Stilk v. Myrick, 170 Eng. Rep. 1168 [1809]—not in Westlaw pp. 656-657

Facts: Stilk (P) was to be paid 5 pounds per month during a voyage at sea. Two seamen deserted and the
Captain agreed that the wages of the two deserters would be divided equally among the remaining hands if
the two seamen could not be replaced at Gottenburgh. Myrick (D) refused to honor the agreement and Stilk
sued.

Issue: May a contract for services be modified without consideration?

Holding and Rule: No. A contract for services may not be modified without consideration.

The court held that under these facts, the seamen who remained with the ship had the obligation to do all
that they could under all emergencies during the voyage. They had sold all of their services until the voyage
was completed. The agreement would have been proper if the seamen had had the liberty to depart sooner
and chose to remain on the voyage longer in exchange for greater compensation.

The court held that a desertion is considered to be an emergency the same as a death among the crew.
The court found in favor of D on the grounds that there were not changed circumstances sufficient to
compel a change in the contract. No exchange going on because they already had a preexisting duty in
their contract. The court is worried about coercion out at sea, they weren’t trying to be opportunistic. The
court did NOT look at how the D was enriched by having to pay out less for the same amount of work.

Disposition: For D; P’s recovery limited to 5 pounds per month.

Alaska Packers’ Assn. v. Domenico, 117 F. 99 (1902) pp. 658-665

Procedural History: District court found for plaintiff. Defendant appealed to the court of appeals.

Facts: Parties entered into an agreement that Domenico et. Al would work for Alaska packers' salmon
cannery. They were to be paid $50-$60 each plus 2 cents for each salmon they helped to catch. When
workers arrived in Alaska, they demanded to each to be paid $100 instead. The superintendent responded
that he had no authority to change the contract & pay them more. But, since the work needed to be done,
and no other workers were available to hire, it was agreed that they would be paid the $100. When
appellees returned to San Francisco from Alaska, appellant refused to pay the increase they had been
promised.

Issue: Was there actual consideration to uphold the new, modified contract?

Holding: No consideration. Judgment reversed.

Reasoning: There was a pre-existing duty on the part of the appellees to perform duty they agreed to in the
contract. They did nothing additional for the added compensation promised to have any consideration

 Appellate Court reversed the decision, saying that the contract modification was made under duress.
 The Court found that it isn't fair to coerce a party into giving a promise in exchange for doing
something you were already bound to do anyway. Once the first contract was signed, the workers
were legally obligated to follow its terms.
 In a way, this goes back to the doctrine of consideration. When modifying a contract, there must be
consideration on both sides for it to be enforceable. You can't modify a contract where one side just
gets more and the other side receives nothing else.
o Getting more money for doing the same thing is just a naked promise, and not enforceable!

46
 o The fishermen had a preexisting duty to perform the work, they couldn't negotiate a second,
better deal to do the same work.

Brian Constr. And Development Co. v. Brighenti, 405 A.2d 72 (1978) pp. 666-669

Modifications require new and separate consideration. Unforeseen items were not a preexisting duty
because it was something that was a change from the original agreement. Subcontractor did not engage in
opportunistic behavior.

Facts: Brian Construction and Development Co. (plaintiff) was a general contractor and hired Brighenti
(defendant) as a subcontractor to do some excavation work on a site. Brighenti discovered a great deal of
rubble underground that required the defendant to do a great deal more work than what was in the contract.
Brian Construction agreed to pay more and the parties drafted a new contract. Brighenti at first said the
extra work would not be completed, but then agreed to the new contract. Brighenti stopped doing the work
and Brian Construction brought an action for breach of contract.

Rule of Law: Where unforeseen circumstances arise, a modified contract that is backed by valid
consideration will be enforceable.

Issue(s) Whether when unforseen circumstances arise that are not fully addressed in the contract if a
modified agreement will be enforced.

Holding and Reasoning Yes. When there is additional consideration, a modified contract will be enforced.
Here, the additional work provided the additional consideration to enforce the modified contract. The court
held that the extra excavating that had to be done changed the contract sufficiently. The modified
agreement became the new controlling document of the agreement and that is the writing that contains the
terms that should be enforced.

Restatement § 89 on Pg. 670.

pp. 670-672 Restatement (Second) of Contracts and UCC Sections

E. Adequacy of Consideration

Week 3 – Class Two

Lack or want of consideration v. failure of consideration (adequacy of consideration) fraud or
mistake, not that there wasn’t consideration but that it was supposed to pass but didn’t.
If you intend to exchange something of value that actually has to be exchanged, if you don’t intend
to exchange something of value then you don’t look for en exchange to show intent to be
bound.

The bargain theory of consideration shifts the concern from the substance of the exchange to the
bargaining process.

In theory we do not ask whether a peppercorn is adequate consideration, so long as it is bargained

for. Substance does not matter so much as it was bargained for and there is a real exchange
for something.

Key questions are:

Will a peppercorn ALWAYS satisfy the requirement of a bargain so long as it was bargained for?

47
Formality allows you to use sentimentality, but bargain for exchange needs value and if there is no
value they say consideration fails

Newman & Snell’s State Bank v. Hunter, Supreme Court of Michigan, 220 N.W. 665 (1928) pp. 672-
675

Key Takeaway: Items need value to be exchanged and for it to be consideration. Needs to have real value
(not sentimental) for it to count.

D's (widow) husband died and had a note with P. D widow paid interest on note and gave her personal note
to bank in return for husband's unenforceable note. P sued D to collect on widow's note. The note is for
stock in her own personal company, which is ultimately worthless. They reversed the finding of the lower
court. Not that there was no bargain here, but that the bargain had no value. They were exchanging
something for something, but the thing the widow gave had no value so what doesn’t pass had no value.
This was a failure for want. Bank loaned 3,700 to Hunter, as collateral for the loan they took shares of stock
in Hunters company. So the bank was counting on using these shares of stock if Hunter never paid them
back the loan. The bank made a bad bargain. Bank now wants their money and they go to the widow and
she writes them a note in exchange for his note saying that she will cover his debt, kind of like an IOU, she
didn’t owe the bank any money the bank got what it was owed, it got the 50 shared. The issue is whether
the surrender of the note of the defendants deceased husband is consideration? Court said that in order for
a contract to be valid it has to have valuable consideration between the parties. So the court says there was
no K between the husband and the bank and therefore no reason for the widow to be bound. Question why
she would agree to pay the monies if she knew the note was worth nothing, was it coercion? Fraud? She
was giving, and they weren’t doing anything, widow got something but it wasn’t something of any value,
cant be worth nothing.
• D said P gave no consideration in return for her promise to pay her husbands debt.
• Court ruled in favor of D: D gave her note to take upon the husband's worthless piece of paper. P gave up
the worthless piece of paper to D and parted with nothing of value, and D received nothing of value, P
suffered no loss or inconvenience, and D received no benefit.
• Court says bank gave nothing of consideration because they gave nothing of legal value - the note was
legally worthless
• It was not valuable to the bank, but it was valuable in the mind of the widow because it protected her
husband's good name. - her motive was irrelevant
• Bank could have argued that they reprocessed the loan which would have been an detriment to
themselves and should have won the case since the consideration requirement would have been meet.

-ct. held that there was no consideration in exchanging widow's IOU for dead husband's IOU since her
husband's IOU was worthless. When there is no chance that the bargain is real, consideration is lacking,
not for inadequacy, but as a sham.

p. 675-676 Rest 2d of Contracts §79, Rest 2d of Contracts §364

Dyer v. National By-Products, Inc., 830 N.W.2d 732 (Iowa 1986). pp. 676-679

Facts: Dyer (P) worked for National (D) when he lost his right foot in a work-related accident. Dyer was
given a leave of absence at full pay. After returning to work at the same position he held before the accident
P was laid off. P sued D for a breach of an oral contract and asserted that he had been given lifetime
employment in exchange for his forbearance from litigating his claim against D for the injury. National
denied Dyer’s allegation and moved for summary judgment on the grounds that there was no genuine
factual issue. The court granted D’s motion and held that no reciprocal promise to work for the employer for
life was present and there was no forbearance of any viable cause of action because workers’
compensation provided P’s sole remedy. P appealed.

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Issue: Can forbearance from asserting an unfounded legal claim act as valuable consideration to create an
enforceable contract?

Holding and Rule: Yes, forbearance from asserting an unfounded legal claim may act as valuable
consideration to create an enforceable contract if that claim is asserted in good faith.

The law favors the settlement without resorting to court action. Compromise of a doubtful right asserted in
good faith is sufficient consideration for an enforceable promise.

Less certain for the court was the issue of whether the settlement of an unfounded claim asserted in good
faith is consideration for a contract settlement. The court held that forbearance is sufficient if there is any
reasonable ground for the claimant’s belief that it is just to try to enforce his claim. The party must not be
making his claim or threatening suit for purposes of vexation or in order to profit from its nuisance value.
Even if the P loses in court the D is saved court fees and attorneys fees, so the employer is still better off or
something is gained of value that they didn’t have to go through. Restatement 2nd Contracts Section 74
also supports this view. Compromise of disputed claims is clearest when a claim is surrendered at a time
when it is uncertain whether it is valid or not even if the invalidity later becomes clear. The court reasoned
that as a matter of public policy the law favors compromise and that policy would be defeated if a party
could second guess his settlement and litigate the validity of the compromise.

The court held that the factual issue of P’s good faith remained and must be examined and there must be
reasonable grounds for a belief in order for the court to be convinced that the belief was honestly
entertained. The court held that summary judgment in favor of D should not have been granted because a
material fact remained regarding whether P’s forbearance was in good faith.

Court said it is sufficient and adequate consideration. Employer said what he gave has no value, P is saying
it did and they exchanged it.

Disposition: Reversed and remanded.

Note: Not all jurisdictions agree and they require that the claim forborne must have some merit in fact or at
law before it can provide consideration.

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Week 4 (February 1-5)

If you have a non-bargained for promise how to you enforce it? You may want to have a gift or
promise be something that you will be bound for, do not want anything exchanged for it.

Really only look to adequacy when you have process problems, either not a bargain but dressed up
to be one and something was supposed to be exchanged but wasn’t or something supposed
to have value but it didn’t and sometimes the reasonableness will be questioned as to the
value

Evidentiary, cautionary, Channeling is that everyone knows what the seal means, that it means
intent to be bound, like a wedding ring, it is channeling what something is, very strong
meaning around ritual.

Clarification, helps you really take the time to get everything in order.

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III. INTENTION TO BE LEGALLY BOUND
• What is “nominal consideration”?
• How does nominal consideration relate to adequate consideration?

Consideration in name only. Not false consideration.

• What is a false recital?

• What is the distinction between a false recital and nominal consideration? What is the
relevance of this Difference?

Formalities to Manifest Intention to be Bound

Evidentiary – help to prove that promise was made
Cautionary – encourage care and thought
Channeling – signals the courts what to do
Clarification – exact terms of the transaction, effects understandings of principle parties as well,
encourage to flesh out terms of oral arguments as well
Seals
Historically, promises could be made enforceable with a seal; today, US courts typically won’t
recognize it when formalities become something routine, it starts to lose its value
The legal efficacy of hot wax and engraved signet rings has been eliminated by decision or statute
in most states and has been replaced by nominal consideration

UCC 2-203: No seals used in sales of goods.

Why the attack on the seal? Lost its significance, people began to learn how to read and write. When the
seal is overused it loses its channeling and cautionary function with rise of literacy.

Aller v. Aller, Supreme Court of New Jersey, 40 N.J.L. 446 (1878) pp. 681-691

Facts: Father divides $ among his daughters in the form of a sealed IOU. After his death, the executor
refuses to pay based on NJ law that said a seal is only “presumptive evidence” that consideration exists.

The D has his wife die, and the day after she was buried Aller told the P to get the note for $1,000 and he
divides the note amongst his daughters as a present for them. Action was brought by one of the daughters
against the fathers to get the funds promised to them. Aller seals this promise (L.S = loco seageala, it has
been sealed). He did this because he had other children and these two were the children of this mother.
The D argues that there was no consideration because the seal “creates a rebuttal of presumption of
consideration”. (which came first, the seal or the consideration?, consideration). They say seal is only
evidence not conclusive, only presumptive. Nudum pactum and pactum vestitum means want vs. failure of
consideration.

Holding: A seal imports consideration on gifts but not on deals intended to have consideration.

I: Whether an instrument under seal, without sufficient consideration, is enforceable

R: Seal is presumptive evidence of legally sufficient consideration; statute of consideration applies only
when there is consideration and no seal

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H: Purpose of formality of a seal is to supercede need for consideration and represents a precautionary
function to show promise made with lots of thought

The court does enforce the K because they look at the cautionary function here and they believe that he did
intend to be bound. Problem with not recognizing the seal as binding Aller’s promise is that there would be
no other means to enforce the situation

After Aller v. Aller: New Jersey ruled that a voluntary written agreement under seal is binding where there
was no consideration intended by the parties so long as the parties are identified in the document is
delivered. Most states don’t recognize seal.

Wagner v. Lectrox Corp., 348 N.E.2d 451 (1976) p. 691-692

*White thinks this case was decided wrong.

Facts: The promisor pleaded failure of consideration (it was intended to pass but didn’t pass) based upon
non performance of things that were orally assured to him but not within the written agreement.

Issue: whether there had been failure of consideration for the license granted the corporate defendant by
him under the agreement

Rule: Seal supercedes any need for consideration, parol evidence rule applied in oral assurances

Holding: The court said that even if he would have survived the parole evidence rule it is not clear if there
was any insufficiency in the consideration was there.

This is interesting because failure of consideration is defense against the seal.

Restatement (Second) of Contracts and UCC Sections p. 692-693

Restatement §95 Requirement for sealed contract or written contract or instrument

1. In the absence of statute, promise is binding without consideration if
a. Written and sealed; and
b. Document delivered; and
c. Identification of promisor and promisee is clear in document

*still more difficult than what it was before, and most states do have a statute.

2. Nominal Consideration
- Consideration need to be sufficient to be found to support a promise
- Nominal considerations are binding with respect to options contracts, § 87, but are not recognized in
attempts to make gifts enforceable, §71.
- Acceptance of recital of nominal consideration ($1 paid in hand plus other good and valuable
consideration”) is adequate to bind the offeror
- It is the existence of a bargain that matters, not whether the bargain is equal or unequal
from the standpoint of an objective observer

Schnell v. Nell, Supreme Court of Indiana, 17 Ind. 29 (1861) pp. 693-695

Facts: 3 considerations found:
52
 1. love and affection for wife (not relevant, gratuitous)
2. wife made promise (not relevant, past consideration)
3. promise of Ps to pay one cent (not relevant, nominal consideration)
Issue : Will contract be enforced when there appears only to be nominal consideration in the bargain?

Rule: bargain deemed unconscionable, nominal consideration for gifts are not sufficient
Must ask question – Pretense of a bargain or a real bargain? Here, not real bargain. This
is especially true because these are two monetary values, which are clearly unequal. Would have been
better to give something non-monetary instead.
Seal is not recognized so the seal is not important, still have problem of how do we enforce non bargained
for promises.

Restatement (Second) of Contracts §§ 71, 87 pp. 696-698

Has to be really bargained for, not a pretense of a bargain, in theory not supposed to look at value but if
substance issues really reveal process problems, then no K.

3. False Recitals (say you are going to exchange something but you don’t, Not OK except for option
K)

Smith v. Wheeler, 210 S.Ed.2d 702 (1974) pp. 698-699

$1 to reserve right to bid on property at later date p. 731
F: Option contract for sale of property with a recital of $1. D attempted to sell to third party.
I: Can an option contract be enforceable by a nominal recital of consideration?
R: yes, recital of $1 was a promise to pay at a later date. Recital is evidence that consideration given in
an option contract, §87.

Normally the deal is open and the dollar doesn’t actually have to exchange hands. If the person complains
you have to exchange the dollar.

Jolles v. Wittenberg, 253 S.E.2d 203 (1979) p. 699

This treats something like an option K that is not.

pp. 700 Restatement (Second) of Contracts § 87, §88

Restatement §87option contract (i.e., bilateral promise)

an offer is binding as an option contract if it:
(1) is in writing and is signed; recites the purported consideration, and proposes an exchange on
fair terms within a reasonable time;
(2) an offer which the offeror should reasonably expect to induce action or forbearance of a
substantial character by the offeror before acceptance and which does induce such action or
forbearance is binding as an option contract tot he extent necessary to avoid injustice.

4. Written Expression of Intention to be Bound

Written obligations Act:

pp. 700-710 Thomas v. First National Bank of Scranton, 96 A.2d 196 (1953)

53
The P signs a form to stop payment on a check and the form says that he agrees not to hold the bank liable
if it doesn’t work due to inadvertence, error, or oversight, so P didn’t want the check paid and it got paid.
Now the bank says too bad, you signed this additional express statement. Court says that because you
signed this form which expressly stated these things, you are bound. The written obligations act is meant to
enforce non-bargained for promises, but was it supposed to have this part here? Purpose of written
obligations act is not working out here. Normally it should be familial gifts and promises, but this is a
business, he didn’t intend this to be a gift to the bank or whatnot. Court said defense of lack of consideration
is not available (like a seal). Bank has found a way out of ever having to stopping a payment on the check.

Kay v. Kay, 334 A.2d 585 (1975) p. 711

Husband agrees to pay the wife twenty bucks a week until she remarries. About five and half years later the
ex wife looks to bring a specific performance for past and future payments. Ex husband said the agreement
has no consideration, court says that because it contained the necessary statement of intention to be bound
that lack of consideration does not matter under the Uniform Written Obligations Act. Lack of consideration
did not render the agreement unenforceable. This is being treated like a gratuitous promise and he intended
to be bound by it. there is a bargain for exchange here though, unlike the bank case because the wife chose
to settle and get this rather than going through court and having the court divide it up. He at least gets to
decide what he wants to pay her here instead of having the court tell her.

pp. 712-713 Federal Deposit Insur. Corp. v. Barness, 484 F. Supp. 1134 (1980)

What was wrong with the promise? It doesn’t expressly have that statement about intending to be bound.
The promise here is only a bare promise to pay money without the additional express statement, the
promise alone will not bring it within the written obligations act.

p. 713 First Federal Savings and Loan Ass’n v. Reggie, 546 A.2d 62 (1988)

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Week 5 (February 8-12)

B. Lack of Intention to be Legally Bound

pp. 713-715 Ferrera c. A.C. Nielsen, 799 P.2d 458 (Colo. 1990)

P was fired for falsifying her timecard on two occasions. The P said that the assurances in the employee
handbook created a K and they were not allowed to discharge her.

The employee handbook had several clear and conspicuous statements that made it clear it was not meant
to be a legally binding K. Therefore, the court said that the D would not be held to it as if it was a K.

pp. 715-717 Evenson v. Colorado Farm Bureau Mutual Insur. Co., 879 P.2d 402 (1993)

Employee was fired, and said that the employee handbook should.

pp. 717-719 Eiland v. Wolf, 764 S.W.2d 827 (1989)

55
IV. THE DOCTRINE OF PROMISSORY ESTOPPEL

A. The Development of Promissory Estoppel as a Substitute for Consideration

• What is the reason for developing the doctrine of promissory estoppel?

• What is the distinction between consideration and promissory estoppel?

Equitable estoppel is different than promissory estoppel. Example is a company that doesn’t go after
someone infringing their patents, and then all of a sudden they become a big competitor you may be
equitably estopped from going against them because you let them go on about their business and didn’t
stop them. This stops them from arguing something later that they could have argued earlier but didn’t.

Promisory esstoppel: you are stopped from denying your promise

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1. Family Promises

Ricketts v. Scothorn pp. 721-728

Parties: The defendant (D) is the estate of J. C. Ricketts, grandfather of the plaintiff (P) Katie Scothorn.
Facts: In May 1891 J. C. Ricketts gave his granddaughter Katie Scothorn (P) a promissory note for $2,000
payment on demand with 6% interest per annum. The grandfather stated that none of his other
grandchildren worked and she would not have to work either. The promise was not given on condition that
she stop working, nor were there any other stated conditions. P stopped working in reliance on Ricketts’
promise. In September 1892 P obtained a new job as a bookkeeper with Ricketts’ knowledge and
assistance. Within the next two years he paid one year’s interest on the note and told his daughter that he
would like to pay P the principal upon selling his farm in Ohio.
Ricketts died in June 1894 and the executor of his estate refused payment, claiming that Ricketts’ promise
to pay lacked consideration and was therefore a gratuity and not an enforceable promise. The trial court
found in favor of P and Ricketts’ estate appealed.
Issue: Was Ricketts’ promise to P enforceable?
Holding and Rule: Yes. Although a promise given without consideration in return is not an enforceable
contract, the doctrine of promissory estoppel prevents the defendant from using lack of consideration as a
defense to breach of contract. Consequently, a promise can be enforced even though it was given without
consideration if the promisee has reasonably relied on the promise to her detriment.
Here, the court considered the magnitude of P’s good faith reliance on her grandfather’s promise and held
that her actions were consistent with that reliance and therefore constituted a sufficient consideration.
Disposition: Affirmed.

Notes:
- Saying they want detrimental reliance but they end up getting expectation damages.
- Being used here in place of consideration.

2. Promises to ConveyLand
Greiner v. Greiner pp. 728-730

3. Charitable Subscriptions

Allegheny College v. Nat’l Chautauqua County Bank of Jamestown pp. 731-736

Facts: Mary Johnston pledged $5,000 payable 30 days after her death if Allegheny College (P) would use it
to establish a memorial in her name. One thousand dollars of Johnston’s pledge was paid while she was
still alive. Johnston later repudiated her promise and Allegheny College brought this action against the
executor of her estate, National Chautauqua County Bank (D). P appealed the trial court’s ruling that the
obligation was invalid.
Issues: 1) Can a minor task that one is not otherwise obliged to do constitute valid consideration? 2) Can
promissory estoppel be applied when there is consideration? 3) Is a charitable subscription enforceable in
the absence of consideration? 4) Must a court measure the extent of the benefit to the promissor or the
detriment to the promisee implicit in any duty assumed?
Holding and Rule (Cardozo):
1) Yes. A minor task that one is not otherwise obliged to do can constitute valid consideration.
2) No. Promissory estoppel cannot be applied when there is consideration.
3) Yes. Charitable subscriptions are enforceable in the absence of consideration if promissory estoppel
applies.

57
4) No. A court need not measure the extent of the benefit to the promissor or the detriment to the promisee
implicit in any duty assumed.

There was no real detriment here to the institution for relying on this promise, so that may be part of the
reason why Cardozo didn’t use it as an issue. However, courts usually presume reliance because it is bad
public policy wise and for institutions to let people get out of giving to charities. Johnston wished to have a
memorial to perpetuate her name and imposed a condition on her gift that it be known as the Mary Yates
Johnston Memorial Fund. The court held that the moment P accepted the $1,000, there was an assumption
of a duty. That duty to perpetuate the name of Mary was sufficient to render the subscription enforceable
within the rules that define consideration for a promise regarding charitable subscriptions.
The court held that the assumption of the duty created a bilateral agreement. A bilateral agreement may
exist though one of the mutual promises is implied in fact from conduct. To determine whether words of
condition in a promise indicate a request for consideration or state a mere condition in a gratuitous promise,
an aid is to determine whether the happening of the condition will be a benefit to the promissor. The court
held that in this case Johnston’s request of a memorial was a benefit to the promissor and was requested
as consideration.
Disposition: Judgment reversed.
Dissent (Kellogg): Johnston proposed to exchange her offer of a donation in return for acts to be
performed. There was never any acceptance of the offer and therefore no contract because the acts
requested have never been performed. The donation was not to take effect until after the death of the
donor, and by her death her offer was withdrawn.
Notes: Cardozo defines consideration as a legal detriment to the promisee, the detriment must induce the
promise, and the promise must induce the detriment.

4. Promises to Pension
Feinberg v. Pfeiffer Co., 322 S.W.2d 163 (1959) pp. 736-742

Facts: Feinberg (P) worked for Pfeiffer Co. (D) for 37 years, attaining the positions of bookkeeper, office
manager, and assistant treasurer. In 1947 the Board of Directors adopted a resolution recognizing
Feinberg’s long and faithful service by increasing her salary from $350 to $400 per month and offering her
$200 per month for life after retirement. The Chairman stated that the resolution had been adopted to
provide her with financial security. Feinberg testified that she would have continued in her position whether
or not the resolution had been passed by the Board. Feinberg retired a year and a half later and received
$200 per month for several years. The retirement plan was a major factor in her decision to retire. Several
years later a new president of Pfeiffer Co. decided that the payments were mere gratuities and notified
Feinberg that her payments would be reduced to $100 per month. Feinberg refused to accept the reduced
amount and Pfeiffer terminated all payments.
Feinberg sued for breach of contract. The trial court found that there was no consideration because the
pension had been given for past acts; however, the trial court held that Feinberg was entitled to damages
because she had justifiably relied on Pfeiffer’s promise. The trial court awarded Feinberg $5,100 for the
amount of pension due plus interest. Pfeiffer appealed.

Issues: 1) Is past performance valid consideration to render a promise enforceable? 2) Is a gratuitous

promise enforceable if the promisee justifiably relies on the promise?
Holding and Rule: 1) No. 2) Yes. The doctrine of promissory estoppel: a promise which the promissor
should reasonably expect to induce action or forbearance of a definite and substantial character on the part
of the promisee and which does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise, even if the promise was given without consideration. Past performance
is not valid consideration to support a promise.
The appellate court held that there was ample evidence to support the trial court’s findings that Feinberg
would not have terminated her employment of she had not known and relied on Pfeiffer’s promise to pay her
$200 per month for life, and that Feinberg relied on the continued receipt of the monthly pension.
Consideration may be either a benefit to the promissor or a loss of detriment to the promisee. The court
held that the doctrine of promissory estoppel supported Feinberg’s action. The action that was induced was
Feinberg’s retirement from a lucrative position in reliance on Pfeiffer’s promise to pay her a pension.
58
Feinberg justifiably relied on Pfeiffer’s promise by retiring earlier than she planned. The court held that, by
retiring, Feinberg’s reliance upon the promise contained in the resolution created an enforceable contract
under the doctrine of promissory estoppel.

Disposition: Affirmed.

Notes: The court explained that there are three theoretical justifications for promissory estoppel: (1) theory
of act for promise in that the induced action or forbearance is the consideration for the promise
(Underwood); (2) theory of promissory estoppel wherein the induced action or forbearance works an
estoppel against the promisor (Sheidly); and (3) the theory of bilateral contract that when the induced action
or forbearance is begun a promise to complete is implied and we have an enforceable bilateral contract, the
implied promise being the consideration for the original promise.

5. Construction Bids
James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (1933) pp. 742-745

Facts: Gimbel Brothers (D) sent subcontractor bids to approximately 20 to 30 contractors, offering to supply
all of the linoleum for the construction of a building for the Pennsylvania Department of Highways. In
preparing the bid Gimbel Brothers underestimated the size of the project by 50% and therefore mistakenly
quoted a price that was only half the necessary amount. Contractor James Baird Co. (P) received the offer
and used the quoted price to submit a bid on the main contract. Later the same day Gimbel realized the
mistake and retracted the bid by telegraph and quoted a new price approximately twice that of the original.
James Baird did not receive the retraction until after submitting the bid on the main contract and was
awarded the main contract two days later.
James Baird formally accepted Gimbel Brothers’ offer two days after receiving Gimbel Brothers’ withdrawal
of the offer. Gimbel Brothers refused to recognize the existence of a contract and James Baird sued for
damages. The trial court entered judgment for Gimbel Brothers and James Baird appealed.
Issue: 1) Can promissory estoppel be used to enforce an offer that is not meant to become binding until
consideration has been received?
2) Does promissory estoppel render a subcontractor’s bid irrevocable?
Holding and Rule (Learned Hand):
1) No. Promissory estoppel cannot be asserted to compel an offeror to perform where the offer is not
meant to become a binding contract until consideration has been received.
2) No. Promissory estoppel does not render a subcontractor’s offer irrevocable even if the contractor has
relied upon it in submitting a bid for a general contract.
The court held that if an offer is withdrawn before it is accepted, the acceptance is too late. James Baird
argued that Gimbel Brothers’ offer should have been irrevocable in the event James Baird used it to submit
its bid for the general contract and that it would have been an unreasonable hardship to expect it to lose the
contract and forfeit its deposit. Offers are ordinarily made in exchange for a consideration; either a counter-
promise or some other act. In such cases they propose bargains and presuppose that each promise or
performance induces the other. The doctrine of promissory estoppel is used to avoid the harsh results of
allowing the promissor to repudiate when the promisee has acted in reliance upon the promise.
The court held that an offer for an exchange is not meant to become a promise until a consideration has
been received; either a counter-promise or whatever else is stipulated. Gimbel Brothers offered to deliver
the linoleum in exchange for James Baird’s acceptance, not in exchange for James Baird’s bid on the
general contract. That offer could become a promise to deliver only when James Baird promised to take and
pay for it. Promissory estoppel is not applicable in this case.

He wanted it to be more explicit, he accepts by performance but there needed to be acceptance by promise.
Reformation wont work here because there was no error between the two parties.
Disposition: Affirmed; Judgment for Gimbel Brothers.

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Notes: Hand thinks that promissory estoppel is supposed to be for gratuitous promises, this is not the kind
of promise it was meant to enforce. The rule here is the minority rule; promissory estoppel does not make a
subcontractor’s bid irrevocable even though the contractor may have relied upon it in submitting its bid to
the owner. This case has since been overturned by Drennan v. Star Paving.

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Drennan v. Star Paving Co., 333 P.2d 757 (1958) pp. 745-749

Facts: Star Paving (D) submitted a subcontractor bid to Drennan (P), a general contractor, for a public
school construction project. Drennan used Star Paving’s bid of $7,100.00 to prepare his final bid and was
awarded the contract. The next day Star Paving informed Drennan that it had underestimated the cost of
the project and refused to do the work for less than $15,000. Drennan hired another subcontractor to do the
work for $11,000 and sued Star Paving for the difference between $11,000 and $7,100. The trial court
entered judgment for Drennan, holding that Star Paving had made an offer and that Drennan had relied
upon that offer when listing Star Paving as the subcontractor. Star Paving appealed.

Issue: 1) Can reasonable, justifiable, and foreseeable reliance render an offer binding? 2) What is the test
for applying promissory estoppel?

Holding and Rule (Traynor):

1) Yes. An offer that the promissor should reasonably expect to induce action or forbearance of a definite
and substantial character by the promisee, and which does induce such action or forbearance, is binding if
injustice can be avoided only by enforcing the promise. See Restatement (2d) of Contracts 90.

2) In order for promissory estoppel to apply there must be: 1) a clear and definite offer; 2) a reasonable
expectation that the offer will induce reliance in the other party; 3) actual and reasonable reliance by the
offeree; and 4) a detriment which only can be avoided by enforcement of the offer.

Star Paving’s subcontractor bid constituted a promise to perform under conditions both express and implied,
according to the circumstances. It was silent on revocation and therefore the court determined whether
there were conditions imposed by law or reasonably inferred. The court turned to Restatement (2d) of
Contracts 45; merely acting in justifiable reliance on a unilateral offer is sufficient to make that offer
irrevocable for a reasonable period of time to complete performance.

Public Policy: Whether implied in law or fact, enforcement of Star Paving’s promise precluded the injustice
that would result if the offer could be revoked after the offeree acted in detrimental reliance upon it.
Reasonable reliance resulting in a foreseeable and prejudicial change in the promisee’s position affords the
compelling basis for implying a subsidiary promise not to revoke a unilateral offer. Star Paving had a stake
in Drennan’s reliance on the bid in making Drennan’s bid on the general contract. The court held that it was
only reasonable that Drennan have the opportunity to accept Star Paving’s bid after Drennan was awarded
the general contract if Drennan justifiably and reasonably relied on Star Paving’s offer.

As for Star Paving’s mistake defense, Drennan could not have justifiably relied on Star Paving’s bid if
Drennan had reason to believe that Star Paving’s bid was in error. The mistake that Star Paving made in its
bid was not one of which Drennan knew or should have known and Drennan’s reliance was justified.

Disposition: Affirmed; Judgment for Drennan.

Notes: Promissory estoppel must only be used if there is no consideration. Drennan effectively overruled
James Baird Co. v. Gimbel Bros. Inc. and is the seminal case for the modern approach to applying
promissory estoppel in the context of subcontractor bidding disputes based on mistake.

This had absolutely guaranteed language in writing.

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p 749 Rest 2d of Contr §87

Week 6 (February 15-19)

B. Promissory Estoppel as an Alternative to Breach of Contract

Goodman v. Dicker pp. 749-752

Facts: Goodman (D) was the local distributor for Emerson Radio. Goodman encouraged Dicker (P) to apply
for an Emerson franchise. Goodman induced Dicker to incur expenses to do business under the franchise
including the employment of salesmen and solicitation of orders for merchandise. D represented that P had
been approved for a franchise and that he would receive a delivery of 30 radios but later informed P that
there would be no deal. P sued D and was granted a judgment of $1500 of which $350 was for expected
profits from the sale of the radios. D appealed, asserting that the franchise agreement was at will and
therefore there was no liability.
Issue: 1) If a party acts to his detriment on the affirmative assurances of another, should he be protected by
estopping the other party from alleging anything in opposition to the natural consequences his own course
of action? 2) Are reliance damages proper under promissory estoppel?
Holding and Rule: 1) Yes. If a party acts to his detriment on the affirmative assurances of another, that
party can be protected by estopping the other party from alleging anything in opposition to the natural
consequences of his own course of conduct. 2) Yes. Reliance damages are proper under promissory
estoppel.
D’s conduct lead P to do something that P would not otherwise have done. D cannot subject P to loss or
injury by disappointing the expectations upon which P acted. The trial court erred in adding the $350 for loss
of profits on the radios promised. The true measure of damages is the loss sustained by expenditures made
in reliance upon the assurance of a dealer franchise.
Disposition: Modified and Affirmed.
Notes: Reliance damages are proper under promissory estoppel, however in this jurisdiction expectancy
damages are not available for the lost profit from the sale of the radios.

Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267 (1965) pp. 752-761

Facts: Hoffman (P) owned and operated a bakery and sought to obtain a supermarket franchise with Red
Owl Stores (D). Red Owl Stores assured Hoffman that his $18,000 was sufficient and advised him to
acquire and operate a small store to gain experience. Three months later Red Owl Stores advised him to
sell that store with the assurance that he would be given a larger store. Hoffman was reluctant to miss the
summer tourist season but sold the store on Red Owl’s assurances.

A few months later Red Owl told Hoffman “everything is ready to go. Get your money together and we are
set.” D told P to raise the rest of his financial contribution by selling his bakery. P sold the bakery for
$10,000 and took a job on the night shift at a local bakery.

Red Owl informed Hoffman that he would have to contribute a greater amount of money. Red Owl agreed to
permit Hoffman’s father in law to contribute $13,000 and become a partner in the store. Hoffman was then
told that he would have to sign an agreement that the $13,000 was either a gift or a loan subordinate to all
general creditors. Negotiations terminated and Hoffman sued Red Owl for reliance damages, lost profits,
and expenses.
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Red Owl’s defense was that the parties had never reached agreement on essential factors necessary to
create a valid contract. The jury awarded Hoffman $16,735 for the sale of the store, $2000 for the sale of
the bakery, and $1250 for other expenses. The trial court ordered a new trial regarding the $16,735 for the
sale of the store. Red Owl appealed.

Issues: 1) Does promissory estoppel require that, aside from the lack of consideration, the promise sued
upon must be able to sustain a cause of action under a breach of contract? 2) Once promissory estoppel is
applied, to what remedy is the plaintiff entitled?

Holding and Rule: 1) No. Promissory estoppel does not require that the promise sued upon, aside from
the lack of consideration, must be able to sustain a cause of action under a breach of contract. 2) Once
promissory estoppel is applied damages should be those designed to prevent injustice, not to enforce the
promises made.

The court then considered the significance of the parties’ never having reached agreement on essential
factors necessary to establish a binding contract. The court held that the doctrine of promissory estoppel
was invoked as a substitute for consideration rendering a gratuitous promise enforceable. Restatement
Section 90 does not impose the requirement that the promise must be so comprehensive in scope as to
meet the requirements of an offer that would create a binding contract if accepted by the promisee.

Rule for Promissory Estoppel: For a finding of promissory estoppel, the requirements are: a promise
which the promissor should reasonably expect to induce action or forbearance of a definite and substantial
character, that the promise did induce such action or forbearance, and whether injustice can be avoided
only by enforcement of the promise.

The court held that under these facts, injustice would result if P were not allowed relief because P relied to
his detriment on promises which D failed to keep. The court held that all damages as awarded were
sustained except that the damages regarding the sale of the grocery store should be limited to the
difference between the sale price received and the fair market value of the assets sold, giving consideration
to any goodwill. When damages are awarded in promissory estoppel, they should be only such as are
necessary to prevent injustice. Justice does not require that the damages awarded should exceed any
actual loss sustained.

Disposition: For P.

pp. 761-762 Rest 2d of Contr § 90, Rest 2d of Contr § 526, Rest 2d of Contr § 530

pp. 762-772 Essays

C. Limits of Promissory Estoppel

1. Promise

pp. 772-775 Blatt v. Univ. of Southern California, 85 Cal. Rptr. 601 (1970)

pp. 775-778 Spooner v. Reserve Life Insur. Co., 287 Pa. 735 (1955)

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Said must be real promise to be enforced under section 90. This was an illusory promise because they put
the language in there about how they may retract the bonus or completely do away with it at any time. No
damages were awarded.

What about them relying on the bonus? Working extra hard to get the bonus and such doesn’t really matter
because it is still a part of their job and they got more commission, they are totally not without benefit even
though the company benefits from their action.

Ypsilanti v. General Motors, 506 N.W.2d 556 (1993) pp. 787-792

Facts: General Motors (D) sought tax relief from the town of Ypsilanti (P) in order to make improvements at
its Willow Run factory. Two of the specific tax abatements at issue were granted in 1984 and 1988, total of
12 year tax abatements. At a public hearing the plant manager Williams stated that “upon completion of this
project and favorable market demand, it will allow Willow Run to continue production and maintain
continuous employment for our employees.”
General Motors later decided to move its production to another region of the country and P sued. The lower
court held that D’s promises to continue production did not form a binding contract; however the court held
that D was bound to continue production through promissory estoppel. D appealed.
Issue: Was General Motors obliged via promissory estoppel to continue production at the plant after
seeking and obtaining tax abatements intended to induce General Motors to remain?

Holding and Rule: No. General Motors was not obliged via promissory estoppel to continue production
after seeking and obtaining tax abatements intended to induce it to remain. There was no promise, so no
promissory estoppels.

The elements of promissory estoppel are: a promise which the promissor should reasonably expect to
induce action or forbearance on the part of the promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy
granted for breach may be limited as justice requires. Promissory estoppel requires an actual, clear, and
definite promise. Reliance is reasonable only if it is induced by an actual promise. A determination that there
was a promise will be overturned if it is clearly erroneous.
The court held that the trial court’s finding that defendant promised to keep Caprice and station wagon
production at Willow Run was clearly erroneous. The fact that a corporation solicits a tax abatement and
persuades a municipality with assurances of jobs is not evidence of a promise. The fact that a manufacturer
uses hyperbole and puffery in seeking an advantage or concession does not necessarily create a promise.
Almost all the statements the trial court cited were expressions of defendant’s hopes or expectations and
not a promise.

Disposition: Reversed.

2. Reasonable Reliance

Alden v. Presley pp. 792-795

Facts: Ginger was “engaged” to Elvis. She got mortgage for a house for almost 40K and then also wanted
to go through a divorce and so on. Alden’s (P) daughter Ginger Alden was a former girlfriend of Elvis
Presley. Presley offered to pay for Ms. Alden’s divorce, to pay off her husband’s equity in their home, and to
pay off the mortgage. Alden filed for divorce on Sept. 1, 1977 and Presley died on August 16, 1977. The
executor of the estate refused to honor the agreement and P sued. The trial court found for Presley on the
grounds that the money was a gift but it had not been delivered. The court of appeals reversed and Presley
appealed.

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She knew that his estate would not pay for the mortgage before she got it also. So there was no detrimental
reliance. His promise was a gift, no consideration. Three parts to a gift, one is delivery and it wasn’t
delivered.

Issue: To what extent must a promisee rely on a promise in order for promissory estoppel to render it
enforceable?

Holding and Rule: For a promise to be enforceable through promissory estoppel, the promisee must
have reasonable detrimental reliance on the promise.

D’s promise induced P to assume a $40,000 mortgage as part of a property settlement, but the settlement
was not binding until approved by the court. The element of detrimental reliance is removed because D
refused to honor the agreement before submission of the agreement to the court. The court held that P’s
reliance was not reasonable.

Disposition: Reversed.

Was there a promise?

Was there consideration?

p. 812 See proposed Restatement (Third) of Contracts: Section 90 Enforceability of Nonbargain Promises

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V. CONDITIONS
Week 7 (February 22-26)

A. The Effect of a Condition

pp. 857-862 Internatio-Rotterdam v. River Brand Rice Mills, 259 F.2d 137(2nd Cir. 1958)

Brief Fact Summary: Defendant and Plaintiff entered into a contract for the sale of rice. Defendant was to
ship rice to Plaintiff at two locations. The contract gave Defendant two weeks to complete shipment of the
rice, after receiving a call for shipment from Plaintiff. The contract also required shipment to be complete by
the end of December. Notice was given and the quantity timely shipped to first location. As of December
17th, Plaintiff had not provided shipping instructions for second location. Defendant rescinded the contract
on the ground that, due to Plaintiff's failure to provide notice, the two week notice requirement and
December deadline could no longer be met. Plaintiff filed suit.
Rule of Law and Holding: The court interprets the obligation to ship rice as subject to receiving notice by
December 17th. Court looks to ratify the intent of the parties and classifies it as a promissory condition. RST
227(2) is not a hard and fast rule, when notice was not received by 12/17, Defendant was excused from
shipping. Court says that the two locations of shipment were separate deals, performance of one did not
require performance of the other.

B. What Events are Conditions?

1. Is the Event a Condition, a Promise, or Both?

Howard v. Federal Crop Insur. Corp., 540 F.2d 695 (1976) pp. 862-866

Facts: The Howards grew tobacco and insured it with federal crop insurance. One year, their crop was
damaged by heavy rains and they claim to have lost $35,000. The plaintiffs filed a claim with the insurance
adjuster, but before the adjuster arrived, the plaintiffs plowed under the fields so that they could plant rye to
cover and preserve the soil. The adjuster denied the claim on the basis that the plaintiffs had violated a
condition in their insurance policy that said that no stalks may be destroyed until they are inspected by the
insurer. The plaintiffs sued to recover their claim. The trial court granted summary judgment for the
defendants, and the plaintiffs appealed.

Issue: Does the act of plowing under the tobacco stalks forfeit coverage under the crop insurance policy?
In particular, was the condition that “tobacco stalks shall not be destroyed” until inspected a condition
precedent resulting in forfeiture of the coverage?

Rule: There are several “guidelines” given:

1. Forfeitures are frowned upon as a matter of law.

2. Insurance policies are construed against the insurer.
3. Contract provisions will not be construed as conditions precedent unless the contract explicitly says so.

Analysis: The words “condition precedent” are found in paragraph 5(b), but not in 5(f). This suggests that
the words do not apply to 5(f), which contains the provision saying the insured party mustn’t destroy the
stalks before inspection. Therefore, the court says, the policy is not forfeited, but the defendants may be
able to maintain a counterclaim to recover for any damages caused by the stalks being plowed under. Court
said might interpret it as creating a promise, not a condition.

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Conclusion: The court holds that plowing under the stalks does not, in itself, operate to forfeit insurance
coverage under this policy. The grant of summary judgment is reversed and the case is remanded for trial.

Restatement (Second) of Contracts § 227 Standards Governing Conditions p. 866

2. Is the Event a Condition, a Promise, or Neither?

Chirichella v. Erwin, 310 A.2d 555 (1973) pp. 866-868

Procedural History:
-P brought action
-Trial court ruled for P
-D appealed

Facts:
-Appellants contracted in June 1971 to sell their home to Appellees for $39,200 and when D refused to
settle, P brought suit on August 31, 1972 for specific performance.
-The contract was the "standard" form used by the County Board of Realtors and the "settlement" section of
the contract was amended by the real estate agent to include the phrase "by Oct. 1, 1971 or sooner", which
was amended by mutual agreement to read "Coincide with settlement of New home in Kettering Approx.
Oct. 1971".
-D contracted to purchase "the New home" in April of 1971 and were to settle within 15 days from the date
of completion.
-Although construction had not begun on the new home, when D entered into this contract, D was confident
that that construction would be completed in Oct '71 unless unforeseen circumstances occurred. D was
wrong and the first settlement for the new house was scheduled for June 15, 1972, which never
materialized because D claimed that the work was bad on the house. D's builder did not agree, and after
rescheduling the settlement date 2 more times for the same reason, the builder sold the house to someone
else.
-Although settlement for the house in question was also scheduled for June 15, 1972, D did not show for
that meeting or a subsequent meeting, P filed suit

Issue:

Holding:

Reasoning:

-The inclusion of the phrase "approx. Oct 1971" effectively defeats the Appellants argument and instead of
allowing them to avoid the contract, the phrase was designed to delay settlement for a reasonable amount
of time while their new house was completed.
-In sum, the Appellants (Chirichellas) duty to perform by settling under their contract with the Appellees
(Erwins) was not subject to the condition precedent that they first settle on the new house. They were
required to do so within a reasonable time after October 1971. January 29, 1973 was not within a
reasonable time.

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Disposition:
Affirmed, with costs to Appellants

Rule:
-Where a contractual duty is subject to a condition precedent...there is no duty of performance and.... "a
decree for specific performance will not be granted unless conditions precedent, express, implied, or
constructive, have all occurred or been performed." Griffith v Scheungrab (219 Md. 27)
-A condition precedent is a fact, other than mere lapse of time, which, unless excused, must exist or occur
before a duty of immediate performance of a promise arises

C. Avoiding Conditions

1. Waiver and Estoppel

Clark v. West, 86 N.E. 1 (1908) pp. 868-871

Facts: Clark (P) agreed to write a series of law books for West (P) for $3,000 per year. The contract
included an abstention agreement, whereby Clark promised to abstain from alcohol in order to be eligible for
payment in excess of $2 per page. Clark completed a 3,469 page text on corporations and West refused to
pay Clark more than $2 per page because Clark had not abstained from alcohol.

In P’s suit against D, P claimed that his alcohol consumption was not excessive and did not interfere with
his execution of other obligations under the contract, and that D had waived any objection by assuring P
that he was entitled to the extra $4 per page despite his failure to abstain.

The higher court heard three questions on certification: 1) Did the complaint state facts sufficient to
constitute a cause of action? 2) Was P’s abstinence from the use of alcohol a condition precedent which
could be waived by D, such that D would be liable for the higher payment despite P’s use of alcohol? 3) Did
the complaint allege facts demonstrating that there had been a valid waiver by D of such condition
precedent?

Issue: 1) Is a waiver a voluntary abandonment or a relinquishment of some right or advantage? 2) Can a

condition precedent be waived?

Holding and Rule: 1) Yes. A waiver is a voluntary abandonment or relinquishment of some right or
advantage. 2) Yes. A condition precedent can be waived.

D asserted that P’s total abstinence was the consideration for the payment of the additional $4 per page. D
asserted that it could not be waived except by reformation of the contract based on consideration. P
asserted that abstinence was merely a condition precedent to the payment of the additional $4 per page
and that it could be waived without new consideration. The court held that it was clear from the contract that
the abstention was not part of the basic consideration bargain but rather a condition precedent to the
payment of the additional $4 per page.

A condition precedent may be waived. Once waived it cannot be revived. A waiver is an intentional
relinquishment of a known right. If the words and acts of a party reasonably justify the conclusion that with
full knowledge of all the facts it intended to abandon or not to insist upon a particular defense afterward
relied upon, a waiver has been established. The court held that P alleged facts which if proven would
establish a claim of waiver.

Disposition: The court answered each of the certified questions in the affirmative.

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pp. 871-873 Rest 2d of Contr §84 Duty to Perform in Spite of Non-occurrence of a Condition and UCC §
2-209 Modification, Rescission, and Waiver

2. Excuse to Prevent Forfeiture

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc., 397 N.Y.S.2d 958 (1977) pp. 873-878

Summary: J commenced this proceeding to recover possession of the premises claiming that the lease
has expired. The lease grants the tenant an option to renew and although the notice was sent, it was not
sent within the time prescribed in the lease.

Facts: J originally leased the property, having a 10-year lease agreement, to Foro, a restaurant. The
agreement provided that Tenant shall notify the landlord in writing by registered or certified mail 6 months
prior to the last day of the term of the lease that tenant desires such renewal. After leasing from 1964-1968,
Foro closed it down and offered if for sale or lease. In March, 1968 Foro entered into a K with Chelsea, to
sell the restaurant and assign the lease. As a condition of the sale, Foro was required to obtain a
modification of the option to renew so that Chelsea would have the right to renew the lease for an addition
term of 24 years. The closing took plase in June of ’68. First J modified the option and consented to the
assignment. The modification, states: “the tenant shall have a right to renew this lease for further period of
24 years, instead of 10, from the expiration of the original term of the lease. All other provisions in the lease
shall remain in full force and effect…” (Including the 6-month requirement for renewal). Foro then assigned
the lease and sold its interest in the restaurant to Chelsea for 155k. At the time of the sale, 5 ½ years
remained on the lease. J regularly interacted with Chelsea about various issues regarding the property.
One interaction occurred, two weeks prior to the expiration of the lease, in regards to the property taxes,
however, J failed to mention the renewal condition in the lease. Arena, J’s president, admitted that
throughout the time of the tenancy he was “most assuredly” aware of the time limitations on the option.
(NOTE: there is evidence that J has used this technique to attempt to evict prior tenants.) Finally, in Nov
’73 J took action to inform the tenant that the option had lapsed, that the option was to run in Jan ’74.
Chelsea responded with a letter dated Nov ’73 and J refused to honor it.

P:Claimed that they were not aware of the time limitation because they had never received a copy of it.
However, it was later revealed that Chelsea did have knowledge… Also claims they spend a 15k on
improvements recently, and 40k at the beginning of the lease.

Procedure: The civil court, after a trial, held that the tenant was entitled to equitable relief. Appellate term
affirmed, appellate divisions, after granting leave, reversed and granted the petition. Tenant appeals.

Issue: (1) will the tenant suffer a forfeiture if the landlord is permitted to enforce the letter of the
agreement? (2) if there will be a forfeiture, may a court of equity grant the tenant relief when the forfeiture
would result from the tenant’s own neglect or inadvertence

Holding: Yes the tenant will suffer a forfeiture because of the investments made on the property. And
Tenant is entitled to equitable relief.

Rule: Notice exercising an option is ineffective if it is not given within the time specified.

The tenant is entitled to the benefit of equity, which relieves against such forfeitures contract of valuable
lease terms when default in notice has not prejudiced the landlord, and has resulted from an honest
mistake, or similar excusable fault. Fountain

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Rationale: Default on an option usually does not result in a forfeiture. Because the option itself doesn’t
create any interest in the property (lessor has no property interests), and not rights accrue until the condition
precedent has been met by giving notice within the time specified. But when a tenant in possession under
an existing lease has neglected to exercise an option to renew, he might suffer a forfeiture if he has made
valuable improvements on the property (because now he has an interest in the property, his
improvements).

A tenant should not be denied equitable relief from the consequences of his own neglect or inadvertence if
a forfeiture would result. The rule applies even though the tenant, by his inadvertence, has neglected to
perform an affirmative duty and thus breached a covenant in the agreement. (Unless there is willful or
gross negligence.)

Because the tenant made a considerable investment in improvements (55k total) and would loss a serious
amount of business due to location change, and despite the failure to renew was at the tenant’s fault
(although not culpable) the tenant would be entitled to equitable relief if there is no prejudice to the
landlord. However, that issue was not submitted at trial (due to the trial court not allowing J to submit such
evidence), therefore, this matter must be resolved at a new trial.

Note: §229, the Restatement (2nd) states as a general proposition that a court may excuse the
nonoccurrence of a condition where forfeiture would otherwise result, unless the conditioning event was a
matter of the parties’ exchange.

p. 878 Rest 2d of Contr § 229 Excuse of a Condition to Avoid Forfeiture

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V. BREACH
A. Constructive Conditions

Week 8 (March 1-5)

Kingston v. Preston, 98 Eng. Rep. 606, 608 (1773)—not in Westlaw pp. 879-881

Key takeaway: changed the old rule, allowed for excuse from performing for non breaching party – Before,
the non breaching party would still have to perform and seek remedy after the contract was executed

Relevant Facts: Pl and Df entered into an agreement where the Df would serve the Pl for 1yr and a 1/4 as a
servant in his trade as a silk-mercer for 200 pounds a year. In consideration for the business premises the
Df covenanted that at the end of the period he would give up the business to Pl, his nephew, or some other
person named by Df, give them his stock in his trade, at a fair value; and that btwn the young traders deeds
of partnership for 14 yrs would be executed. Immediately afterward the young traders would carry out the
business in the Df’s house. The agreement also stated thereafter the Pl would at and before the sealing
and delivery of the deeds cause and procure good and sufficient security to be given to Df, 250/mo, in lieu
of the monthly production of stock in trade until the value of the stock was reduced to 4000 pounds. At the
end of the period the Df did not surrender the premises b/c the Pl did not offer the security.

Issue(s): Whether the Pl’s tender of sufficient security was a condition precedent to the Df’s surrendering of
the premises, and stock?

Court’s Holding: Yes

Procedure: Lower ct ruled for Df; Affirmed.

Law or Rule(s): Covenants called conditions and dependent, in which the performance of one depends on
the prior performance of another, and until this prior condition is performed, the other party is not liable to an
action on his covenant.

Court Rationale: The dependence or independence, of covenants was to be collected from the evident
sense and meaning of the parties, and however transposed they might be in the deed, their precedence
must depend on the order of time in which the intent of the transaction requires their performance.

The essence of the agreement was that the Df should not trust to the personal security of the Pl, but before
he delivered up his stock and business, he should have good security for the payment of the money. The
giving of such security, therefore, must necessarily be a condition precedent.

Plaintiff’s Argument: The covenants were mutual and independent, where either may recover damages for
the injury he may have received. It is no excuse to allege a breach by pl.

Defendant’s Argument: The covenants were dependant in nature; the security to be given for money was
unreasonable to oblige Df to give up his business, stock, and trust Pl’s personal security, which might be
worthless.

Transposed - changed or translated.

Breach Defined:
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Anticipatory repudiation: a way to not perform with that party and breach, when party actually tells you or
somehow manifests to you that they are going to breach. When such an event occurs, the performing party
to the contract is excused from having to fulfill his or her obligations. However, the repudiation can be
retracted by the promising party so long as there has been no material change in the position of the
performing party in the interim. A retraction of the repudiation restores the performer's obligation to perform
on the contract.

Material breach: know of breach, they’re doing something and you just know they will breach but they don’t
actually manifest it to you. like see contractor messing up a ton of stuff when building the house, and
mitigate damages and stop, if there are signs along the way

Adequate Reassurances: Can request reassurances to see if the person is going to be able to perform if
you think that they can.

Morton v. Lamb, 101 Eng. Rep. 890 (1797)—not in Westlaw pp. 882-883

example of mutual conditions, defendant didn’t deliver because plaintiff said he wasn’t ready to pay, he
wants to sue for damages because of non perf in delivering the corn but to do that I have to at least plead
that I was there and had the ability to pay, and he didn’t do that here. So the lawyer here was slick and said
that these were concurrent conditions, had to happen at the same time and if one wasn’t ready and the
other wasn’t than the one was liable,

(plaintiff in an action for non-delivery averred that he was always ready and willing to receive the goods,
whereas he ought to have averred that he was always ready and willing to pay for the goods).

Jacob & Youngs v. Kent, 130 N.E. 933 (1921) pp. 883-891
• What is the doctrine of substantial performance? (Hint: See Farnsworth, § 8.12

Key Takeaway: If you contract for X and don’t get X, and it is willful or fraudulent then you get damages, if it
is not willful or fraudulent you will get the cost to replace it or bring it to what was K’d for, unless that cost
outweighs benefit, then you will get the difference in the cost (which is true for this case).

Facts: Jacob and Youngs (P) contracted with Kent (D) to build a house at the cost of upwards of $70,000.
The defendant refused to pay the remaining balance of $3,438.46, and plaintiff sued to recover. One of the
specifications for the plumbing work provided that “all wrought-iron pipe must be well galvanized, lap welded
pipe of the grade known as ‘standard pipe’ of Reading manufacture.” The defendant learned, after they had
begun to occupy the house, that some of the pipe was produced in factories other than Reading. The
architect directed the plaintiff to remove the non-Reading pipe, and install the correct pipe called for in the
agreement. Due to the expense of removing the pipe, the plaintiff left the work undone, and the architect
declined to provide his certificate. At trial, the plaintiff provided evidence that the installation of the incorrect
pipe was neither fraudulent nor willful. Additionally, the plaintiff attempted to show that, although the pipe
was made by different manufacturers, its quality was the same. This evidence was excluded, and a verdict
was directed for the defendant. The Appellate Division reversed, and granted a new trial.

Issue: Would the use of substitute materials, of equal or greater quality to those specified in an agreement,
bar substantial performance?

Holding: No.

Decision/Analysis: (Cardozo, J.) The court reversed the lower courts ruling. The court felt that had the
evidence provided by the plaintiff as to the similarity of the pipes made by the different manufactures been

72
admitted, it would have provided a basis for the inference that the defect was insignificant in relation to the
project. In this case, an allowance should be made for the difference in value of the structure had the
Reading pipe been used rather than the pipe of other manufacturers, which would be nominal or nothing.
“The owner is entitled to the money which will permit him to complete, unless the cost of completion is
grossly and unfairly out of proportion to the good to be attained. When that is true, the measure id the
difference in value.” The order was affirmed, and judgment absolute directed in favor of the plaintiff upon
the stipulation, with costs in all courts. The court found that the plaintiff's omission with the pipes was both
"trivial and innocent" and did not discharge the defendant's duty to pay. While the defendant is allowed
damages for the omission, in this case the actual damages are minimal or non-existant. The defendant isn't
entitled to the cost of replacing the pipes because this is grossly disproportionate to the value. Distinguished
it from art, which is more subjective and whose market value is not based on function or use.

B. Prospective Nonperformance

Anticipatory repudiation*/Anticipatory breach/Repudiation: before performance is due, haven’t been told

not going to perform but know they won’t be able to, interest in future performance
- If you have been told they cant perform, you can mitigate damages, however if there is nothing
left to do to mitigate then basically have to wait to see if they perform. EX: if I have already paid
you for corn,
- Have to show that you were ready and able to perform

Material breach*/total breach: this allows other party to not perform going forward, the party injured with
material breach, and they can get damages, interest in present performance

Substantial performance*/partial breach: other party still has to perform,

1. Loss in value
2. Cost of completion

*White’s preferred term

1. Anticipatory Repudiation– before the time for performance arrives, one party
indicates to the other that she doesn’t intend to perform

Albert Hochester v. Edgar De La Tour, 118 Eng. Rep. 922 [1853] pp. 892-894

Facts: The plaintiff, Hochster, was hired by the defendant to accompany him as a courier in Europe, for a
period of three months, commencing on June 1, 1852. Then, several weeks before the period of
employment was to commence, the defendant discharged the courier, thus repudiating the contract. The
plaintiff then brought suit against the defendant, eight days before the term of employment was to begin, in
anticipation of the breach of contract.
Rule of Law: Under the doctrine of anticipatory repudiation, if a party has reasonable insecurity that the
other will fail to perform, the party may bring suit for total breach of contract, even before performance
becomes due.
Issue(s): Is the plaintiff’s claim for breach of contract premature?
Holding and Reasoning: No. The plaintiff had the reasonable assurance of the defendant that he was not
going to employ the plaintiff. Therefore, the defendant had expressed his intent to breach the contract,
which is a reasonable assurance that he will indeed breach the contact on the date that his performance
becomes due. There is no reason to wait until the actual breach occurs, unless one party to the suit would
have died, which would have served to give them the defense of impossibility.

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Separate Opinions: No action for breach of contract can take place before the person’s duty becomes due.
If this could be the case, then everyone who appears to break a promise before their duty becomes due can
be sued. This does not afford such a defendant the opportunity to prepare themselves for performance.

Harrell v. Sea Colony, Inc., 370 A.2d 119 (1977) p. 895-900

FACTS: Harrell (P) contracted with Sea Colony (D) to purchase a condo that was under construction. P
paid $5000 down, remainder on completion. Contract called for forfeit if P defaulted. Harrell tried to cancel,
but said it had to be done by the 25th of this moth or he would get the money to keep the contract. The next
month on the 23rd the condo said okay we cancel for you we keep your money. (5 days after they sold it to
someone else for more money).

Concise Rule: A mere request to cancel a contract does not constitute anticipatory breach thereof.

HOLDING: In order for anti. Breach to occur, there must be an unequivocal manifestation of intention that
he won’t perform at appointed time. In this case he said he would not breach if they would keep his money.
The request to breach is not enough. Sea colony had to pay the deposit back.

P contracted to purchase condo then wanted to back out of deal; he sent letter to D telling him that he wants
to cancel but will only do so if he can keep the contract; the D says that he will cancel the contract but keeps
the Ps money, P sues to get money back – court says that condo must give money back b/c for
repudiation there must be a clear and unequivocal manifestation of intention that the party will not
perform at appointed time.

p. 900 UCC Sections on Anticipatory Repudiation

UCC 2-610 When either party repudiates the other can: (a) await performance; (b) resort to any remedy
for breach, even though he has notified other party that he will wait for performance; (c) suspend his own
performance

UCC 2-611 Until repudiating party’s next performance is due he can retract his repudiation unless the
aggrieved party has since the repudiation cancelled or materially changed his position or otherwise
indicated that he considered the repudiation final. (2) Retraction can be any method that clearly
indicates intent to perform. (3) Retraction reinstates the repudiating party’s rights under the contract w/due
excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

2. Adequate Assurances of Performance: can be requested of anticipatory

repudiation or material breach

Scott v. Crown pp. 901-904 —quoting from UCC §2-609(1): Right to Adequate

Assurance of Performance
“When reasonable grounds for insecurity arise with respect to the performance
of either party, the other may in writing demand adequate assurance of due
performance and, until he receives such assurance, may if commercially
reasonable suspend any performance for which he has not already received the
agreed return.”
But demand for assurances cannot be a means of forcing a modification.
Adequate assurance as a flip side of material breach

FACTS: Scott (P) suspended grain delivery on their second grain delivery to Crown (d) because it learned
form dept of agriculture that there were active complaints against Crown from other farmers and because D
failed to respond to P’s inquiries about timely payment for previous deliveries.
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Concise Rule: When reasonable grounds for insecurity arise with respect to the performance of a party
under a commercial contract, the other party may in writing demand adequate assurance of due
performance and if commercially reasonable may suspend any performance for which he has not received
the agreed return.

HOLDING: Scott had reasonable grounds for insecurity. However there were serious timing issues b/c they
didn’t wait or really try to get an answer. Therefore Scotts actions were really anticipatory repudiation which
allowed Crown to cancel the contracts and resort to buyer’s remedies.

UCC § 2-609 p.904-907 – Right to Adequate Assurance of Performance: enhances opportunity for
strategic behavior since it gives 1 party the right to require things not required in contract.

1. A contract for sale imposes an obligation on each party that the other’s expectation of receiving due
performance will not be impaired. When reasonable grounds for insecurity arise with respect to the
performance of each party the other may in writing demand adequate assurance of due performance
and until he receives such assurance may if commercially reasonable suspend any performance for
which he has not already received the agreed return
2. Between merchants the reasonableness of grounds for insecurity and the adequacy of any
assurance offered shall be determined according to commercial standards.
3. Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to
demand adequate assurance of future performance.
4. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty
days such assurance of due performance as is adequate under the circumstances of the particular
case is a repudiation of the contract.

3. Material breach:

Definition:
material breach: a material failure of performance; when a breach has so impaired the interest in future
performance that terminating the contract relationship is prudent, despite the disruptions and difficulties it
may entail How much deviation is enough to relieve the non-breaching party of any obligation. B/c of
concern that non-breaching party can never be made whole, allow non-breaching party to get out of
contract.

B&B Equipment Co. v. Bowen, 581 S.W.2d 80 (1979) pp. 907-910

FACTS: Bowen was brought on board and promised 100 shares of stock in B&B Company. The two parties
reached an oral contract that Bowen, who lacked the $15,000 to purchase all stocks, would make an initial
payment and continue paying for the stocks with money received from the dividends. He was also to
dedicate his full time and attention to the business. The arrangement worked well for the first years, and
Bowen received over $7,000 in dividends. However, he soon began diverting his attention to other business
projects and his partner became dissatisfied. Partner discharged Bowen and returned his initial payment
and the dividend money that he had put toward the purchase of the stock. Bowen sued, claiming that his
behavior did not constitute a material breach and he was entitled to the deliverance of the 100 shares of
stock. District court ruled against him and he appealed.

ISSUE: Did Bowen’s behavior constitute a material breach that barred him from receiving the benefits
promised under the contract?

HOLDING: Yes.

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REASONING: A material breach is one that “relates to a vital provision that goes to the very substance or
root of the agreement.” Court finds the “major purpose of the transaction” was the performance of services
by Bowen.” Clearly, B&B did not make the deal with Bowen for his money (which he did not have); what the
company wanted were his services. Therefore Bowen’s services were “the very substance and root of the
contract.” It was more an employment contract than a capital based exchange.

Note § 275:

a. extent to which injured party (B&B) will obtain substantial benefit

b. extent to which injured party will be compensated for breach
c. extent to which non-performing party has partly performed
d. degree of hardship on non-performing party
e. willful, negligent, or innocent behavior by non-performing party
f. degree of certainty that non-performing party will perform the remainder of the contract

Lane Enterprises v. L.B. Foster (PA 1997) pp. 910-918

FACTS: Foster is a manufacturer of steel bridge components and Lane specializes in the coating of steel
materials. Foster agreed to sell bridge components to Hammond Construction and outsourced the coating
to Lane. The production and coating was to be doe in two stages. Lane’s coating of Stage 1 materials failed
to meet ODOT standards and the coated materials had to be repaired and restored. Lane agreed to take
the repair costs ($10,000) off of the money owed to them. B/c Lane lacked the capacity to coat up to
standards, Foster had to contract another company to coat Stage 2 materials at a cost of $42,000 more
than it would have paid Lane. Foster refused to pay Lane for their work on Stage 1 materials, claiming that it
was contractually bound to coat Stage 2 materials as well. Foster sued Lane. Lane counter-sued, claiming
that Foster’s withholding of funds had constituted material breach that relieved it from performing on Stage
2 materials. Lane won.

ISSUE 1: Was Foster’s withholding of funds material breach?

ISSUE 2: Was Lane’s refusal to coat anticipatory breach?

HOLDING: No/Yes

REASONING: A material breach entitles the non-breaching party to suspend performance under contract.
If, however, the breach is immaterial and the contract was substantially performed, the contract remains
effective. A material breach is one “so substantial as to justify the injure party’s regarding the whole
transaction” nullified. Foster’s breach was not material b/c it withheld only 5% of the total contract price.

Anticipatory breach occurs when there is a “definite and unconditional repudiation of a contract”
communicated by one party to another.” Further, a statement by a party that it will not or cannot perform
constitutes anticipatory breach. According to § 251, if a party is warranted in demanding adequate
assurances of performance and none is forthcoming, the requesting party may treat the failure to respond
as repudiation of contract. In this case, Foster had reasonable grounds to demand assurances of
performance b/c the contract stipulated ODOT approval of coated materials. Lane refused to grant
assurance and thus materially breached the contract. As a result, Lane must pay Foster $42,000 difference,
but Foster must pay $7,000.

4. The Perfect Tender Rule: Cure and Rescission

Ramirez v. Autosport, 440 A.2d 1345 (1982): pp. 919-925

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Facts: P sought the rescission of their contract to purchase a camper with defects from D, and the return of
their trade-in van they had tendered pursuant to the sales agreement.

Concise Rule: Under a contract for sale of goods, the seller is required to furnish a “perfect tender” of the
subject matter of the contract, and the buyer may reject any nonconforming goods

Holding: P rejected the nonconforming van within a reasonable time and D failed to cure the defects. Thus
P properly exercised their rights to terminate the contract.

Perfect Tender Rule qualified in that the UCC preserves the perfect tender rule to the extent of permitting a
buyer to reject goods for any non-conformity. But that rejection does not automatically terminate the
contract. Seller may still effect a cure and preclude unfair rejection and cancellation by the buyer. See
UCC §2-608.

UCC Sections pp. 925-928

Week 9 (March 8-12)

The breach is usually willful, but for it to be with bad faith it has to be malicious, the person does something
kind of with intent to harm. Willful breach, a person knowingly breaches but not maliciously and so on.

Sunstantial performance doc. means there is a breach but both sides have to perf, but still have to decide
what the damages are going to be (loss in value or cost of completion).

C. Cost of Completion v. Diminution in Value

Groves v. John Wunder Co. pp. 929-934

Groves leased a tract to Wunder; Wunder agreed to remove the sand and gravel and to leave the property
at uniform grade. Wunder paid Groves lump sum rent of $105,000 and agreed that when lease expired it
would restore the land to Groves at uniform grade. 7 years later having turned the property into choppy
mess, Wunder refused to carry out its grading obligation. Wunder deliberately breached the contract by
removing the richest and best gravel and left the premises broken, rugged, and uneven. Groves sued for
breach – where a contractor willfully and fraudulently varies from the terms of a construction contract,
he cannot have the benefit of the equitable doctrine of substantial performance.

Facts: Groves leased some land to Wunder. Groves let Wunder use the land and take sand and gravel
from it. Wunder was supposed to pay Groves $105,000 and leave the property at a “uniform grade”.
Wunder intentionally breached and didn’t leave a uniform grade. It was found it would cost about $60,000
to fix the grade, however, the property itself if the defendant had performed would only have been worth
about $12,000. At trial, the plaintiff recovered the $12,000 plus interest. The plaintiff appealed.

Issue: Was the plaintiff entitled to (1) the reasonable cost of doing the work the defendant was supposed to
perform under the contract or (2) the difference between the value of the land as it was originally and the
value of the land as it would have been had the defendant performed?

Rule: The proper measure of damages is the cost of remedying the defect.
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Analysis: The majority asserts that the contract in this case should be looked at like a construction contract
where the end product is the “uniform grade”. The court says that by analogy, the injury is the loss of a
“physical structure” that was called for in the contract, and even if the land is worth less than the cost of
fixing the “structure”, the proper award of damages is the cost of setting things straight.

The dissenting opinion claims that this award would put the plaintiff in a better position by far than
performance would have done. Had the contract been performed, it is argued, the plaintiff would have
basically $12,000 in his pocket, whereas the damages suggested by the majority would give the plaintiff five
times that much. This opinion suggests that the majority errs in applying tort principles of punishment on
what they consider to be a culpable contract breaker rather than the appropriate “Golden Rule” standard,
namely that the injured party needs to be put in the position performance would have done.

Conclusion: The judgment was reversed and a new trial was ordered.

Note

The defendant settled the case for $55,000.

pp. 934-940 Peevyhouse v. Garland Coal Mining Co., 382 P.2d 109 (1962)

Where a contract provision breached is merely incidental to the main purpose, and where the economic
benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of
performance, the damages which lessor may recover are limited to the diminution in value resulting to the
premises because of the nonperformance.

R § 348 if breach causes defective/unfinished constructions damages can be: (1) diminution in the market
price cause by breach or (2) reasonable cost of performance if not substantially disproportion to diminution

Facts: Garland Coal (D) contracted for the right to strip mine coal on Peevyhouse’s (P) property for five
years. The contract provided that Garland would perform restoration work on the property at the end of the
lease period. Peevyhouse sued for $25,000 when Garland refused to perform the restoration. The judge
instructed the jury that it could consider the diminution of value of the land as well as the cost of restoration
in awarding damages.
The jury awarded Peevyhouse $5,000, which was much less than the cost of restoring the property, but
greater than the reduction in value of the land if not restored. Peevyhouse appealed, arguing that it should
be entitled to the cost of obtaining performance of the restoration. Garland Coal argued that damages
should be limited to the difference in market value between the land as it was at the time, and the land as it
would be if the restoration were performed.

Issue: If breach pertains to a matter only incidental to the main purpose of the contract, and performance
would be disproportionately costly, what is the proper measure of damages?

Holding and Rule (Jackson): If breach pertains to a matter only incidental to the main purpose of the
contract, and performance would be disproportionately costly, the proper measure of damages is the
diminution in value measure.
Garland Coal argued that the work would add only a few hundred dollars to the value of Peevyhouse’s land
and that damages should be limited to that amount because that was all Peevyhouse had lost. The court
noted that the majority followed the diminution in value rule when the cost of performance greatly exceeded
the diminution in value.

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The court looked to the purpose of the contract and concluded that it was for the mining of coal and the
restoration was incidental. Even in building and construction contracts there is consideration of
unreasonable economic waste when determining damages. The Restatement and other authorities consider
waste and relative economic benefit when assessing damages. The measure of damages in a contract
involving land is: the cost of performance limited to the total difference in the market value of the land before
and after the work was performed, if that contract provision is merely incidental to the main purpose of the
contract, and the cost of full performance is grossly disproportionate to the increase in value.
Where such a result is in fact contemplated by the parties and is a main or principal purpose of the contract,
however, the measure of the breach would be the cost of performance.

Disposition: Award reduced to $300.

Dissent (Irwin): Garland Coal has received all of the benefits of the contract. The element of remedial work
was an essential part of this agreement and it was a condition to the right for Garland to use Peevyhouse’s
land. If the value of the performance should be considered in determining damages, the value of the
benefits received should also be considered. The law cannot make a better contract for the parties than
they have made for themselves and should not alter it for the benefit of one party and to the detriment of the
others. The judicial function of a court of law is to enforce a contract as it is written.

p. 940 Rest 2d of Contr §348

pp.941-948 Essay Excerpt

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VI. LACK OF CONTRACTUAL CAPACITY

A. Rebutting the Prima Facie Case of Contract

pp. 951-957 Introduction

B. Deficiencies in Contractual Capacity

1. Incompetence

Ortelere v. Teachers’ Retirement Board of New York pp. 958--966

FACTS: Mrs. Ortelere was an elementary schoolteacher until she suffered from a nervous breakdown and
took a leave of absence. During this period she decides to retire. Prior to her nervous breakdown, Mrs.
Ortelere had chosen her benefits so that she would receive a payment every month and later after her
death the unexhausted reserve would go to her husband. However, while she was under treatment she
changed this option to receive higher payments now, but no money to hubby after death. She died soon
after. Her husband sought to invalidate her decision due to her mental incompetence.

HOLDING: Contracts of mentally incompetent people are voidable. Normall y the question is whether
the mind is so affected as to render the person wholly and absolutely incompetent to comprehend and
understand the nature of the transaction. However, these standards fail to take into account those people
who are unable to control their conduct due to mental illness even though their cognitive ability seems
unimpaired, as in the case of Mrs. Ortelere. The goal of the retirement system is to protect its members.
There was sufficient evidence that Mrs. Ortelere’s election was solely due to a serious mental illness.

NOTE: The court relied on the Restatement §15(1)(a)(b) which allows someone who because of mental
illness or defect is unable to act in a reasonable manner in relation to the transaction to void the contract if
the other party has reason to know of his condition.

Restatement (Second) of Contracts p. 966-967

§12. Capacity to Contract

3. No one can be bound by contract who has not legal capacity to incur at least voidable contractual
duties. Capacity to contact may be partial and its existence in respect of a particular transaction may
depend upon the nature of the transaction or upon other circumstances.
4. A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties
thereby unless he is
a. Under guardianship, or
b. An infant, or
c. Mentally ill or defective, or
d. Intoxicated

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§15. Mental Illness or Defect

3. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental
illness or defect
a. He is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
b. He is unable to act in a reasonable manner in relation to the transaction and the other party has
reason to know of his condition.
4. Where the contract is made on fair terms and the other party is without knowledge of the mental illness
or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has
been so performed whole or in part or the circumstances have so changed that avoidance would be
unjust. In such a case a court may grant relief as justice requires.

2. Infancy

pp. 967-974 Webster Street Partnership, Ltd. v. Sheridan, 368 N.W.2d 439 (1985)

Δ rents apartment to a 17 year old and 18 year old. – A contract with a minor will only be upheld when the
contract is for a necessity.

Policy: (1) we do not want adults taking advantage of minors; (2) we want kids to go home if they can
and if no one will contract w/them they will go home

Note: contracts for necessities are not enforceable but recipients can be forced to pay restitution

Minors must give back what was received (physical objects); precludes recovery for services.

rivosha, Chief Justice. The privilege of infancy will not enable an infant to escape liability under all
circumstances. For example, it is well established that an infant is liable for the value of necessaries
furnished him. Just what are necessaries, however, has no exact definition. The term is flexible and varies
according to the facts of each individual case. A number of factors must be considered before a court can
conclude whether a particular product or service is a necessary. The articles must be useful and suitable.
To be necessaries the articles must supply the infant’s personal needs, either those of his body or those of
his mind. However, the term "necessaries" is not confined to merely such things as are required for bare
subsistence. What may be considered necessary for one infant may not be necessaries for another infant
whose state is different as to rank, social position, fortune, health, or other circumstances. To enable an
infant to contract for articles as necessaries, he must have been in actual need of them, and obliged to
procure them for himself. They are not necessaries as to him, however necessary they may be in their
nature, if he was already supplied with sufficient articles of the kind, or if he had a parent or guardian who
was able and willing to supply them. The burden of proof is on the plaintiff to show that the infant was
destitute of the articles and had no way of procuring them except by his own contract.

The undisputed testimony is that both tenants were living away from home, apparently with the
understanding that they could return home at any time. It would appear that neither Sheridan nor
Wilwerding was in need of shelter but, rather, had chosen to voluntarily leave home, with the understanding
that they could return whenever they desired. One may at first blush believe that such a rule is unfair. Yet,
on further consideration, the wisdom of such a rule is apparent. If landlords may not contract with minors,
except at their peril, they may refuse to do so. In that event, minors who voluntarily leave home but who are
free to return will be compelled to return to their parents’ home---a result which is desirable. We therefore
hold that the district court erred in finding that the apartment was a necessary.
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Because the rental of the apartment was not a necessary, the minors had the right to avoid the contract,
either during their minority or within a reasonable time after reaching their majority. Disaffirmance by an
infant completely puts an end to the contract’s existence both as to him and as to the adult with whom he
contracted. Because the parties then stand as if no contract had ever existed, the infant can recover
payments made to the adult, and the adult is entitled to the return of whatever was received by the infant.

The record shows that Wilwerding clearly disaffirmed the contract during his minority. Moreover, when
Webster Street ordered the minors out for failure to pay rent and they vacated the premises, Sheridan
likewise disaffirmed the contract. The record indicates that Sheridan reached majority on November 5. To
suggest that a lapse of 7 days was not disaffirmance within a reasonable time would be foolish. Once
disaffirmed, no contract existed between the parties and the minors were entitled to recover all of the
moneys which they paid and to be relieved of any further obligation under the contract. The judgment of the
district court is therefore reversed and the cause remanded with directions to vacate the judgment in favor
of Webster Street and to enter a judgment in favor of Matthew Sheridan and Pat Wilwerding in the amount
of $500, representing September rent in the amount of $100, October rent in the amount of $250, and the
security deposit in the amount of $150.

p. 979 Rest 2d of Contr §14

Week 10 (March 15-20)

SPRING BREAK

Week 11 (March 22-26)

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VII. OBTAINING ASSENT BY IMPROPER MEANS
Fraudulent: know that whatever statement you are saying is not accordance with the facts

If a misrepresentation is not fraudulent if it is material still may be able to get out of K, but if you
can prove fraud could be a tort. If it is material but not fraudulent, not a tort.

A. Misrepresentation

pp. 981-987 Halpert v. Rosenthal, 267 A.2d 730 (1970)

Facts: Halpert sold house to Rosenthal for $54,000 with $2000 deposit. Rosenthal asked 3 times
before closing if there were termites. Halpert said no (innocent, not intentional). Rosenthal found termites
and skipped closing. House later sold for $35,000.

Law: Innocent misrepresentation can void contract, if material. Speaker should bear loss of
misrepresentation. Boiler Plate language in the contract cannot void the remedy of rescission.

p. 987 Rest 2d of Contr §159, Rest 2d of Contr §162, Rest 2d of Contr §164,

Rest 2d of Contr § 167

pp. 988-991 Byers v. Federal Land Co., 3 F.2d 9 (1924)

Plaintiff said he was deceived on three things, that 1) That the D was the actual owner of the land. 2) that
the D was in the actual possession of the land 3) that the value of the land was $35 per acre and not $15

if party representing that he has special knowledge, then misstatement is a misrepresentation vs. giving
only an opinion

*a statement of the monetary value of property with no definite market value is generally made and
understood as an expression of opinion only

Issue: Can P sue D for misrepresentation for having P believe it was the actual owner and in possession of
the land and that the value of the land was $35/acre when it was actually $15?

Holding: not fraudulent misrepresentation, it was an honest mistake and not intentional in regards to $,
brokers had no special knowledge regarding land

Rule: under this court – only dishonest opinions are fraudulent misrepresentations

Different if there were known commodities on the land, like coal or cattle that has a known market price.

pp. 991-995 Vokes v. Arthur Murray, Inc., 212 So. 2d 906 (1968)

Generally, an actionable misrepresentation is one of fact, not opinion. But where there is a fiduciary
relationship btwn. parties, or where there has been some artifice or trick employed by the representor, or
83
where the parties do not in general deal at “arm’s length,” or where the representee does not have equal
opportunity to learn of truth/falsity of fact represented, then general rule does not apply. Where one party
has superior knowledge over the other, such statement may be regarded as fact although it would be an
opinion of both parties were dealing on equal terms. Ct. also says parties must disclose the whole truth
when disclosing at all.
*We don’t want parties coming up with ex post excuses to rid themselves of a
contract they come to regret. Yet it can be dangerous to allow cts. to decide
something is immaterial.
Facts: AM induced Vokes to buy more and more hours of dancing lessons, even though it knew
Vokes had no rhythm, at total cost of $31,000.

Law: Vokes has a claim for misrepresentation as promotions went beyond mere sales puffing.
Misrepresentation must be fact, not opinion, except opinion give by one with superior knowledge may be
treated as fact.

Facts: Vokes (P) decided to become an accomplished professional dancer at age 51. Arthur Murray (D)
was the franchisor of Arthur Murray Dance Schools. Vokes alleged that Arthur Murray’s employees used
flattery, cajolery, and awards to lead her to believe that she was a promising student capable of a career as
a professional dancer. Arthur Murray convinced her to sign up for $31,000 in dance lessons.

Vokes brought suit to cancel the remainder of the 2,300 hours of lessons for which she had contracted. In
her complaint she alleged that she had attained little or no skill as a dancer and had no aptitude, that Arthur
Murray’s employees had purposefully misrepresented her skills and taken unconscionable advantage of
her, and that she had relied upon Arthur Murray’s employees’ superior knowledge to assess her ability. D
contended that its employees’ representations were statements of opinion and therefore not actionable. P’s
fourth amended complaint was dismissed with prejudice and P appealed.

Issue: 1) Under what circumstances may a statement of opinion be relied upon as fact? 2) Under what
circumstances will a misrepresentation as to value amount to fraud?

Holding and Rule: 1) Statements made by parties having superior knowledge to parties without such
knowledge can be regarded as statements of fact. 2) In order to amount to fraud, a representation as to
value must be coupled with some untrue or misleading statement of fact used to reinforce the opinion.

Generally for a misrepresentation to be actionable it must be one of fact rather than of opinion. This general
rule does not apply however where there is a fiduciary relationship between the parties, or where there has
been some artifice or trick employed by the party making the misrepresentation, or where the parties do not
in general deal at arm’s length, or where the person to whom the representation is made does not have an
equal opportunity to become apprised of the truth or falsity of the fact represented. A statement of a party
having superior knowledge may be regarded as a statement of fact even though it would be considered an
opinion if the parties were dealing on equal terms.

Even when a party to a transaction owes no duty to disclose facts within his knowledge or to answer
inquiries respecting such facts, the rule is that if he undertakes to do so he must disclose the whole truth. D
was in a position of superior knowledge to properly evaluate whether P in fact had real potential. The court
held that by virtue of the sheer volume of flattery and the volume of purchases, Arthur Murray owed a duty
to be honest with Vokes.

Disposition: Reversed.

Note: Sales puffing intruded into undue influence as well (below).

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p. 995 Rest 2d of Contr §168, Rest 2d of Contr §169

B. Duress: is a threat of force to make assent given against the will, there is no consent. Duress is a
threat to the person or someone else, will is repressed.

Fraud may have consent but may be ill gotten

pp. 999-1003 Hackley v. Headley, 8 N.W. 511 (1881)

Brief Fact Summary

Headley sued Hackley to recover compensation on a contract which required Headly to cut and deliver logs.
The plaintiff claimed he was owed $6,200 on the contract. Defendant offered plaintiff $4,000 and said he
could sue for the rest. Plaintiff could not afford to sue and needed the money, so he accepted the note and
signed a note discharging the defendant from any further liability. The plaintiff sued under a theory of
duress. Court said that just because he contracted for this lower amount, albeit unwillingly, does not mean
that he was put under duress.

Rule of Law and Holding

A transaction is voidable because of duress only when one of the parties thereto is forced at act in a matter
inconsistent with their own free will. Duress exists when one by the unlawful act of another is induced to
make a contract or perform some act under circumstances which deprive him of the exercise of free will.

pp. 1004-1008 Austin Instr. v. Loral Corp., 272 N.E.2d 533 (1971)

Key Takeaway: a contract modification is voidable on the ground of duress when the party claiming
duress establishes that its agreement to the modification was obtained by means of wrongful threat
from other party which precluded the party’s exercise of free will.

Facts: The Defendant was under general contract from the gov't to make radar equipment. The contract
had a delivery schedule that provided for liquidated damages for late delivery. They sub-contracted to
Plaintiff for a number of high-quality gears. During the performance, the Defendant was awarded a second
contract, and did not give any of the new business to Plaintiff. According to the Defendant, the Plaintiff then
stopped delivery until the Defendant agreed to award all of the second contract needs to Plaintiff, as well as
pay higher prices retroactively for the first delivery. Defendant claims that they were unable to find any
replacement vendor for the gears who could deliver in time, and so were forced to concede to the Plaintiff's
demands or face damages that would be much greater than the amount they could recover from the Plaintiff
for breach. Plaintiff is suing for the additional money not yet paid.
Issue(s): Was the exercise of power by the Plaintiff sufficient to be considered to put the Defendant under
economic duress, thus voiding the modification to the original contract?
Holding and Reasoning: Yes. "A contract is voidable on the ground of duress when it is established that
the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of
his free will." [What does "free will" mean' Either party would like to have more power to bargain with in
order to exercise their own will. This is better couched in terms of risk. The Plaintiff may have been able to
reserve enough power to prevent adequate redistribution of risk.] The court reasoned that the facts
supported a finding that the Plaintiff was using the fact that they were a key supplier to extort the Defendant
into paying more money. The majority found that the Defendant could not have obtained the parts from any
other source, and that the normal remedy of damages for breach in this case would be insufficient because
of the clause for liquidated damages for late delivery.

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pp. 1008-1011 United States v. Progressive Enterprises, 418 F. Supp. 662 (1976)
- in order to take advantage of economic duress defense, must protest at time the time to show
that the modification not freely entered into. Secret intention to protest later does not comport
with good faith requirement.
- Court holds in favor of Crane (p)
- Court did not think that D relied or that they adequately communicated protest to the pay
increase, which means they did not adequately put the P on notice
*but the advantage-taker might react badly to an objection and seller might not perform at all

p. 1011 Rest 2d of Contr §175, Rest 2d of Contr §176 Duress, Improper Threats

C. Undue Influence

pp. 1012-1023 Odorizzi v. Bloomfield School District, 54 Cal. Rptr. 533 (1966)
Facts
Odorizzi (plaintiff) was an elementary teacher for Bloomfield School District (defendant) and under contract
to teach the following year as a permanent employee. Odorizzi was arrested for homosexual activity. After
he was released from jail, the school's principal and superintendent came to his apartment. They stated he
should immediately resign, that there was no time to consult an attorney, and if he did not resign
immediately the school district would suspend and dismiss him and publicize the proceedings, his arrest,
and cause him “to suffer extreme embarrassment and humiliation.” Odorizzi resigned, but the school district
refused to reinstate him after charges were dropped. Odorizzi sued the school district, alleging that his
resignation was obtained by undue influence.
Rule of Law
Undue influence includes taking an unfair advantage of another’s weakness of mind; or taking a grossly
oppressive and unfair advantage of another’s necessities or distress.
Issue(s)
Can Odorizzi's resignation be rescinded because of undue influence on the part of the school district?
Holding and Reasoning
Yes. Undue Influence is persuasion which tends to be coercive in nature, and which overcomes the will
without convincing the judgment. It involves excessive pressure to persuade one vulnerable to such
pressure. The vulnerability may consist of total weakness of mind, physical condition, emotional
anguish/turmoil, exhaustion, or a combination. Odorizzi was extremely vulnerable when the principal and
superintendent came to his apartment. He had undergone arrest, booking, questioning, and had not slept in
40 hours. The school officials exploited these vulnerabilities when they threatened him with embarrassment
and humiliation and denied him the opportunity to consult an attorney.

p. 1024 Rest 2d of Contr §177 Undue Influence

Factors usually involved in undue influence:
*discussion of the transaction at an unusual or inappropriate time
*consummation of the transaction in an unusual place
*insistent demand that the business be finished at once
*extreme emphasis on untoward consequences of delay
*the use of multiple persuaders by the dominant side against the single servient party
*absence of third-party advisers to the servient party
*statements that there is no time to consult financial advisers or attorneys

Misrepresentation: Being led to believe something that wasn’t true, like Arthur Murray, they made her
believe something that wasn’t true to induce her to buy more lessons
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Undue Influence: This is in the Orodrizzi case, transient condition, situation based, Orodrizzi was not
mentally incapacitated but he was being pushed into a corner and something that creates a fear, this is
harder to show because it requires a few other elements, like something that goes on at home while your
guard is down, or if it is in the middle of the night or they request that you not talk to anyone (that you are
thrown off guard), this is more like excessive pressure to persuade and make then vulnerable, doesn’t have
to amount to be a tort

Duress: this is kind of like a gun to your head, something that feels like a threat, even like threatening legal
action, threaten to reveal something that the person even knows isn’t true, manipulating a situation

Mental Capacity: Permanent condition, not transient condition (like teacher with retirement package issue
with bi-polar)

Week 12 (March 29-April 2)

D. Unconscionability

pp. 1024-1029 Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (1965)

Facts

Walker-Thomas Furniture (defendant) sells retail furntiture in Washington, D.C. In May, 1962, Appellant
Thorne (plaintiff) purchased furniture from Walker-Thomas through financing and shortly after defaulted on
his monthly payments. In April, 1962, Appellant Williams (plaintiff) bought a stereo system from Walker-
Thomas and financed the purchase, subsequently defaulting on her payments. Both contracts between the
plaintiffs (Appellants) and Walker-Thomas stated that title to all furniture would remain with Walker-Thomas
until the last monthly payment was paid off. In the event of a default, Walker-Thomas could take back
possession of the items (which they did with both Thorne and Williams). One contract provision also
provided, in effect, that the purchasers would always have a balance due on their accounts until payment
was made in full to Walker-Thomas. Plaintiffs objected to the contract provision stating it was
unconscionable. The lower court granted judgment for Walker-Thomas and the plaintiffs appealed.

Rule of Law: The elements of unconscionability include absence of meaningful choice and contract terms
which are unreasonably favorable to one party. Unconscionable contracts are void, not voidable.

Issue(s): Whether the doctrine of unconscionability applies in the District of Columbia.

Holding and Reasoning: Yes, in a case of first impressions, the judges find that the doctrine of
unconscionability does apply in D.C. Evidence demonstrates that the furniture store (defendant) had
knowledge that Williams (plaintiff) was not in a financially strong position when she purchased a stereo from
them. Specifically, the defendant knew of plaintiff's social worker and stipends she received from the
government. The Appeals Court disagrees with the lower court's decision that the courts do not have a way
to refuse to enforce the terms of the contract between Williams and Walker-Thomas. The common law has
always provided a defense of unconscionability, and more specifically Congress has created the Uniform
Commercial Code which provides for voiding contracts that are unconscionable. Courts when looking at
whether a contract or term therein is unconscionable, must look at the manner in which the contract was
entered, and the education or lack thereof of each party. If it is deemed that a party lacked proper
knowledge to understand the transaction he was entering into, the court must then examine whether the
terms of the contract are fair. This test is not simple, but the terms are to be considered in light of the

87
general commercial background and the commercial needs of the particular trade or case. The case is
remanded back to the lower court to determine if the terms were unconscionable.

Separate Opinions

(Circuit Judge Danaher). Judge Danaher expresses concern in uprooting the expecations of the two parties.
Justice Danaher is also concerned because there are alot of installment sales performed in D.C. and he is
unsure of the future effects on these sales.

pp. 1033-1035 Wille v. Southwestern Bell Telephone Co., 549 P.2d 903 (1976)

Facts - Plaintiff’s ad in yellow pages listed incorrectly. There is boilerplate clause in contract that prevents
plaintiff from collecting anything beyond cost of ad. Case is somewhat analogous to Hadley but not offered
as a default rule. Why shouldn’t it have been a default rule?

Gillette says no procedural unconscionability - because there is no monopoly on advertising and he had the
ability to easily read the clause - not hidden (seems like this is debatable - yes, they had other means of
advertising - but no phone listing). In Judge Wright’s terms, they had equal bargaining power - but where
else could he really have gone?

But this was not substantially unconscionable, because the term is not unreasonably favorable - Problem is
that there is such variation in damages for people advertising. This clause limits the yellow pages liability
and to keep costs down for everybody. To do otherwise would increase negotiation costs, and skew the
distribution of the costs to the individual customer.

Holding - The court holds this is not unconscionable. There is little information asymmetry - as the seller is
not in position to know what cost to buyer will be. The difference between this and warranty of
merchantability is that there is such variance in damages with unconscionable terms.

Not clear that the analysis of substantive/procedure unconsciability once done, is made a different
argument by the addition of boilerplate argument. This is likely a surrogate for the analysis.

pp. 1035-1037 In re Realnetworks, 2000 WL 631341 (2000)

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VII FAILURE OF BASIC ASSUMPTION

• What is the difference between a mistake and a misunderstanding?

• How is failure of basic assumption different from a defense to prima facie
contract?

A. Mistakes of Present Existing Facts

• What is the difference between mutual mistake and a unilateral mistake?

1. Mutual Mistake

Sherwood v. Walker, 33 N.W. 919 (1887) pp. 1049-1058

Facts: Sherwood (P) contracted to purchase a cow from Walker (D). Walker showed Sherwood a cow,
Rose 2d of Aberlone, which he believed to be barren. Sherwood agreed to purchase the cow for $80. If the
cow had been fertile it would have been worth $750 to $1000. Walker later discovered that the cow was with
calf and refused to complete the transaction.

Sherwood brought suit and took possession of the cow via a writ of replevin. At trial, Walker showed that at
the time of the sale both parties had believed the cow to be barren and both knew that the value of a fertile
cow was much higher than that of a barren cow. The judge instructed the jury that it was immaterial whether
the cow was barren. The jury returned a verdict in favor of Sherwood and Walker appealed.

Issue: Can a mutual mistake regarding the substance of the subject matter of a contract render a contract
unenforceable?

Holding and Rule: Yes. A mutual mistake regarding the substance of the subject matter of a contract may
render that contract unenforceable.

There is no contract if there is a difference or misapprehension as to the substance of the thing bargained
for, or if the thing actually delivered or received is different in substance from the thing bargained for and
intended to be sold. However, if there is merely a difference as to some quality or accident, even though the
mistake may have been the actuating motive of either or both of the parties, the contract remains binding.
The only difficulty in such a case is to determine if the mistake is as to the substance of the whole contract.
Under prior law it has been held that when a horse is bought under the belief that he is sound, and both the
buyer and seller have this honest belief, the purchaser must stand by his bargain and pay the full price
unless there was a warranty.

The court held that in this case the mistake went to the whole substance of the agreement. This mistake
was not about the mere quality of the cow but to its very nature, i.e. a fertile cow as opposed to a barren
cow.

Disposition: Reversed and remanded with new jury instructions.

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Dissent: (Sherwood, J.) There is no pretense that the plaintiff bought the cow for beef. There is nothing
indicating that he would have bought her at all only that he thought she might be made to breed. From the
facts it turns out that Sherwood was more correct than the defendant as to one quality of the cow. Walker
made a mistake about the quality of the cow and unless the plaintiff knew or should have known about that
mistake he cannot be charged with taking advantage of the situation. The contract is valid and should be
enforced.

Notes: A contractual mistake ‘is a belief that is not in accord with the facts’. 1 Restatement Contracts, 2d, §
151, p 383. The erroneous belief of one or both of the parties must relate to a fact in existence at the time
the contract is executed. The belief which is found to be in error may not be, in substance, a prediction
regarding a future occurrence or non-occurrence.

pp. 1059-1062 Nester v. Michigan Land & Iron Co., 37 N.W. 278 (1888)

Facts: Michigan Land & Iron (D) contracted to sell timber to Nester (P) for $27,000. Nester was dissatisfied
with the quality and quantity of the timber and demanded that Michigan accept one half the contract price.
Michigan refused.

P sued D and alleged that the quality and yield of the timber was poor and that both parties had been
mistaken as to the nature and quality of the timber. The trial court awarded P $12,800 and D appealed,
arguing that P had acted on the advice of his own agents, the mistake was unilateral, and D had made no
warranty as to the quality or quantity of timber that would be produced.

Issue: Is a purchaser of goods entitled to reformation or rescission of a contract if the quality or quantity of
goods produced does not meet expectations?

Holding and Rule: No. A purchaser of goods is not entitled to reformation or rescission of a contract if the
quality or quantity of goods produced does not meet expectations, provided the seller has not made a
warranty.

Both of the parties were experienced businessmen. There was no warranty made as to the quality of the cut
timber from the tract but only an expectation based on P’s informed business judgment. D is not bound by
an implied warranty that the timber rise to P’s expectations.

The court held that if P were entitled to reformation of the contract under these facts, D should be entitled to
reformation in cases in which the estimated cut exceeded expectations. The court rejected this approach
and held that P bore the risk that the yield and quality would not meet his expectations. Each party bore the
risk that the timber produced would be of greater or lesser worth than expected.

Disposition: Reversed.

TERMS:

Misunderstanding: objectively ambiguous term, like the Peirless ships case, this is a mutual assent issue it
means that there is no K

Mistake: both said or thought the same thing but it was wrong, this is a contract defense, but there is still a
K, the parties did agree.

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With lack of capacity it is only that singular party that can get out based on the situation, with mutual
mistake both could potentially get out just need to figure out who.

Risk can be allocated contractually, but you cant do it with undue influence, or duress or lack of capacity.
Cant contract around default rules of contracts. With mutual mistake you can contract around it. Can
contract around extent of liability/

Failure of basic assumption is like Rose of Aberlone: contracting for something that is at the substance of
the agreement, that isn’t what they thought it was, mutual mistake and unilaterial mistake are a kind of
failure of assumption. Failure of assumption is different from a defense to prima facia case because…

pp. 1062-1065 Wood v. Boynton, 25 N.W. 42 (1885)

Facts: Wood (P) sold a gem for $1 to Boynton (D), a jeweler. Both parties believed the stone to be topaz at
the time of the sale. Boynton later learned that the stone was a diamond worth $700. Boynton declined
Wood’s offer to buy back the gem for $1.10 and Wood sued for its return. At trial the court directed a verdict
in favor of Boynton and Wood appealed.

Issue: Is a party to a contract entitled to rescission if both parties were mutually mistaken regarding the
value of the items sold and the seller has not committed fraud?

Holding and Rule: No. A contract made where there is mutual mistake regarding the nature and value of
the items sold cannot be rescinded without fraud. The only way P can rescind the sale is by showing that
there was some fraud by D in procuring the sale, or that the seller made a mistake by delivering an article
that was not the article sold. The latter amounts to a mistake in fact as to the identity of the article sold.
Except for these two cases, there can be no rescission of a contract for sale based on mutual mistake.

In this case, both parties were ignorant of the true value of the gem. There was no mistake regarding the
identity of the item sold and delivered to D. P made a bad bargain and that alone is not grounds for
rescission of the contract.

The court held that inadequacy of price as evidence of fraud depends upon the facts known to the parties at
the time the sale was made. When this sale was made, the value of the thing sold was open to investigation
by both parties. Neither party knew its intrinsic value and believed that the price paid was adequate.

Disposition: Judgment affirmed.

Notes: The real issue underlying this case is one of proof. P should have presented the testimony of an
expert to prove that no jeweler would have failed to recognize the gem as an uncut diamond. The jeweler
had examined the stone for some time before he made the offer to buy it from P.

pp. 1065-1071 Lenawee County Board of Health v. Messerly, 331 N.W.2d 203 (1982)

Facts:

• The Pickles bought a tract of land containing an apartment building from the Messerlys with the
intention of using the land for rental income.
• Before the Messerlys owned the property, the previous owner installed a septic tank without a permit
and in violation of the health code. Neither the Messerlys or the Pickles knew anything about this.
91
 • The contract contained an "as is" clause.
• After the sale, the Pickles noticed raw sewage on the ground. The health board condemned the
land.
• The Pickles sought rescission of the contract under mutual mistake and misrepresentation. The
Messerlys sued for foreclosure.

Procedural History:

• Lower court found Pickles had no cause of action, foreclosure ordered against the Pickles.
• Court of Appeals reversed, found the Pickles did have a cause of action.
• MI Supreme Court reversed, found the Pickles had no cause of action, foreclosure ordered against
the Pickles.

Issues:

• How should a court decide cases of mistake between two equally innocent parties?

Holding/Rule:

• In cases of mistake by two equally innocent parties, the court should determine which blameless
party should assume the loss resulting from the misapprehension they shared.

Reasoning:

• The parties in this case were laboring under a mutual mistake of fact which materially affected the
essence of the contractual consideration.
• The best approach to decide cases of mutual mistake is by the courts doing case-by-case analysis
whereby rescission is indicated when the mistaken belief relates to a basic assumption of the parties
upon which the contract is made.
o A court need not grant rescission in every case in which the mutual mistake relates to a basic
assumption and materially affects the agreed performance of the parties.

• Rescission is not available, however, to relieve a party who has assumed the risk of loss in
connection with the mistake.
• The court should look to whether the parties have agreed to the allocation of the risk between
themselves. Through the "as is" clause, the risk was allocated to the buyers.

Who bears the risk? How is it allocated?

- Explicitly allocated risk is things like as-is clauses and warranties,
- Implicitity is known ignorance on something

pp. 1071-1074Restatement (Second) of Contracts Sections 151, 152, 154, 157, 158

Week 13 (April 5-9)

2. Unilateral Mistake and the Duty to Disclose

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pp. 1074-1076 Tyra v. Cheney, 152 N.W. 835 (1915)

Facts: Tyra supposedly orally bid for work at $4025, but mistakenly left out $963 for new part of building in
written bid, which was accepted.Law: If Cheney knew about first bid, and knew that the written bid was a
mistake, he cannot accept (no meeting of the minds). BUT, if Cheney did NOT know of the mistake, then
Tyra cannot profit be his own mistake.

Court sees this as a case was they agreed to pay for the $963 but then it appears as if they tried to get out
of it. Because this was a bid they did not say that reformation was the remedy.

p. 1076-1077 Drennan v. Star Paving Co., 333 P.2d 757 (Cal. 1958)

Facts: Star Paving (D) submitted a subcontractor bid to Drennan (P), a general contractor, for a public
school construction project. Drennan used Star Paving’s bid of $7,100.00 to prepare his final bid and was
awarded the contract. The next day Star Paving informed Drennan that it had underestimated the cost of
the project and refused to do the work for less than $15,000. Drennan hired another subcontractor to do the
work for $11,000 and sued Star Paving for the difference between $11,000 and $7,100. The trial court
entered judgment for Drennan, holding that Star Paving had made an offer and that Drennan had relied
upon that offer when listing Star Paving as the subcontractor. Star Paving appealed.

Issue: 1) Can reasonable, justifiable, and foreseeable reliance render an offer binding? 2) What is the test
for applying promissory estoppel?

Holding and Rule (Traynor):

1) Yes. An offer that the promissor should reasonably expect to induce action or forbearance of a definite
and substantial character by the promisee, and which does induce such action or forbearance, is binding if
injustice can be avoided only by enforcing the promise. See Restatement (2d) of Contracts 90.

2) In order for promissory estoppel to apply there must be: 1) a clear and definite offer; 2) a reasonable
expectation that the offer will induce reliance in the other party; 3) actual and reasonable reliance by the
offeree; and 4) a detriment which only can be avoided by enforcement of the offer.

Star Paving’s subcontractor bid constituted a promise to perform under conditions both express and implied,
according to the circumstances. It was silent on revocation and therefore the court determined whether
there were conditions imposed by law or reasonably inferred. The court turned to Restatement (2d) of
Contracts 45; merely acting in justifiable reliance on a unilateral offer is sufficient to make that offer
irrevocable for a reasonable period of time to complete performance.

Public Policy: Whether implied in law or fact, enforcement of Star Paving’s promise precluded the injustice
that would result if the offer could be revoked after the offeree acted in detrimental reliance upon it.
Reasonable reliance resulting in a foreseeable and prejudicial change in the promisee’s position affords the
compelling basis for implying a subsidiary promise not to revoke a unilateral offer. Star Paving had a stake
in Drennan’s reliance on the bid in making Drennan’s bid on the general contract. The court held that it was
only reasonable that Drennan have the opportunity to accept Star Paving’s bid after Drennan was awarded
the general contract if Drennan justifiably and reasonably relied on Star Paving’s offer.

As for Star Paving’s mistake defense, Drennan could not have justifiably relied on Star Paving’s bid if
Drennan had reason to believe that Star Paving’s bid was in error. The mistake that Star Paving made in its
bid was not one of which Drennan knew or should have known and Drennan’s reliance was justified.

Disposition: Affirmed; Judgment for Drennan.

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Notes: Promissory estoppel must only be used if there is no consideration. Drennan effectively overruled
James Baird Co. v. Gimbel Bros. Inc. and is the seminal case for the modern approach to applying
promissory estoppel in the context of subcontractor bidding disputes based on mistake.

See Adarand Constructors, Inc. v. Peña for another case involving general contractor and subcontractor
bids.

p. 1077 Rest 2d of Contr §153

pp. 1077-1081 Laidlaw v. Organ, 15 U.S. (2. Wheat.) 178 (1817)

Facts: Organ bought tobacco from Laidlaw right after the War of 1812 ended but before news leaked.
Laidlaw did not know, so he asked Organ, who said nothing in response, so he sold for cheap. He
then found out the War ended, and seized back the tobacco. Law (Marshall): Organ under no
obligation to say anything at all, but if he does, then it cannot be false.

pp. 1081-1082 Rest 2d of Contr §160, Rest 2d of Contr §161 and Baseball Card Case Problem

B. Changed Circumstances

1. Impossibility and Impracticability: Different from mistake in that the false assumption is
about an event in the future from the time of contract. But decision on how to treat silence is
essentially identical: discern an implicit term; or impute the best possible term.

pp. 1083-1087 Paradine v. Jane, 82 Eng. Rep. 897 (1647)—Not in Westlaw

Facts
Paradine (P) sued Jane (D) for a failure to pay rent for three years on leased lands. Jane asserted as a
defense that the lands had been seized and occupied by Prince Rupert of Germany, and that Jane had
been put out of possession and frustrated in the performance of his duties under the lease and was not
bound to perform under the contract.
Issue: If a party creates a charge or duty to himself, is he obligated to perform in the face of frustration of
purpose?

Holding and Rule: Yes. If a party creates a charge or duty to himself, he is obligated to perform in the face
of frustration of purpose.
The court held that if the law rather than a party creates a duty and the party is unable to perform due to
frustration of purpose, that duty will be excused. However if the party creates the duty and becomes unable
to perform due to frustration of purpose, the law will not protect the party in his own agreement and
performance will not be excused. The court held that in this case the lessee would have gained the
advantage of the profits and therefore he must bear the risk of the losses.

Disposition: Judgment for Paradine.

Notes: In this case the defendant had no covenant of quiet enjoyment which would have put the loss on
Paradine. The occupation by Prince Rupert was merely a frustration of the defendant’s purpose to enjoy the

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profits of use and occupation of the property. This case is often cited as an example of subjective
impossibility rather than frustration of purpose.
See Lumley v. Wagner for a law school contracts case brief involving the availability of injunctive relief as a
remedy to enforce a negative covenant.

pp. 1087-1091 Taylor v. Caldwell, 122 Eng. Rep. 309 (1863)—Not in Westlaw
Facts: Caldwell (D) contracted to permit Taylor (P) the use of the Musical Hall at Newington. Caldwell was
to retain possession of the hall and Taylor merely had the use of it for four days to present four concerts in
exchange for 100 pounds per day. The contract stated that the Hall must be fit for a concert but there was
no express stipulation regarding disasters.
The Hall was destroyed by fire before the first concert was to be held and neither party was at fault. The
concerts could not be performed at any other location and Taylor sued for breach and sought
reimbursement for costs in preparing for the concerts.
Issue: May contract performance be excused for impossibility of performance if performance depends on
the continued existence of a person or thing, and that person or thing ceases to exist?
Holding and Rule (Blackburn): Yes. If contract performance depends on the continued existence of a
person or thing, and that person or thing ceases to exist, performance may be excused for impossibility of
performance.
If the nature of the contract is such that the parties must have known at the time of contracting that it could
not be fulfilled unless some specified thing continued to exist, it is not a positive contract, and there is an
implied condition that the parties will be excused from performance if that thing ceases to exist without fault
of the parties. However, if a party gives an express or implied warranty that that thing will continue to exist,
that party is liable for breach if it ceases to exist.
When there is a positive contract to do a thing the contractor must perform it or pay damages, although in
consequence of unforeseen accidents, the performance of his contract has become unexpectedly
burdensome or even impossible. But this rule is only applicable when the contract is positive and absolute
and not subject to any condition either express or implied.
Regarding contracts for the services of a specific person, the executors are not liable if that person dies,
even though the contract by its terms will have been broken.
Disposition: Judgment for D.
Notes: This is an example of objective impossibility; it is impossible for either party to perform. If the parties
in such an arrangement do not allocate the risk at the time of contract the court will let the loss lie where it
falls. In this example Taylor suffered the loss of resources invested in preparing for the concerts, and
Caldwell suffered the loss of the destroyed hall. This rule only applies if neither party is at fault in the
destruction of the person or thing.

pp. 1091-1092 Restatement (Second) of Contracts Sections 261 and 263; and UCC Section 2-613

The result was not due to the person seeking it (like not the person who burned down the theatre) or did
not agree to assume reliability, like as-is clauses

With impracticability, pay attention to who is complaining about why things are expensive

Week 14 (April 12-16)

pp. 1092-1094 CAN & American Casualty v. Arlyn Phoenix, 678 So. 2d 378 (1996)

The defense of impossibility of performance due to death applies even when the death is the fault of the
person obligated to perform the personal services contract

Death renders a personal services contract impossible to perform.

pp. 1094-1098 Transatlantic Financing Corp. v. United States, 363 F.2d 312 (DC Cir. 1966).
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Procedural History:
- District court dismissed claim

Facts:
- K to ship wheat from Texas to Iran was diverted around Cape Hope when the Egyptian govt seized the
Suez Canal
-Π seeks payment for cost of the additional 3,000 miles to divert
the shipment (trip supposed to be 10,000 mi). Seeking quantam meriut
-Charter indicated destination but not route
oCustom was to go through Suez, but Cape Hope was considered the back up
Instability of Egyptian govt was common knowledge to shippers, including its effect on prices

Issue: Should a contract be considered impracticable when costs are unexpectedly increased by a factor
outside the control of the parties?

Holding: No. A contract is not found impracticable merely because of an increase in cost, even if great, but
rather it must be found impossible and unpredictable.

Reasoning
- Although K is generally enforced, it can be voided if it is outweighed by the senselessness of
requiring performance
o 3 part test
 A contingency - something unexpected – must have occurred
 Risk must not be allocated by agreement or custom
 Performance must be rendered commercially impracticable –
- Suez canal definitely an unexpected contingency
- Risk may have been allocated by custom as other cases point to Cape Hope as a “generally
regarded…alternative means of performance”
- Parties were, or should have been, aware that Canal was a dangerous situation when
contracting
o “Parties to a K are not always able to provide for all the possibilities of which they are aware,
sometimes b/c they Ø agree, often simply b/c they are too busy”
- Since π was willing to assume abnormal risks the case should be viewed in stricter terms
- Made impracticable?
o Goods not subject to harm by alt route
o Vessel and crew fit to take alt route
o Could have gotten insurance
o Π in best position to calculate cost
o Only factor in π favor is the additional $43,972
- “To justify relief there must be more of a variation b/w expected cost of performing by available
alternative than is present in this case”
- π theory of recovery strange b/c it should have been quantum meruit for the entire trip, rather
than only for the extra expense -
- “…no interest in casting the entire burden of commercial disaster on one party in order to
preserve the other’s profit”

Disposition: Affirmed

UCC § 2-615 Excuse by Failure of Presupposed Conditions pp. 1098-1099

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Except so far as a seller may have assumed a greater obligation and subject to the preceding section on
substituted performance:

• (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b)
and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made
impracticable by the occurrence of a contingency the non-occurrence of which was a basic
assumption on which the contract was made or by compliance in good faith with any applicable
foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
• (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to
perform, he must allocate production and deliveries among his customers but may at his option
include regular customers not then under contract as well as his own requirements for further
manufacture. He may so allocate in any manner which is fair and reasonable.
• (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when
allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

2. Frustration of Purposes:

- Not directly covered by the UCC

- Whole purpose of why you bargained is gone, the consideration is gone
- Supposed to pay for something but don’t want it anymore (not due to market conditions) but it is
because something unforeseeable changed. Both parties had the same assumption, but only one
party is harmed by it
- If it is the fault of a party then that party bears the risk, and it is breach not frustration of purpose
- Less sympathy for this than impracticability

Krell v. Henry, L.R. 2 K.B. 740 (Ct. App. 1903)—Not in Westlaw pp. 1099-1104

Facts: Henry (D) contracted to use Krell’s (P) flat in London to view the coronation procession of King
Edward VII. Under the terms of the contract Henry was granted use of the flat for two days in exchange for
75 pounds, but the contract did not mention the purpose of Henry’s use. Henry refused to honor the
agreement after the King became ill and the coronation was postponed.

Krell sued for the balance due under the contract and Henry countersued for the return of his deposit. The
lower court cited Taylor v. Caldwell and entered judgment for Henry on the grounds that the coronation was
an implied condition in the contract. Krell appealed.

Issue: Under what circumstances will a party be excused from performance when an unforeseen
supervening event occurs?

Holding and Rule: Performance will be excused when the purpose of a contract is frustrated by an
unforeseeable supervening event and the purpose was within the contemplation of both parties when the
contract was executed. A contract’s purpose may be inferred from surrounding circumstances.

Where a contract indicates that the parties knew that it could not be fulfilled unless some particular specified
thing continued to exist, such that the parties must have contemplated the continued existence of that thing
as the foundation of the performance; then in the absence of an express or implied warranty that the thing
shall continue to exist, the contract is subject to implied condition that performance will be excused if that
thing ceases to exist without fault of either party.

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The principle also applies where a certain condition or state of things that is essential to performance must
continue to exist; in this case, the occurrence of the coronation during the time in which Henry was to have
use of the flat. The condition or state of things need not be expressly specified. It is sufficient if that
condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be
the foundation or basis of the contract, and the event which causes the impossibility is of such that it cannot
reasonably be supposed to have been in the contemplation of the contracting parties when the contract was
made.

Necessary inferences drawn from the contract and surrounding circumstances need to be examined to
determine if the contract has in fact become impossible to perform. The purpose for the high rent of the
room on those particular dates during the daytime was to view the coronation. The court held that without
the coronation, there was no purpose to this contract.

Disposition: Judgment for defendant Henry affirmed.

Notes: This is the seminal case on the doctrine of frustration of purpose.

Lloyd v. Murphy, 153 P.2d 47 (1944) pp. 1105-1109

Facts: Murphy (D) leased premises from Lloyd (P) to be used for the sale of new cars and gas unless
Lloyd gave Murphy written permission to use it for other purposes. After the federal government restricted
the sale of new cars due to WWII, Murphy informed Lloyd that he could not continue to operate his business
and vacated the premises. P rented the property to others and sued for declaratory judgment to determine
the rights under the contract and for unpaid rent. The trial court entered judgment for P, holding that war-
time conditions did not excuse D’s performance. D appealed.

Issue: Do acts by the government that make performance under a contract unprofitable or more difficult
excuse the duty to perform via frustration of purpose?

Holding and Rule: No. Acts by the government that make performance under a contract unprofitable or
more difficult do not excuse the duty to perform via frustration of purpose.

Frustration of Purpose: To invoke the doctrine of frustration of purpose a party must show: 1) the change
in circumstances has made performance different from what was reasonably expected; 2) the risk was
unforeseeable; and 3) the underlying value of the bargained for exchange was destroyed by a supervening
event.

A determination of whether performance may be excused requires an examination of the foreseeability of

such governmental acts. In this case the National Public Defense Act had been approved almost a year and
a half before this lease was entered into. It was common knowledge that the auto industry had been in the
process of switching to war-time production. Furthermore, the sale of new cars had not been made
impossible or illegal, it had merely been restricted. P had been willing to accommodate D by lowering the
rent and permitting more diversified business activities. D was still selling new cars at two other locations.
The court held that the government’s actions were foreseeable and D’s performance was not excused.

Week 15 (April 19) Classes End

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