A. Intro Cases and Problems
? Bailey v. West; Hamer v. Sidway; Ricketts v. Scothorn; Williams v.
Walker-Thomas Furniture Co.; Sullivan v. O’Connor
1. Elements of quasi-contract: 1) benefit conferred upon ? by ?; 2)
appreciation by ? of such benefit; and 3) acceptance and retention by ? of
such benefit under such circumstances that it would be inequitable to retain
the benefit without payment of the value thereof.
2. What constitutes consideration? (Restatement ? 71): 1)
performance or return promise must be bargained for; 2) 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 (quid pro quo); 3) the performance may consist of an act
other than a promise (actual performance), a forbearance, or 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
3. Holmes – “The duty to keep a contract at common law means a
prediction that you must pay damages if you do not keep it – and
4. Default v. Immutable Rules: Default rules govern when the parties
have remained silent – parties are allowed to privately contract around
the default rules; Immutable rules displace freedom of contract, and
are acceptable if society wants to protect 1) parties within the contract,
and 2) parties outside the contract.
5. Purposes of Contract Remedies (Restatement ? 344): 1) protect
“expectation interest,” which is his interest in having the benefit of his
bargain by being put in a s good a position as he would have been in
had the contract been performed; 2) protect “reliance interest,” which
is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in
had the contract not been made, or 3) protect “restitution interest,”
which is his interest in having restored to him any benefit that he has
conferred on the other party.
6. Purpose of Damages – (for breach) – to put the aggrieved party in the
position that would have been gained if the ? had fully performed
(expectation plus reliance). Sullivan v. O’Connor.
II. The Bases of Promissory Liability
A. Theories of Contractual Obligation
1. Party-Based Theories – focus on protecting one particular party to a
? Will theories – protect the subjective intent of the promisor
over the objective meaning of his promise
? Reliance theories – protect the promisee’s reliance,
enforcing common meaning of promisor’s words, regardless of
? Problem: Party-based theories fail to adequately
distinguish between contract that are legally protected and those
that are not. Consequently, contract cases must be resolved “ad
hoc,” using “reasonableness” and policy concepts
2. Standards-Based Theories – evaluates substance of contract to make
sure it conforms to the theory’s primary purpose
? Efficiency theories – only enforce contracts if they increase the
overall wealth of society
? Substantive Fairness Theories – evaluates whether the substance of
the contract is fair (quantitative analysis of qualitative issue)
? Problem: Interferes with individual preferences
3. Process-Based Theories – posit appropriate procedures for establishing
enforceable obligation and then assess any given transaction to
see if these procedures were followed
? Bargain Theory of Consideration – enforce if there is consideration;
don’t enforce if there isn’t
? Problem: Trying to strike a balance between over and under-
B. Bargain Contract: Promise Plus Consideration
1. Bargain Requirement
? Kirksey v. Kirksey (gratuitous act of brother-in-law to take in sister
was not supported by consideration – she didn’t give up anything –
promisor didn’t benefit); Langer v. Superior Steel Corp. (pension to
retiree was supported by consideration – relied to his detriment by not
getting another job – because of this, promisor benefited); Bogigian v.
Bogigian; Thomas v. Thomas (nominal consideration is enough –
though this is not the overall rule).
? The Second Restatement adopts the rule that nominal consideration
alone cannot make a contract binding (overturning the First
Restatement’s position that Blackacre could be sold, and enforced, for
? Arguments that support nominal consideration say that the adoption of
this concept takes the place of the seal. A contract is no longer
enforced just by signing – there must be consideration. Thus, nominal
consideration is a procedural (or “form”) attempt to make a gift
2. Sufficiency of Exchange
a. In General
? Hamer v. Sidway ($5000 to nephew to not drink, smoke, etc.
upheld – nephew’s forbearance was adequate consideration);
Apfel v.Prudential-Bache Securities, Inc. (court upheld an
“idea” as consideration – based decision on fact that the
parties bargained over this issue); Jones v. Star Credit Corp.
(contract unconscionable - $900 for $300 freezer – unequal
bargaining power); In re Greene; Fiege v. Boehm (?’s good
faith promise not to invoke bastardy proceedings if ? agreed
to support the child was consideration – normally an
agreement to forbear suit on an illegitimate claim isn’t
consideration – but she didn’t know her claim was
? Dual notion of consideration – either a benefit to the
promisor or a detriment to the promisee; Bargained-for
concept of consideration – if it’s bargained for, is it enough?
Usually yes… (form-based arg.)
? Federal Trade Commission requires door-to-door sales
contracts to include in CONSPICUOUS language – “YOU,
THE BUYER, MAY CANCEL THIS TRANSACTION AT
ANY TIME PRIOR TO…” (“cooling off” remedy)
? Peppercorn Theory of Consideration – peppercorn is not
enough (contract is enforceable if it’s bargained for and has
consideration, or if the promisee relies to her detriment on the
promise – but not if it’s just a gratuitous act with no
consideration or reliance)
b. Pre-Existing Duty Rule
? Levine v. Blumenthal; Alaska Packers’ Association v.
Domenico; Angel v. Murray
c. Mutuality of Obligation
? Rehm-Zeiher Co. V. F.G. Walker Co.; McMichael v. Price;
Wood v. Lucy, Lady Duff-Gordon; Omni Group, Inc. V.
Seattle-First National Bank
C. Moral Obligation: Promise Plus Antecedent Benefit
? Mills v. Wyman; Manwill v. Oyler; Webb v. McGowin;
Harrington v. Taylor
D. Promissory Estoppel: Promise Plus Unbargained-For Reliance
? Ricketts v. Scothorn; Allegheny College v. National Chautauqua
County Bank of Jamestown; Feinberg v. Pfeiffer Co.; Grouse v. Group
Health Plan; Cohen v. Cowles Media
E. Formalities in Contracting: The Statute of Frauds (discussed in class after
1. Formalities in Contracting: Promise Plus Seal or Other Form
2. The Statute of Frauds
a. General Scope and Effect
b. “Within the Statute:” The “One Year” Clause
? C.R. Klewin, Inc. v. Flagship Properties, Inc.; North Shore
Bottling Co. v. C. Schmidt & Sons, Inc.; Mason v. Anderson
c. Compliance with the Statute: The “One Year” Clause
? Crabtree v. Elizabeth Arden Sales Corp.
d. Effect of Noncompliance
? DF Activities Corporation v. Brown
III. Breach of Contract and Permissible Remedial Responses
1. A promisor commits a breach when they fail without justification to
perform when a promised performance is due. A promisor can also
commit a breach when, by words or conduct, they repudiate a
performance not yet due under the agreed exchange.
2. Material vs. Minor Breach: Whether a breach by one party excuses the
other party’s duty of performance depends on whether the breach is
material or minor. A material breach gives rise to an immediate cause
of action for breach of entire contract and excuses further performance
of the innocent party. A minor breach also gives immediate cause of
action for damages caused by the breach but not on the entire contract.
It also does not excuse the other party’s duty of further performance.
Courts sometimes consider when looking at material vs. minor- a
breach at the outset, willful breach, extent of uncertainty, etc.
1. “A breach is material if the failure or deficiency in
performance is so central to the contract that it substantially
impairs its value.”
2. Anticipatory Breach: Occurs when party repudiates
obligation in anticipation of when performance is due.
3. Under UCC 2-609 D could cancel order because it is the
Right to adequate assurance of performance: “a contract for
sale imposes an obligation on each party that the other’s
expectation of receiving due performance will not be
B. Right to Suspend Performance or Cancel Upon Prospective Inability or Breach
1. Hochster v. De La Tour: Contract to travel and carry D’s baggage. D
repudiates contract and P seeks other employment before date of his contract
with D was supposed to commence. Court holds for P and says he can seek
other employment before date of rescinded contract was supposed to start.
Rule: When a party clearly repudiates a material promise in advance, the other
may treat this as a breach immediately and can seek relief for breach without
2. Taylor v. Johnston: P makes contract to breed horses with D’s stud. Ds argue
was no repudiation because P’s actions made it impossible for them to fulfill
contract. D never expressly repudiated contract so court holds for D and says
there was no anticipatory breach.
3. AMF, Inc. v. McDonald’s Corp.: Contract for P to supply cash registers to D.
The cash registers fail to live up to expectations in contract and D cancels
order. Court holds for D because they had reasonable insecurity that P
wouldn’t be able to fulfill contract.
4. Plotnick v. Pennsylvania Smelting & Refining Co.: P sues D for not being
paid for lead P Delivered. Issue is whether buyer committed such a breach that
constituted a repudiation. Court says no and says seller failed to establish
justification that repudiation occurred. The P was not in danger economically
for the delay in payment.
C. Compensatory Damages
1. If one party to an enforceable bargain repudiates or fails to perform and other party
has suspended performance or canceled contract, court will address what remedies
a. Compensatory Damages:
i. Expectation: This is usual way to compensate the victim of a
breached bargain. Expectation damages give the victim enough
money to put him in the position he would have been in if the
promise had been performed. They can be viewed as a substitute
for performance. These are limited to reasonably foreseeable
damages. They are based on the contract price (in practice exam
question they would cover the cost Mary would have to pay to buy
same furniture on the open market and she would have to prove
that she have to spend more on the open market than if she got
them from Bill and then she could receive the difference in prices).
Note: concept of expectation relief under common law and UCC
are very similar.
ii. Calculating expectation damages: Injured party entitled to damage
recovery equal to: the value lost by reason of other party’s default
plus the expenditures he has made to carry out the expenditures (if
any) of carrying out his own obligations of the contract.”
iii. Reliance Damages: This measure is usually used when a promise
is enforceable only because of reliance, as in case of a relied-upon
donative promise. Reliance damages give the breach victim her
costs, so that she is put back into the position she would have been
in had the promise not been made. Generally reliance damages are
not available unless expectation damages are too speculative.
iv. Restitutionary damages or quasi contractual damages: The
general rule is that these are available when the non-breaching
party has transferred a benefit to the breaching party. These are
usually awarded when a party has conferred a benefit on another
under an unenforceable contract (maybe unenforceable under
statute of frauds etc.), when no contract was formed but a benefit
was conferred in a pre-contractual stage etc.
v. Punitive damages: To punish the wrongdoer and deter from
engaging in similar conduct in the future. These are generally not
allowed in commercial contract cases. They are available if the
conduct constituting the breach is independently a tort. They may
also be available for a breach of good faith duty on theory that
good faith breach is tortious.
2. Basic Policies
a. Sullivan v. O’Connor: Plastic surgery nose case. The court does not
grant expectation damages because doctors rarely promise to provide a
specific result in surgery. Expectation damages too difficult to
b. Allen v. Jones: Oral contract to cremate p.’s brothers remains p. claims that
d. was negligent in packaging and transporting the body. Difficult to draw
line of when damages can be awarded for emotional distress. Both a tort and
contract theory. Court holds that p. can recover for mental distress without
accompanying physical injury but not other claims because allegations were
c. F.D. Borkholder Co. v. Sandock: D constructs concrete block addition
for P that has permanent moisture problems and the P can’t use for
intended use. Court awards compensatory damages and awards
punitive damages because was evidence that D engaged in fraud.
d. Boise Dodge, Inc. v. Clark: P buys car from D believing that car was new. D knowingly set odometer back. Court awards punitive damages
difficult to calculate other compensatory damages and fraud was
present in this case. Rule in their state was that fraud, malice and
oppression allowed for punitive damages finding.
4. Consequential Damages: Foreseeability; Mitigation; Certainty; Incidental Reliance
a. Consequential Damages: Special or consequential damages are the damages above and beyond general damages that flow from a breach as a result of the
buyer’s circumstances. (Often used to determine lost profits General rule is
that consequential damages are “only available to the extent that a reasonable
person at the time of entering in to the contract would have foreseen that
such damages would result from breach.” Example: in practice exam, Mary
would be unlikely to recover many consequential damages because her
expenses resulted from entering the contract and not from breach. She could
have argued special consequential damages if she had told Bill that she
needed couch for guests and instead had to put them up in hotel, but they
must be foreseeable and easier to recover if she had told Bill what potential
consequences could be.
b. Duty to Mitigate: An injured party is not permitted to recover damages that could have been avoided with reasonable efforts.
i. Under the UCC 2-715, if seller fails to deliver, the buyer has
a right to cover (buy substitute goods and recover damages).
If buyer fails to cover, she will be barred from recovering
any consequential damages she could have prevented from
ii. Employment Contracts: If the employer wrongfully
terminates the employment, the employee is under a duty to
mitigate by looking for a comparable job.
iii. Hadley v. Baxendale: P loses profits because D fails to
deliver crank shaft on time to P’s mill. A party injured by
breach should recover only those damages that should
reasonably be considered as arising naturally or in the usual
course of things or might reasonably have been
contemplated by the parties at the time the contract was
made. Consequential damages can be recovered only if, at
the time contract made, the seller had reason to foresee that
the consequential damages were the probable result of the
breach. Judge says shouldn’t have taken loss of profits
into account in estimating damages because they
weren’t reasonably foreseeable.
iv. Spang Industries, Inc., Fort Pitt Bridge Division v.
Aetna Casualty & Surety Co.: Contract to deliver steel.
Court says it was foreseeable that delay in delivery
would cause difficulties so awards consequential
v. Hydraform Products Corp. v. American Steel &
Aluminum Corp.: P brings action for D’s failure to
supply steel to make woodstoves. Court says
consequential damages should not have included lost
profits beyond the between the 400 listed in the contract
and the 250 actually sold.
vi. L. Albert & Son v. Armstrong Rubber Co.: Contract to
deliver four rubber refiners. Issue is whether buyer can
recover on expenses incurred from reliance on promise
of delivery of refiners. Court awards reliance damages
for the buyers preparation for refiners to arrive.
E.Equitable Remedies for Breach of Contract: Prohibitory Injunction and Specific
1. Specific Performance: An equitable remedy where the court orders the breaching party to perform as promised. Usually
invoked when there is no adequate remedy at law; ie where
damages are not an adequate remedy. Damages are not adequate
when contract pertains to unique subject matter such as land or
when damages cannot be measured with reasonable certainty.
2. Courts won’t order specific performance unless “it is easy to
administer, the balance of hardships tips in favor of the P, and
there is no harm to society.” (kieff)
3. UCC 2-716 gives buyer the right to specific performance “where
the goods are unique or in other proper circumstances.”
4. Injunction: An order of the court compelling the performance of
a specified act. When court considers whether an injunction
restraining D from breaching contract is appropriate they
consider if: without the relief, will the P suffer irreparable harm,
Is there a substantial probability of success on the merits, will
other be injured by the injunction and will the injunction be
inconsistent with or further the public interest.
5. A mandatory injunction is one where the court demands that an
action occur and a prohibitory injunction is one where they won’t
allow contract to go through.
i. Curtice Brothers Co. v. Catts: Contract for D to sell
tomatoes to P. Court says not an ordinary sales
contract because these tomatoes needed at a certain
time and of this quality to further the business
adequately. Court holds that D cannot sell crop to
others. (a prohibitory injunction example?)
ii. Laclede Gas Co. v. Amoco Oil Co.: P, a gas
company, seeks mandatory injunction prohibiting D
from stopping gas supply. Court grants
injunction/specific performance of contract because
of public interest of continuing gas supply to
iii. Northern Indiana Public Service Co. v. Carbon
County Coal Co.: P has contract with D to sell coal
at set price for twenty years. Prise decreases and D
attempts to get out of contract. P seeks specific
performance. Court doesn’t grant specific
performance because says can calculate damages. P
argues that workers lost jobs in mines reason for
spec. performance but court says workers not party
to the contract. Court says specific performance too
expensive and would impose costs on society
greater than the benefits.
iv. Walgreen Co. v. Sara Creek Property Co.: P sues D
for not following clause in contract that would
prevent them from offering mall space to a
competitor. Court does analysis of whether damages
or specific performance would be more expensive
because of negotiations and bargaining between
parties and says that damages would not adequately
compensate. Court holds for specific performance
in form of permanent injunction and won’t allow
competitor in until expiration of Wal Green lease.
v. American Broadcasting Companies v. Wolf: P and
D have employment contract with clauses that say
will have good faith negotiations after termination
of first contract. P seeks injunction requiring D not
to work at competitor TV station. Court says that
contract had been terminated and so can’t get
equitable relief even though he violated good faith
III. The Bargain Relationship
A. The Agreement Process: Manifestation of Mutual Assent
1. Determining whether a bargain was made by mutual assent of parties
is done with the “Objective” Test: Whether a reasonable person under the
circumstances would have considered there to be a bargain through words
2. Modern contract law rejects notion that a subjective meeting of the minds is
necessary. However, if both parties subjectively give same meaning to a term
then that meaning will govern even if it is not a reasonable meaning of term.
3. Has been greater acceptance of objective theory in common law decisions
since twentieth-century. Evidence from party’s state of mind can sometimes
be helpful in interpreting and giving context to words and conduct. This
subjective evidence is not likely to be given weight unless it gives
understanding to the objective meaning of assent.
4. Article 2 of UCC deals with the sale of goods and ordinary transactions.
UCC Sale of Goods. UCC- 204 has a very liberal interpretation of when a
contract is formed. 2-207 discusses when good are accepted but is different
than common law because deals with terms differently. UCC 2-204-208
5. If offeror does not state the duration of the offer, it must be accepted within a
reasonable time. No exact rule on effect of late acceptance (may be a new
offer, may not make a difference etc.)
i. Embry v. Hargadine, McKittrick Dry Goods Co.: P. believes
that he has a renewed employment contract for the next year based
on a statement from the president. Court holds that there was a valid
contract because a reasonable man would have construed the
statement to mean his employment was extended. Was no meeting of
minds but contract still enforced.
ii. Lucy v. Zehmer: Contract for sale of land in writing made
while P and D drunk and discussing in bar. Court says was a
binding contract because was in writing and were negotiations
and because a reasonable person would have construed a
contract. Court grants specific performance.
iii. Cohen v. Cowles Media Company: D newspaper fails to keep
P’s name confidential. Says contract for confidentiality