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Contracts- FInal Exam Flash Cards

Additional Law Flashcards




Contract Theory: Two Major Goals
  1. Promote Libertarianism- freedom of the public to operate indep. & enforce their own contracts
  2. Distributive Justice- fairness & protection 


Bailey v. West

Facts: Bailey (P) boarded a horse purchased but later rejected by West (D), and West refused to pay for Bailey's services

Issue: Was there an implied contract for Bailey (P) to care for the horse? Answer: NO

Rule: There can be no contract without the intention of both parties to be bound 

Bolin Farms v. American Cotton Shippers Association 

Facts: Bolin Farms and others (P) agreed to sell a year's cotton crop for a certain price to American Cotton Shippers Association (D), but the open market price for cotton increased dramatically before harvest. 

Issue: Does the increase in the market price for cotton make the sales agreements based on a much lower price unenforceable? Answer: NO 

Rule: changes in outside conditions that do not affect a party's performance will not make a contract unenforceable   **Libertarian Policy**





Restatement §24: an offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it 

Restatement: Definition
  1. an attempt to clarify and restate the law that already exists- a codification of what the law on contracts is and its adopted by states- legislatures would vote to adopt it or courts would and then it becomes law 
  2. Not binding legal authority! Most authoritative secondary source
  3. persuasive authority - general consensus of legal scholars on what the law should be
Lonergan v. Scolnick

Facts: Scolnick (D) advertised land for sale; following an exchange of information in letters, Lonergan (P) claimed that he had accepted Scolnick's offer to sell the land

Issue: Did the correspondence from SColnick constitute an offer to Lonergan to sell the property? Answer: No

Rule: an offer must be clear, definite, and explicit and state terms; no offer if person receiving it knows or has reason to know person making it does not intend to be final until further expression of assent- meeting of minds 

Lefkowitz v. Great Minneapolis Surplus Store 

Facts: Great Minn. Surplus Store (D) advertised fur coats and stoles on sale for $1.00, first come, first served; Lefkowitz (P) was first in line, but the store refused to sell to him

Issue: Does a newspaper advertisement that is clear, definite, explicit and leaves nothing open for negotiation constitute an offer, which, if accepted, will create a contract? Answer: Yes

Rule: An offer that is clear, definite, and explicit, and leaves nothing open to negotiation, acceptance of which will complete the contract 

Leonard v. Pepsico, Inc. 

Facts: Leonard (P) sought to buy a Harrier Jet allegedly offered in a Pepsico (D) television advertisement offering to exchange PepsiStuff points for merchandise; Pepsico rejected Leonard's demand. 

Issue: Did completion of an order form in response to a humorous advertisement create a binding contract to sell? Answer: No

Rule: Reasonable person standard when dealing with an ad: an objective reasonable person would consider this an offer 

Option Contract

Restatement §25: an option contract is a promise which meets requirements for contract formation and limits promisor's power to revoke an offer 

 -A contract made to keep an offer open for a specified period, so that the offeror cannot revoke the offer during that period 


Humble Oil & Refining Co. v. Westside Investment Corp. 

Facts: Humble (P) had an option to purchase real estate from Westside (D); Humble suggested changes to the purchase contract. Before the option expired, Humble withdrew the proposed changes and exercised the option to purchase property

Issue: Do continued negotiations or counteroffers by the offeree terminate the power of acceptance contained in an irrevocable option contract? Answer: No

Rule: If the original offer is an irrevocable offer that creates a binding optionin the offeree, counteroffers or further negotiations by the offeree do not terminate the power of acceptance; an option is not terminated by continued negotiations between the parties

  • Ex: if he has one week to buy in option for which he paid $100, and on day 4 proposes changes to sale contract, the option is still open to him and only him for that duration 
James Baird Co. v. Gimbel Brothers, Inc. 

Facts: Gimbel (D) submitted an offer to supply linoleum, mistakenly prices too low, to Baird (P), a general contractor, who used the offer as part of its bidding on a public building construction project; Gimbel withdrew its offer before the bid was awarded to Baird. 

Issue: Did placing a bid using a subcontractor's offer to supply materials create a binding contract between the contractor and the subcontractor if the subcontractor withdrew its offer prior to acceptance by the contractor? Answer: No

Rule: promissory estoppel does not apply to a subcontractor's bid that is withdrawn before acceptance

Drennan v. Star Paving Co. 

Facts: Star (D) submitted a bid to provide paving, mistakenly priced too low, to Drennan (P), a general contractor, who used the bid as part of its bidding on a school construction project; Star withdrew its offer after the big was awarded to Baird. 

Issue: Did placing a bid using a subcontractor's bid to supply services create a binding contract between the contractor and the subcontractor if the subcontractor withdrew its bid after the bid was awarded to the contractor? Answer: Yes, for a reasonable amount of time

Rule: Reasonable reliance resulting in a foreseeable prejudicial change in position implies a subsidiary promise not to revoke an offer for a bilateral contract

** difference from Gimbel Bros. is that a subcontractor knew of acceptance, and did not revoke in reasonable time

Restatement Section 36- Methods of Termination of the Power of Acceptance 

1. An offeree's power of acceptance may be terminated by

  • a. rejection or counter offer by the offeree, or
  • b. lapse of time, or
  • c. revocation by offeror, or
  • d. death or incapacity of either party 

2. Power of acceptance is also terminated by nonoccurrence of any condition of acceptance under terms of offer

LaSalle National Bank v. Vega

Facts: LaSalle National Bank (P) sought to purchase property from Vega (D) on behalf of a trust; the contract for sale was to be in force only when executed by the trust, but the trust never signed the document

Issue: Is an enforceable contract created when an offer has not been accepted in the manner set forth in the offer? ("Specific performance" as acceptance) Answer: No

Rule: The language of an offer governs the mode of acceptance; an offeror has complete control over the terms of the acceptance of the offer, which must be followed for acceptance to occur and a contract to be created

Restatement Section 30- Form of Acceptance Invited (Acceptance) 

1. an offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance

2. unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances


Hendricks v. Behee (missouri court of appeals)



Facts: Behee (D) withdrew his offer to buy real estate before the Smiths, out-of-state prospective sellers, were able to communicate their acceptance of the offer to Behee

Issue: Was a binding contract created when the sellers accepted the offer, but the would-be buyer withdrew the offer before the acceptance was communicated to him?  Answer: No

Rule: When an offer calls for a promise on the part of an offeree, notice of acceptance is essential, and there is no contract until acceptance of the offer is communicated to the offeror 

Restatement Section 38- Rejection

1. an offeree's power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention

2. a manifestation of the intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement 

Ever-Tite Roofing Corp. v. Green (Louisiana Court of Appeals)

Facts: Ever-Tite Roofing (P) began work on re-roofing the Greens (D) home within a reasonable time; the Greens (P) could not cancel the accepted order 

Issue: does acceptance of an order within a reasonable time by commencement of the work create an enforceable contract? Answer: Yes

Rule: The power to create a contract by acceptance of an offer terminates at the end of a reasonable time if no time is specified in the offer; acceptance within a reasonable time creates a contract


Carlill v. Carbolic Smoke Ball Co. (1893)



Facts: Carlill (P) claimed an advertised $100 reward after she used the carbolic smoke ball as directed and contracted influenza 

Issue: If one performs all the conditions for receiving a reward offered in an advertisement, has the offer been accepted, creating a contract for payment of the reward? Answer: Yes. 

Rule: one who performs the conditions for receiving a reward offered in an advertisement has accepted the offer, creating a contract; notice of acceptance not necessary b/c offer was made to "any person"= unilateral contract 

Ad was clear, definite, specific (offer); purchase, use and flu= consideration; notice of consideration= acceptance 

Restatement Section 41- Lapse of Time

a. an offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time

b. what is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made

c. unless otherwise indicated by the language or the circumstances, and subject to the rule stated in section 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received 

Russell v. Texas Co. (U.S. court of appeals)

Facts: the Texas Co. (D) continued to use Russell's (P) land to pump oil from adjacent lands after Russell offered a license to do so at a charge of $150 per day 

Issue: Does performance under an offer constitute acceptance of the offer, even if the offeree does not intend to accept the offer?  Answer: Yes

Rule: performance of conditions set forth for acceptance will be treated as acceptance 

Ammons v. Wilson & Co. (Mississippi supreme court)

Facts: Ammons (P) ordered 942 cases of shortening from Wilson (D), but Wilson did not respond to the order for 12 days (company usually shipped order w.o expressing acceptance in a week 

Issue: Whether silence was accepted as per previous transaction btwn. 2 companies?  Answer: Yes

Rule: Silence can act as an acceptance based on a course of prior dealings 

Restatement Section 69- Acceptance by Silence or Exercise of Dominion 

1. where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

a. where an offeree takes the benefit offered services with reasonable opportunity to reject them and reason to know that they were offered with teh expectation of compensation

b. where the offereor has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

c. where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

2. an offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him 

Adams v. Lindsell

Facts: Lindsell (D) offered to sell wool to Adams (P) by a letter sent to the wrong address; Adams (P) accepted the offer immediately by return mail. by which time Lindsell (D) had sold the wool to others

Issue: Was a contract offered by mail accepted when an acceptance was mailed to the offeror? Answer: Yes When does acceptance occur, transmission or receipt of transmission?

Rule: acceptance occurs when it is mailed- mailbox rule- if offeror weren't bound until receipt of acceptance, process of mailing counteroffers, acceptances, revocations, etc. could go on forever 

UCC Section 2-207- Additional Terms in Acceptance or Confirmation 

1. a definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless;

a. the offer expressly limits acceptance to the terms of the offer; 

b. they materially alter it; or

c. notification of objection to them has already been given or is given within a reasonable time after notice of them is received 

3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. 


Minneapolis & St. Louis Railway Co. v. Columbus Rolling- Mill Co. (US Supreme Court)


Facts: Columbus (D)offered to sell 2000 to 5000 tons of iron rails at a set price; the railroad (P) placed an order for 1200 tons,  which Columbus rejected, and the railroad then tried to order 2000 tons

Issue: Was the order for the quantity of 1200 tons a counter offer, nullifying original offer? Answer: Yes

Rule: a counter offer is also a rejection; any variance from an offer in an attempted acceptance constitutes a counter- offer, not an acceptance, and no contract has been formed - "An offeree having once rejected an offer cannot afterwards revive by tendering acceptance" 

DTE Energy Technologies Inc. v. Briggs Electric, Inc. (Eastern dis. of Michigan- US dist ct)

Facts: a seller sued a buyer for failure to pay for electric generators, but the buyer argued that the court lacked personal jurisdiction because it had not assented to the forum- selection clause in the acknowledgement returned by the seller in response to the buyers purchase order

Issue: Did the forum-selection clause contrained in the acknowledgement sent in response to the buyers purchase order govern the parties' agreement? Answer: No

Rule: A contractural forum- selection clause may not be enforced against one not bound by the contract 

UCC 2-207 (2)- additional terms become additions to the contract unless offer expressly limits acceptance to its terms, they materially alter it, or notice of objection is given reasonable time after notice of changes rec'd 

Court found that acknowledgment form was acceptance, not counter offer, fine print not binding b/c it expressly relied on buyer's assent

Textile Unlimited Inc. v. A... BMH and Company, Inc. (US Court of Appeals)

Facts: A..BMH (D) attempted ot require Textile (P) to arbitrate a contract dispute related to the sale of yarn in Georgia; Textile obtained an injunction against the arbitration in a federal court action in Cali

Issue: Is a preliminary injunction by a California court warranted against an arbitration being conducted pursuant to an arbitration clause contained in a seller's invoice, the terms of which were not explicitly accepted by the buyer? Answer: Yes

Rule: An arbitration clause contained in a seller's invoice whose terms are not expressly accepted by the buyer will not be imposed on the parties by the U.C.C; acceptance of add'l terms was conditioned on assent, and P did not give "specific and unequivocal assent" thus, not a part of the contract 


a method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding 

Hill v. Gateway 2000 (US Court of Appeals)

Facts: The Hills (P) purchased a computer from Gateway (D), which was shipped with standard contract terms, including an arbitration clause to be binding if the computer was not returned within 30 days

Issue: Do terms, including arbitration clause, packaged with a product bind customers who use the product after an opportunity to read the terms and to reject then by returning the product? Answer: Yes. 

Rule: The contract terms packaged with a product bind customers who use the product after an opportunity to read the terms and to reject them by returning the product 

Klocek v. Gateway (US District Court)

Facts: Klocek (P) purchased a computer from Gateway (D), which was shipped with standard contract terms, including an arbitration clause, but be binding it the computer was not returned within five days

Issue: Did the contract for sale of the computer contain the Standard Terms as part of the agreement? Answer: Yes

Rule: The contract terms packaged with a product do not bind customers who use the product after an opportunity to read the terms and to reject them by returning the product 

**Hint at unconscionability**


-a bargained for exchange of something of legal value that is of detriment to the promisor or of benefit to the promisee 

-nothing in contract law which requires contract to be adequate- sufficient consideration need not be adequate

-consideration need not be novel; parties of a contract are free to bargain, even if the consideration bargained for is of unequal or dubious value 

Kirksey v. Kirksey (Ala. Sup. Ct. (1845))

Facts: a widow attempts to enforce her brother- in- law's promise that induced her to move to his estate

Issue: Is a change of residence in reliance on a promise to provide a new house and land sufficient consideration to create an enforceable contract? Answer: No

Rule: Reliance on a promise made without a bargain does not create contractural liability; a promise that is mere gratuity is not enforceable - no consideration from her 

Hamer v. Sidway (N.Y. Court of Appeals 1891)

Facts: An uncle, who promise to pay his nephew $5,000 if he refrained from drinking alcohol, using tobacco, swearing, and playing cards until he was 21 years old, failed to pay

Issue: Can a promise be supported by valid consideration even in the promisor does not benefit? Answer: Yes

Rule: A legal detriment or forbearance can constitute adequate consideration; a promise is supported by consideration, and therefore enforceable, if one party suffers some detriment or forbearance as a result of the promise 

**Forbearance of legal right= detriment to the promisor= consideration 

**This case illustrates meaning of LEGAL VALUE 

Langer v. Superior Steel Corp. PA 1932

Facts: Langer (P) retired from Superior Steel Corp. (D), which promised to pay him $100 per month as long as Langer did not work for a competitor. He was then notified he was not receiving anymore payments, sued for breach

Issue: Is a promise enforceable if the promisor derives some benefit from the promisee's act or forbearance? Answer: Yes 

Rule: a promise is supported by consideration if the promisor derives some benefit from the promisee's act or forbearance; adequate consideration exists if a former employer benefits from a promisee's act or forbearance 

Jara v. Suprema Meats, Inc. CA 2004 

Facts: A father and son, both shareholders in the son's meat distributing company, entered into litigation over whether they had formed a valid contract that the father must agree to increases in the son's compensation 

Issue: Did the parties enter into an enforceable contract regarding the requirement of Jara Sr.s (P) agreement to increases in the officers' compensation? Answer: No 

Rule: agreements, to be enforceable, must be bargained for

Browning v. Johnson WA 1967

Facts: two osteopaths entered into a contract whereby one would sell his practice to the other, but the seller later changed his mind and purportedly entered into an agreement with the buyer to cancel the sale

Issue: Did the parties enter into an enforceable agreement to cancel the sale in exchange for a payment of $40,000 to the would-be buyer? Answer: Yes

Rule: in a unilateral contract, a detriment suffered by the promisee at the promisor's request, and as the price for the promise, is sufficient consideration, even though the promisor is not benefited thereby. Adequacy of consideration is different than sufficiency. 

Apfel v. Prudential- Bache Securities, Inc. 

Facts: Apfel (P) sold an idea to Prudential (D) relating to a computerized system for holding, trading, and issuing municipal securities, and Prudential paid the plaintiffs pursuant to the parties' agreement for a period of time, but stopped making the payments, claiming the idea was not novel

Issue: Is a contract for an idea supported by legal consideration, even if the idea is not novel? Answer: Yes

Rule: Parties to a contract are free to bargain, even if the consideration bargained for is of unequal or dubious value. Consideration need not be novel. 

Jones v. Star Credit Corp. 

Facts: The Joneses (P) agreed to purchase a $300 freezer on credit, at a price that exceeded $1200 with additional credit charges and fees

Issue: Under certain circumstances, is a contract for a purchase at an exorbitant price unconsciounable under Section 2-302 of the U.C.C.? Answer: Yes

Rule: If a court finds that a contract or any contract clause is unconscionable, it may refuse to enforce the contract or the clause, or it may limit the application of an unconscionable clause to avoid the result

**factors: disparity btwn. value and price, credit charges compared to actual value, limits to buyer's resources, inequality of bargaining power 

In re Greene 

Facts: Greene and his former lover agreed at the termination of their relationship that Greene would pay his former lover $1,000 per month in exchange for $1 (not proven to have been paid) and "other valuable considerations", but Greene sopped making the payments and declared bankruptcy

Issue: Is an agreement btwn. parties based on their prior cohabitation enforceable? Answer: No (no consideration)

Rule: an agreement that is based solely on the parties past cohabitation lacks adequate consideration 

Nominal Consideration 

consideration in name alone with no value is no consideration 

Fiege v. Boehm 

Facts: Boehm (P) agreed to release her right to bring a paternity suit against Fiege (D), the alleged father of her illegitimate child, in exchange for Fiege's agreement to pay certain expenses and later found it was not his child and refused to pay

Issue: Is forbearance to assert a claim adequate consideration if the forbearing party had an honest belief that he or she had a claim? Answer: Yes. 

Rule: Releasing a claim is valid consideration as long as the party releasing the claim honestly believed the claim was valid and there as an objectively reasonable basis for the claim. Forbearance of a claim may be sufficient consideration 

Pre-existing Duty Rule

a previously established legal duty is not valid consideration for a new contract 

Levine v. Blumenthal (NJ Supreme Court) 

Facts: Levine (P) who leased retail space to Blumenthal (D) for an agreed amount of rent, allowed Blumenthal to pay a lesser amount of rent during the lease's second year.  Tenant left with one month left, landlord sued for that month and difference from monthly contract amount and amount paid in year 2 

Issue: Does a party's payment of a lesser rent constitute a valid lease modification supported by adequate consideration? Answer: No

Rule: Parties are free to modify existing agreements, as long as the modification is supported by new and independent consideration

Alaska Packers' Association v. Domenico (US Court of Appeals) 

Facts: A cannery hired sailors for seasonal work, but the workers, who knew that replacement workers were not available, refused to perform their duties unless they were paid higher wages and sued the cannery when it failed to deliver a promised raise 

Issue: If workers demand increased compensation to perform contracted work, is a promised raise enforceable? Answer: No

Rule: if a contractual party demands additional compensation to perform a duty it is already obligated to perform under the contract, an agreement to pay more compensation lacks consideration and is unenforceable

Angel v. Murray (RI Supreme Court) 

Facts: Maher (D), a garbage collector, contracted with the city for additional money because the number of dwelling units he serviced increased, a citizen sued saying there was no valid consideration

Issue: Does the pre-existing duty rule prevent parties from modifying a contract if unexpected or unanticipated difficulties arise during the contract term? Answer: No

Rule: The preexisting duty rule does not prevent parties from modifying a contract if the original contract has not been fully performed, the parties did not anticipate the circumstances necessitating the modification, and the modification is fair and equitable.  A contract modification is enforceable without consideration under certain circumstances. 

Rehm- Zeiher Co. v. F.G. Walker Co. (Kentucky Court of Appeals) 

Facts: A contract between Rehm-Zeiher (P) and Walker (D) provided that RZ would purchase a certain amount of whiskey from Walker each year, unless it needed less for "unforeseen reasons" but Walker refused to provide the full number of cases provided by the agreement

Issue: Is a contract that lack mutuality of obligation enforceable? Answer: No

Rule: If one party to a contract has a "free way out" the contract lacks mutuality of obligation and is unenforceable 

Mutuality of Obligation 

the agreement of both parties to a contract to be bound in some way 

McMichael v. Price (OK Sup Court)

Facts: Price (P) agreed to purchase all the sand he could sell from McMichael (D) for an agreed-upon price, but McMichael (D) breached the parties' agreement 

Issue: Is a contract enforceable if the amount of product to be purchased under the contract is identified as all that the buyer could sell? Answer: Yes

Rule: agreements between sellers and buyers are not enforceable if one party has a "free way out" allowing that party to escape future liability under the agreement. 

- mutuality of intent binds both, in NY it is implied that all contracts have an implied covenant of good faith or fair dealing 

Wood v. Lucy, Lady Duff- Gordon (NY Court of Appeals

Facts: A fashion designer contracted with Wood (P) to give him exclusive rights to market her fashion designs and sell her endorsements to other designers, but Wood sued Lucy after she placed her endorsement elsewhere and did not share the profits with him

Issue: May a court imply a promise to make reasonable efforts to perform an exclusive dealing contract? Answer: Yes

Rule: an agreement for exclusive dealings contains an implied term that the parties will use reasonable efforts in performing their obligations 

Omni Group, Inc. v. Seattle First National Bank (WA Court of Appeals)

Facts: Omni Group (P) agreed to purchase property from the Clarks, subject to Omni's satisfaction with a feasibility study, but the Clarks declined to go through with the purchase transaction, and Omni (P) sued Seattle Bank, executor for Clark's Estate, for specific performance

Issue: Is a contract with a personal satisfaction clause enforceable even though there is no hard obligation to perform? Answer: Yes

Rule: an illusory promise is not adequate consideration, but a promise is not illusory because it depends on the satisfaction of a condition; there is an implied obligation for the buyer to act in good faith

- mutuality existed due to purchaser's duty to act in good faith and exercise reasonable judgment when assessing report 

Illusory Promise

A covenant cloaked in promissory terms but actually containing no commitment by the promisor 

Specific Performance

A court- ordered remedy that requires precise fulfillment of a legal or contractual obligation when monetary damages are inappropriate or inadequate, as when the sale of real estate or a rare article is involved 

Promissory Estoppel

-In the law of contracts, the doctrine that provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present.

Elements: 1. Promise 2. Reasonable detrimental reliance 3. resulting injustice

- not meant to be used to correct defective contracts, courts ought not to use it to create enforceable contracts, but judges do all the time 


Restatement Section 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. 

Ricketts v. Scothorn (1898) 

Facts: J.C. Ricketts promise Scothorn, his granddaughter, that he would pay her a certain amount of money so that she would no longer have to work, and, in reliance on that promise, Scothorn quit her job

Issue: Can a person who intends to cause and actually does cause another to change his or her position in reliance on a promise be estopped from denying the promise? Answer: Yes
Rule: If a promise is not supported by consideration, it may be enforceable if it induced the promisee to rely on it to his or her detriment; Promissory estoppel is an alternative to a bargained for exchange  

Allegheny College v. national Chautauqua County Bank of Jamestown 

Facts: Johnston, who promised to pay Allegheny college (P) $5,000 to be used as a scholarship for students planning to go into the ministry, gave the College $1,000, but then repudiated her promise

Issue: Is a charitable promise to give a college money to be used for scholarships enforceable? Answer: Yes 

Rule: A charitable subscription is supported by consideration

- naming the school's fund and provision of a studetns going to ministry was consideration enough to call this a contract 

Dissent: Said Cardozo had strained to find value in things with no legal value 

Congregation Kadimah Toras- Moshe v. DeLeo (MA sup court)

Facts: The decedent orally promised to make a $25,000 gift to the Congregation (P), but he died intestate and did not otherwise put his intent to make the gift in writing 

Issue: Is an oral promise to make a gift enforceable if not supported by reliance? Answer: No

Rule: an oral promise to make a gift must be supported by consideration or reliance 

- no enforceable promise, never actually did anything except put $$ in budget to build library 

Blinn v. Beatrice Cmty. Hospital v. Health Ctr., Inc. (NE Supreme Court- 2006) 

Facts: A hospital employee turned down a better job elsewhere based on promises of continued employment with his current employer, which six months later terminated his employment

Issue: Did Blinn (P), properly state a claim against Beatrice for wrongful termination of his employment Answer: Yes

Rule: Oral promises may or may not require the definiteness of a contract in order to be enforceable 

Problem: If a statement is too indefinite to be considered an offer, how can it be considered a promise that could be reasonably relied upon?- Not a good case to follow, but a good example of confusion regarding promissory estoppel 

Cohen v. Cowels Media Co. (MN Supreme Court)

Facts: Cohen (P) gave newspaper reporters information about a political candidate in exchange for a promise to keep his identity confidential, but newspaper editors revealed Cohen's identity in news stories 

Issue: Is the promise of confidentiality enforceable under promissory estoppel? Answer: Yes

Rule: a promise of confidentiality made to a news source may be enforced under the doctrine of promissory estopped to prevent any injustice resulting from revealing the source's identity 

- he was promised anonymity, relied on it, was fired= detriment

only method of avoiding injustice= $$

All-Tech Telecom, Inc. v. Amway Corp. 

Facts: Amway (D) and All-Tech (P) contracted for the sale and purchase of a product, but All-Tech was dissatisfied and sued Amway, claiming that Amway's product research was not thorough 

Issue: Can a party bring a claim for promissory estoppel if it fails to show a breach? Answer: No

Rule: a breach is necessary for the use of promissory estoppel in a warranty situation; promissory estoppel doesn't give you a 2nd bit of the apple! 

- All-Tech failed to prove that Amway breached the contract by failing to research thoroughly 

Writing Requirements

refers to the requirement that certain kinds of contracts be memorialized in a signed writing; traditionally, the statute of frauds requires a signed writing in the following circumstances:

- contracts in consideration of marriage

- contracts which cannot be performed within one year

- contracts for the transfer of an interest in land

contracts by the executor of a will to pay a debt of the estate with his own money

- contracts for the sale of goods involving purchase of $500 or more

- contracts in which one party becomes a surety (acts as a guarantor) for another party's debt or or other obligation 

Professional Bull Riders, Inc. v. AutoZone, Inc. 

Facts: The plaintiff drafter a sponsorship agreement between the parties, but the defendant sponsor never signed it, and when the defendant terminated the agreement, the plaintiff sued for breach of contract, arguing that the parties had an oral agreement; a question arose as to whether the Statute of Frauds applied such that the oral agreement was void 

Issue: Is an oral agreement void when it contemplates performance over 2 years, but allows party charged with breach an option to cancel before 1 year is up making the writing requirement necessary? Answer: No 

Rule: an option to terminate within a year whether exercised or not, may remove a contract from the Statute of Frauds

- AZ had the option to terminate after 1st season, making it able to be performed one year

- READ REQUIREMENT NARROWLY: if a contract cannot be performed within one year, it is invalid unless in writing 

- they made a legal decision based on the meaning to promote policy goal to make as many contracts enforceable as possible 

U.C.C. Section 2-201. Formal Requirements; Statute of Frauds 

(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of thecontract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

  • (a) if the  are to be specially manufactured for the  and are not suitable for  to others in the ordinary course of the  business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; orgoodsbuyersaleseller's
  • (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a  was made, but the  is not enforceable under this provision beyond the quantity of  admitted; orcontract for salecontractgoods
  • (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

Purpose of Statute of Frauds


Purpose of statue of Frauds- means that they don’t want people to lie about the existence of contracts or their terms  à prevent perjury (policy goal)

Does the statute of frauds actually achieve its policy goal of preventing perjury?

-it’s the time that has passed from the time you made the contract between the time you try to enforce it that matters- requires contract to be in writing if performance of contract would take over a year (overbroad) – conversely if contract could be performed in 6 months it isn’t included, but you have 6 years to enforce it, you want it to be included because who remembers what they did 6 years ago? In this instance it doesn’t prevent perjury

- SOF does not exist, it is an idea- we all know what it is- not a statute nor is is about frauds, simply an idea that some types of contracts need to be written down 

Sullivan v. Porter (Real Estate Writing Req.)

Facts: the seller of a horse farm attempted to renege on the deal and asked for more money, after the buyer had expended substantial effort in improving the property and it was appraised for an even lower than the original asking price, and the court ordered specific performance of the original contract of sale 

Issue: Did the parties enter into an enforceable agreement for the sale of the farm property, even thought it was never reduced to writing, where the buyer had partially performed under the contract? Answer: Yes

Rule: to remove a contract from the operation of Statute of Frauds baed on part performance, the party seeking enforcement must establish by clear and convincing evidence that the parties did in fact enter into a contract; that he partially performed under the contract; and that his performance was induced by the other party's misrepresentations which may include acquiescence or silence 

**part performance doctrine**

Part Performance Doctrine 

3 elements:

1. contract exists- verbal agreement had definite terms: Property, parties, price, financing $ down etc. 

2. party seeking enforcement partially performed- 

3. performance was induced by other's misrepresentations 

What sort of perjury does this prevent? Flat out lying about existence of contracts

What sort of perjury does it leave room for?  Does nothing to prevent perjury about the terms 

Crabtree v. Elizabeth Arden Sales Corp. 

Facts: Elizabeth Arden Sales Corp. (D) hired Crabtree (P) as a sales manager and entered into a two- year employment contract with him, but the agreement's terms were memorialized in three writings, only two of which were signed by Arden's representatives 

Issue: Is the requirement of writing under the SOF satisfied by oral testimony that establishes the relationships between several documents, some signed and others unsigned? Answer: Yes

Rule: a combination of signed and unsigned writings may be sufficient to satisfy the statute of frauds if they reference the same transaction

Raffles v. Wichelhaus (1864 UK) 

Facts: Raffles (P) agreed to sell to Wichelhaus (D) 125 bales of cotton to arrive on the ship "Peerless" from Bombay.  Wichelhaus (D) refused to purchase cotton on the ship Peerless that sailed in December, contending the agreement was for cotton no the ship Peerless that sailed in October

Issue: Does a mutual mistake by the parties void the contract? Answer: Yes

Rule: a mutual mistake as to the subject matter means that a contract is void because the parties did not consent to the same thing; need meeting of the minds - Is the term at issue material, if it is is it ambiguous?




Konic International Corporation v. Spokane Computer Services, Inc. 

Facts: Employee at Spokane (D) ordered a surge protector from Konic (P) for "fifty-six twenty."  He was authorized to spend $200. The unit was worth $5620, but Spokane thought the unit price was $56.20; the error was not discovered until well after the unit was delivered and installed

Issue: If the parties attach materially different meanings to their manifestations of assent, is a contract formed if neither party knows or has reason to know the meaning attached by the other? Answer: No

Rule: Even though the parties manifest mutual assent to the same words of the agreement, there may be no contract because a material difference in the understanding as to the terms of the exchange; a material difference in understanding may void a contract 

Lefkowitz v. Great Minneapolis Surplus Store

Facts: Great Minneapolis Surplus store (D) advertised fur coats and stoles for $1, first come, first served; Lefkowitz (P) was first in line, but the store refused to sell to him 

Issue: Does a newspaper advertisement that is clear, definite, explicit, and leaves nothing open for negotiation constitute an offer, which, if accepted will create a contract? Answer: Yes

Rule: an advertised offer that is clear, definite, explicit, and leaves nothing open for negotiation constitutes an offer, acceptance of which will complete the contract

**Simply raises alternative basis to decide this case 

Griffith v. Clear Lakes Trout Co., Inc. 

Facts: Griffith (P) sued Clear Lakes (D) for breach of a contract based on conflicting interpretations of what constituted "market size" trout, and the trial court awarded damages to the fish grower, accepting his definition. 

Issue: Did the parties' disagreement as to the meaning of "market size" render their contract unenforceable? Answer: No

Rule: an agreement that is so vague, indefinite, and uncertain that the intend of the parties cannot be ascertained is unenforceable, and courts haven o choice but to leave the parties as they found them; the law does not favor the destruction of contracts based on uncertainity

**even though one or more terms are left open, a contract for sale doesn't fail for indefiniteness if the parties have intended to make a contract and there is a reasonable basis for giving the appropriate remedy

168th and Dodge, LP v. Rave Reviews Cinemas, LLC 

Facts: a commercial property developer and a theater chain owner were unable to finalize a deal between them for a project in Omaha, Nebraska, and the developer, who was able to find a replacement theater, had bought extra land and spent 1M to remove gas lines based on correspondences, letter of intent, etc. 

Issue: Did the letter of intent and other amass of letters, conversations, etc. provide enough of an argument to create a contract? Answer: No

Rule: A meeting of minds must occur at every point, with nothing left open for future agreement in order for there to be a contract

- here there was a letter of intent to contract, which proves even more that there was no contract PLUS- writing requirement- not able to be performed in one year 


Mutual Mistake Restatement Section 152




- situations where both parties to the contract make a mistake based on something that goes to the heart of the contract 

*Section 152 When Mistake of Both Parties Makes a Contract Voidable

Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154.It is more difficult to obtain excuse for unilateral mistake, which requires the same conditions as mutual mistake plus either condition 153 (a) or 153 (b):


Unilateral Mistake 

Restatement Section 153


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 under the rule stated in 154, and


 a. the effect of the mistake is such that enforcement of the contract would be unconscionable, or

  1. the other party had reason to know of the mistake or his fault caused the mistake

Restatement Section 154

When a Party Bears the Risk of a Mistake 


A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or

(b) 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, or

(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.


Boise Jr. College Dist. v. Mattefs Constr. Co

(UNILATERAL MISTAKE) & 5 things to prove w. Equitable Rescission 


Facts: Mattefs (D) was awarded a construction contract for the District, based on a bid that it submitted(which included a bid bond w promise to pay the difference btwn its bid and next highest bidder if refused to sign K), but it refused to sign the contract because the bid erroneously omitted a significant item

Issue: Is the D entitled to equitable relief of rescission if it has submitted a bid that contains a material clerical mistake? Answer: Yes

Rule: A party is entitled to rescission if it submitted a bid that contains a material clerical mistake

5 Things to prove for Equitable Rescission

1. mistake is material

2. enforcement of K w/ incl. terms would be unconscionable

3. mistake didnt result from violation of duty or culpable negligence

4. other party wont be prejudiced by his loss

5. prompt notice of error was given


Beachcomber Coins, Inc. v. Boskett 



Facts: Beachcomber Coins (P) bought a coin (for $700) that both parties believed was rare from Boskett (D), a part-time coin dealer; the coin turned out to be counterfeit 

Issue: Does failure of a party to discover a mutual mistake preclude rescission as a remedy? Answer: No

Rule: A party's negligent failure to know or discover facts as to which both parties are mistaken does not preclude rescission as a remedy (Reversed, BUT did not have to) 


Sherwood v. Walker (MUTUAL MISTAKE)




Facts: Sherwood (P) and Walker (D) agreed in writing for Sherwood's purchase of a cow both parties believed to be barren, but Walker refused to deliver the cow to Sherwood after discovering the cow was with calf 

Issue: Does a mutual mistake that goes to an agreement's substance or nature warrant rescission of the contract? Answer: Yes

Rule: rescission is a proper remedy when the parties' mutual mistake goes to the agreement's substance or nature 

Here- both parties thought it was barren, thats why they agreed on the low price, voidable by seller

Dissent: doesn't matter what seller "thought," but what he agreed to. saying he "thought" it was barren doesn't mean it definitely was

Lenawee County Bd. of Health v. Messerly (MUTUAL MISTAKE)

Facts: a couple bought land & apt bldg to use as income property from D on an "as-is" basis, then found out there was an illegal septic tank installed 2 owners earlier, land got condemned

Issue: did the condemnation of the property give it a $0 value, and thus not valid consideration, making sale K voidable by mutual mistake?  Answer: No

Rule: 152- mutual mistake doesn't make K voidable if adversely effected party has assumed the risk && 154(a)- assumption or risk can be allocated to a party in the agreement

**Purchase on "as-is" basis means buyers assumed the risk, K not voidable 


Performance of a contract will normally be excused if the performance has been made "impractical" when an event that is supposed to occur does not, and that event was a basic assumption on which the contract was made UNLESS the adversely affected party has assumed the risk 

Factors Courts Consider:

a. what was the nature of the risk event & what was its impact

b. is a party seeking relief at fault in either causing or not minimizing impact of event?

c. if no, did the agreement allocate the risk?

d. If no, how is the court to "fill the gap" in risk allocation

1. some impose risk on maker of unconditional promise

2. others discharge obligation all together

e. what is nature and scope of relief? is there a fair middle ground?

f. did modification take place? is it enforceable? is there bad faith?


United States v. Wegematic Corp. 

Existing Impracticability 


Facts: Wegematic (D) agreed to sell a computer to the Federal Reserve Board (P) that had the "latest technical advances" in 9 months, but did not make the delivery, which meant they would pay $100 a day (as stated in contract) until delivered, many delays and couldn't deliver citing engineering difficulties that were impracticable to fix

Issue: Is Wegmatic (D) excused from performance on the grounds of impracticability when it failed to live up to its own standards?  Answer: No 

Rule: a party will not be excused from contractual performance due to that party's inability to meet performance standards set by that party 

- K was made on assumption that the necessary technology would exist, but only because Wegematic had assumed the risk by promising to deliver undeveloped technology 


Taylor v. Caldwell (UK 1863)

(Supervening Impracticability) 


Facts: Taylor (P) contracted to use Caldwell's (D) music hall for a serious of concerts, but the music hall burned down before the first concert could be given

Issue: Did the unforeseen non-existence of the concert hall at time of performance nullify the contract? Answer: Yes

Rule: when the performance of a contract depends on the continued existence of some particular thing, the destruction of that thing will excuse the party from performance (the existence of the concert hall was assumed in agreement- think of modern day insurance 


Can. Idus. Alcohol Co. v. Dumbar Molasses Co. 

(Supervening Impracticability)


Facts: Dunbar Molasses (D) agreed to sell Canadian Industrial Alc. (P) 1.5M barrels of molasses from the National Sugar Refinery, but D only ended up delivering 334K, said K had implied term that duty to deliver was contingent upon production of the refinery

Issue: Did the low output of molasses by a non-party to the contract relieve Dunbar Molasses of its obligation to perform? Answer: No

Rule: The continued existence of a circumstance will be a condition of performance only if it appears that the parties presupposed the pre-existence of that condition

** D could have written assumption of risk into K and if something unforeseen had prevented delivery, D would not be liable  

Dills v. Town of Enfield (Supervening Impracticability)

Facts: Dills (P) was a developer trying to buy commercial property from Enfield, agreement was to pay $100K down which he did, and then submit construction plans and proof of financing; if P couldn't get financing, he could withdraw and get $100K back after submitting satisfactory plans; also clause for D to cancel sale & keep deposit if not plans rec'd. D tried to get out of submitting plans claiming impracticability

Issue: Was Dills excused from performance due to impracticability? Answer: No.

Rule: Impracticability will excuse performance only if it results from a condition that was not foreseen and if the nonoccurrence of that condition was a basic assumption on which the contract was made 


-the purpose or value of the contract has been destroyed by a supervening even that was not reasonably foreseeable at the time the contract was entered into

-rather than a circumstance that prevents performance, circumstances that "frustrate" the purpose of the agreement 

Paradine v. Jane (1647 UK)

Facts: Jane (D) leased property from Paradine (P), but was kept off the property for most of the term of the lease by a hostile army and claimed he shouldn't have to pay rent due to frustrated purpose

Issue: Was Jane excused from paying the rent? Answer: No

Rule: a party who voluntarily takes on an obligation is bound to perform that obligation, notwithstanding any accident or other occurrence

**NOT GOOD LAW, just ex of D's notion of frustration from a long time ago 

Washington State Hop Producers, Inc. v. Goschie Farms, Inc. (EXISTING IMPRACTICABILITY) 

Facts: Washington State (P) sold government-required allotments for growing hops to Goschie Farms (D), which refused to perform the contract after the govt. no longer required the allotments

Issue: Did the termination of the allotment program amount to a frustration of purpose? Answer: Yes

Rule: When the principal purpose of a contract is frustrated, so that performance of the contract makes little sense, the duty to render performance is discharged (Restatement Section 265) 

Krell v. Henry

Facts: Henry (D) rented Krell's (P) flat in London to see the procession of the new King that was to go right past his front door.  King became sick and procession was cancelled/postponed and D claimed frustration of purpose

Issue: Did frustration apply? Answer: Yes

Rule: Ask: what was foundation of the K? was performance prevented? was event preventing performance not reasonable within either party's contemplation? 


The threat of confinement or detention, or other threat of harm, used to compel a person to do something against his or her will or judgment 

a. promotes Fairness

b. promotes free autonomy

c. confirms our ability to make choices and affirms those choices 

Rubenstein v. Rubenstein

Facts: Wife threatened husband w. arsenic poisoning until he agreed to sign deed for real estate over to her which were legitimate because her father was in prison for poisoning someone.  In response to this, P transferred all his real property and assets to his estranged wife 

Issue: Was the contract formed under duress making it rescindable? Answer: Yes

Rule: K is voidable under duress if party can show reasonable:

1. fear of loss of life; or

2. fear of loss of limb; or

3. fear of great danger; or

4. fear of imprisonment

5. due to D's actions

REAL QUESTION - Did P exercise his free will

Austin Instrument, Inc. v. Loral Corp. 

Facts: Austin (P) threatened to cease deliveries of parts it was supplying to Loral 9D) pursuant to a subcontractor agreement unless Loral awarded Austin a second subcontract and agreed to a price increase on the items Austin was supplying under the initial subcontractor agreement 

Issue: Whether substantial duress was present enough to void 2nd K 

Rule: To establish economic duress, a party that has been threatened by the breach of another party to a contract must show that the threatened party could not obtain the goods from another source and that a breach of contract remedy would not be adequate

Machinery Hauling, Inc. v. Steel of W. Va. 

Facts: Machinery Hauling (P) buying steel from Steel (D) and selling it to 3rd party, 3rd party refused one shipment, Machinery told Steel, and Steel demanded the $31K it would have made from the sale, threatening to deny all further business to Machinery, which would cause P $1M in future revenue 

Issue: Does a party's threat to sever its business relationship create actionable economic duress? Answer: No

Rule: Future expectancy is not a legal righto n which a plaintiff can anchor an economic duress claim 

Here- there was no transaction to void, they didn't pay the 31K and future revenue was a speculative # and not a legal right 


2 factors to look at: Procedural & Substantive

1. Procedural: FAIR BARGAINING PROCESS: parties had no chance to negotiate

2. Substantive: FAIRNESS OF WHAT WAS BARGAINED FOR: outcome is so unconscionable 

U.C.C. Section 2-302 (Unconscionability)

"if a court as a matter of law finds a contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable results

**It is normally up to the trial judge, rather than the jury, to decide

Zapatha v. Dairy Mart

Facts: Zapatha's (P) franchise agreement with Dairy Mart (D) was terminated pursuant to a termination clause in the franchise agreement after he refused to enter into an updated franchise agreement that contained less favorable terms (D had originally advised P to get a lawyer to review before signing) 

Issue: Is a termination provision always unconscionable and invalid? Answer: No

Rule: unconscionable clause has to be so one sided that it is shocking in its unfairness both procedurally and substantially

Here: procedurally- P had a chance to review and even waived right to lawyer; substantive- clause available to both, not unconscionable 

Coursey v. Caterpillar, Inc. 

Facts: The new truck that the Courseys (P) purchased for their hauling business developed engine problems and disrupted their business

Issue: Unconscionable? No

Rule: except in consumer goods cases that result in personal injuries, the buyer has the burden of proving the unconscionability of a limitation of remedy clause 

Williams v. Walker- Thomas Furniture Co. (DC Court of Appeals, State Court)

Facts: After Williams (P) defaulted on an installment contract for a stereo set she had purchased from WT (D), WT filed a complaint in replevin for possession of all items Williams had purchased on installment contracts with WT (she thought she took ownership ones she paid each item off, but each K read that collateral for that item was everything she'd purchased on store credit before)

Issue: Were the contracts unconscionable? Answer: No unconscionability under DC law, so court couldn't find for plaintiff, but made recommendation for congress to enact a statute 

Rule: No Unilateral mistake because a person has a duty to read a contract or to have it explained to him, and any unilateral mistake resulting from a failure to read the contract does not render the contract unenforceable 


"Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person's 18th birthday."

**When an infant enters into a contract: (Infants can enter into contracts at any time, but they can also get out of it at any time)

-      ** Can the contract be enforced against the infant?

-       **If the infant chooses not to rescind the contract, can it be enforced against his counterpart?

o   The adult who contracted is bound, has no discretion to move to have it rescinded

-       Necessities

o   If it is something that is a necessity then it is enforceable against the infant

o   A modification of the infant’s right to rescind

 1. What is a necessity (what you need to live)

·      look at the circumstances the individual

·      to what the individual is accustomed

  2. Why do we have that exception


if you allow them to get out of it, would people contract with infants for necessities? NO because no stability 

Jones v. Star Credit Corp. 

Facts: Jones (welfare recipients) purchased a home freezer for more than $1200 on credit from Star Credit, but the freezer's maximum value was only $300

Issue: Whether K could be remedied due to unconscionability Answer: Yes

Rule: a court may find a contract clause or an entire contract to be unconscionable at the time it was made, in which case it may either refuse to enforce the contract, excise the objectionable clause, or limit the application of the clause to avoid an unconscionable result (UCC CODE) 

** Policy Quest: Is it normatively appropriate for the law to stop people from taking advantage of each other? 

Ferguson v. Countrywide Credit Industries, Inc. 

Facts: Ferguson (P) an employee of Countrywide, filed sexual harassment, retaliation and hostile work complaints in district court against Countrywide and her supervisor, despite having signed an arbitration agreement as a condition of her employment that required arbitration of any claims against countrywide

Issue: is an agreement to arbitrate employment claims unconscionable? Answer: Yes

Rule: a contract clause must have some degree of both procedural and substantive unconscionability in order to render a contract unenforceable because it is unconscionable (not equal; the heavier one of them weighs, the less the other one needs to satisfy)

"aside from merely availing itself of the cost-saving benefits of arbitration, Countrywide has sought to advantage itself substantively by tilting the playing field" 

Misrepresentation and Duty to Disclose 

Withholding information is the same as lying; Requirements for Fraud:

1. unequal access to the facts

2. one party withholds the facts

3. withheld fact is material in that it alters the unknowing party's decision to enter the contract 


Restatement Section 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:

(a) where he knows that disclosure of the fact isnecessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.

(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which the 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.

(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effects of a writing, evidencing or embodying an agreement in whole or in part.

Laidlaw v. Organ (1817)

Facts: Organ (P) who knew that the war had just ended but did not respond when Laidlaw (D) asked if there was any news that would enhance the value of the tobacco, purchased tobacco from Laidlaw at a bargain price (When Laidlaw learned of this he repossessed the tobacco and Organ brought an action and court found for Organ, this is an appeal of the lower court decision)

Issue: Was the contract was invalid because a party did not communicate public information? Answer: No, Unless Organ acted in bad faith 

Rule: A party to a contract has no duty to disclose information in the public domain unless that party is asked a question that requires disclosure of the information

**question of whether fraud or imposition was practice is for the jury to determine; while there is no absolute duty to disclose, whether or not there is a duty is a question of fact determined by jury 

** CASE OF FIRST IMPRESSION (no legal authority or rule of law at time of this case)

when it invokes commercial perspective it refers only to practicality and reasonableness, (commercial prac. And commercial reasonableness) there is no direct evidence good faith ethics and equality were determined from commercial standpoint 

Vokes v. Arthur Murray, Inc. 

Facts: Vokes (P) a widow, was induced by a false statement to sign up for more than 2300 hours of dancing lessons at a cost of over $31, 000 by them telling her she was a good dancer, and actually was not (sued and was originally dismissed at trial)

Issue: Does a party's opinion amount to a misrepresentation for purposes of rescinding the contract? Answer: Yes 

Rule: Although a party has no duty to disclose facts within his knowledge or to answer inquiries respecting these facts, if the party undertakes to do so, he must disclose the whole truth 

Because his statements were not true and clearly made to cause Vokes to sign up for more dance lessons, they were misrepresentations that required rescinding Vokes' contracts

**Unequal access, party withholds facts, facts material 

Hill v. Jones 

Facts: The Joneses (D) sold their residence to the Hills (P) without voluntarily disclosing that the property was infested with termites (had asked if the line in floor was termite damage, D said no water damage, P had inspection done and nothing was found but D had withheld history of termites)  Trial court found for Joneses 

Issue: Does a seller of real-estate have duty to disclose facts that materially alter the value of the property?  Answer: Yes

Rule: A homeowner has a duty to disclose material facts that affect the property's value or desirability and that are known or accessible only to him, provided the seller knows that the buyer does not know the facts or that they are not within reach of the buyer's diligent attention and observation 

**have to determine if fact is material= something to which a reasonable person would attach importance in determining whether to enter the transaction 

Policy- promotes honest and fair dealing in business relationships 


Restatement Section 12 

Capacity to Contract 


1) no one can be bound by a contract who has no legal capacity to incur at least voidable contractual duties. Capacity to contract 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 

Bowling v. Sperry 

Facts: Bowling (P) a minor, returned a defective car to a car dealership where he had purchased it a week earlier, but was denied a refund of the purchase price 

Issue: Can a minor void a contract between the minor and an adult if the contract is not for necessaries? Answer: Yes

Rule: contract made by an infant out of necessity would be voidable, but this one is not 

Policy: If he can have a job and drive a car, why cant he contract?

Why do we have this rule? to protect minors in the marketplace (maybe over-inclusive)

Heights Realty, Ltd, v. Phillips

Facts: 84 year old woman signed exclusive listing right to her house to Heights Realty (P) later determined she was unable to care for herself. P Sued estate for commission, D said she was incompetent 

Issue: If substantial evidence is presented, can a trial court properly conclude that the presumption of a party's competency is overcome? Answer: yes

Rule: a party to a contract is not liable for paying a real estate comission if clear and convincing evidence overcomes the presumption that the homeowner had the mental capacity to contract

** Test of mental competence= whether a person is capable of understanding the nature and effect of the act in which they are tending to engage (no specific rule for elderly people like there is for infants) 

Mental Incompetence 

If you are unable to understand in a reasonable manner, what you are getting into, or if you are unable to act in a reasonable manner, the contract is rescindable by the incompetent party

-       policy principle is same as it is with children, protecting them from being prayed on in the market place 

Two conflicting policies: the protection of justifiable expectations and of the security of transactions, and the protections of persons unable to protect themselves against imposition 

CitiFinancial Inc. v. Brown 

Facts: Brown (D), a severely retarded and illiterate man, who was cared for by his mother, signed a debt consolidation agreement that contained an arbitration clause. Mother was cosigner of $$ K, but not arbitration K. 

Issue: Is an arbitration clause contained in a debt consolidation agreement signed by a mentally incompetent person enforceable against the debtor? Answer: No

Rule: a mentally incompetent person is not bound by the terms of a contract that he signs if he lacks capacity to enter into the contract 

** Rule of incompetence also applies to those who are temporarily incompetent such as drugs or alcohol 

Ervin v. Hosanna Ministry, Inc. 

Facts: Ervin (P) an alcohol and drug addict who signed a general release when she entered Hosanna's (D) rehabilitation center, brought a negligence action against Hosanna. 

Issue: Does evidence that a person did not recall signing a contract, and that if she did she did so with a diminished capacity, raise a genuine issue of material fact as to her assent to a general release? Answer: Yes

Rule: A party who was intoxicated when he or she entered into a contract cannot be bound to the contract if he or she lacked sufficient capacity to understand the nature, extent and consequences of the action 

** No final decision here, but if jury determines incapacitated, the no enforceable K 

Compensatory Damages 

·      Where a contract has been breached, that breach triggers a secondary obligation, by the party who breached the contract to put the non-breaching party into the position they would be in if the contract had not been breached

o   Basically making it right

·      Compensatory damages

o   Puts the party in the position what he would have been in according to the contract (4 corners of the contract)

·      Consequential damages

o   Profits you would make

·      In some situations it is not possible to give the party who didn’t breach, which would put him into the position he would have been in if the contract wasn’t breach

o   Order the breaching party to do what he was supposed to do

·      Anticipatory breach

o   Where a party has not yet failed to perform what he is supposed to perform because the time for performance has not arrived- but gives other person to believe that he will not perform 

John Hancock Mutual Life Ins. Co. v. Cohen 

Facts:   The insured purchased a life insurance policy from John Hancock which contained a provision that allowed his surviving spouse to receive monthly payments for 20 years with a $5000 lump sum at the end.  John Hancock made the payments for 15 years with the $5000 lump sum at the end and then refused to make more payments because they said the contract was supposed to be for 15 years, not 20.

Issue: Does the doctrine of anticipatory breach apply to unilateral contracts with specified future payments? Answer: No

Rule: the doctrine of anticipatory breach is not applicable to unilateral contracts with specified future payments

***Anticipatory breach does not apply to contracts that are supposed to pay $$ in the futute, court of appeals held the money was payable at the time when it became due- contradictory to its holding- the remedy is to award the payment of money at time when due rather than accelerate at time of dispute


*Internally inconsistent case

is the appropriate remedy for anticipatory breach specific performance?


Policy question

Damages v. specific performance?

-       contract that expands over a period of time is judicially unmanageable

interest rates are statutorily determined


American Mech. Corp. v. Union Mach. Co

Facts: a sale of real estate machinery where American contracted with Union to sell real estate and machinery for $135K, Union paid $5K down, U breached contract, American couldn't sell it anywhere else so Saugus repo'd the property, sold machinery for $35K, real estate for $55K to go against $135K loan (American still owes $45K)

Issue: Can the general formula for contract damages (the difference between the contract price and the market value on the date of breach), be applied to real estate sale contracts?

Answer: Yes

Rule: the general formula for contract damages, can be applied to real estate contracts

Lowy v. United Pacific Insurance Co. 

Facts: Wolpin (D) completed 98% of a construction job for Lowy (P), but after a dispute with Wolpin, Wolpin ceased performance and Lowy hired another contractor and sued for breach

Issue: Was the contract divisible? Is Wolpin entitled to recover for his substantial performance? (substantial performance doctrine) 

Answer: Yes

Rule: Contract is divisible when there are separate specific payments, progress payments, separate consideration for diff. parts 1st K and 2nd K were for different projects so, just b/c a party doesn't finish second proj. doesn't meant he cant get paid for 1st 

**  a person who does not fulfill all of the obligations of a contract is entitled to partial compensation if full performance has been excused, prevented, or delayed by the other party 

**If you took the view that the contract was indivisible, then in fact no damages would be owed – because he would not then have earned what he contracted to do – if the contract was divisible (what court found here) then it could be said he earned his contractors fee for the work he already done and had not already earned his fee for his future work 

New Era Homes Corp. v. Forster

Facts: Home improvement contract broken up into payment intervals, client stopped paying after "rough carpentry" phase, P sued for full K price, trial court said D only liable for work already done 

Issue: is a contract that requires payment for the contract price in installments severable? Answer: No

Rule: A court must look to the language of a contract in order to determine whether a contract that provides for installment payments is severable 

If the contract were divisible he could recover the price for the work already done, in this case majority held it was not divisible, the contractor had not fully performed his obligations for the homeowner to pay- so he cant recover damages for profit

But he has the remedy of restitution (equitable doctrine) - going to compensate the contractor for the costs of what he has already done, which is different than his profit 


Locks v. Wade 

Facts: Jukebox rental contract with shared profits included at no less than $20 per week.  Wade repudiated, P won $20/wk for 2 years.  D argued that he was able to mitigate by renting elsewhere. 

Issue: Whether a lessor is entitled to damages for breach if he is able to lease the item to a 3rd party and compensate 

Rule: in actions for breach of contract relating to the sale of lease or readily available goods, a plaintiff's recovery will not be reduced by any value he receives under a new contract for the goods 

** if market supply of article leased is not limited, reducing claim by amount made on other rental of same item would be to deprive him the benefit of his bargain (Libertarian) 

--> always put party who is not in breach back into the position they would have been without breach 

Jacob & Youngs v. Kent 

Facts: Contract had stipulation for specific pipe brand to be used in construction of house, owners realized it was not correct brand, refused final payment and brought suit demanding $$ to replace them (would require tearing house apart) 

Issue: is it fair to force plumber to pay to replace? 

Rule: owner is entitled to money to replace UNLESS the cost of completion is grossly unfair and out of proportion to the good to be attained

Policy- justice, avoiding econ. waste, stability of relations, conceptual coherence- majority: minimize economic waste; Cardozzo favors balance and equity over stability of relations (openly ignores rule here in interest of his own liberal values) 

* if you weigh liberty and fairness heavier than stability of relations- then you will agree with not replacing pipes 

* usually $$ can quantify losses, but the system breaks down when actual value deviates from $$ value - once you accept there are other ways to value things (aesthetic value) 

DISSENT- holding takes away P's right to contract with specificity (freedom to contract and stability of relations if you agree with dissent) 

Rivers v. Deane

Facts: Rivers (P) entered into a contract with Deane (D) for the construction of an addition onto their home, but it was faulty and the third floor of the addition was deemed unusable.  P won full contract amount at trial, D appeals saying applicable formula is difference b/w what the market value would be if completed and what it is now (trying to apply Jacobs) 

Issue: Is the extent of a plaintiff's recovery limited to the cost to repair the faulty construction? Answer: Yes

Rule: in breach of contract cases for faulty construction, the measure of damages is the market value of the cost to repair the faulty construction 

*If you apply Jacobs to this case, damages would be value of what market value is presently, vs. what you would have gotten if construction was done properly

*If you apply rule used in Rivers, you get market value to repair addition 

Peevyhouse v. Garland Coal & Mining Company 

Facts: The Peevyhouse's (P), leased their farm to Garland Coal & Mining (D) for strip mining, but Garland failed to perform the specified remedial work at the end of the lease term 

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?

Rule: diminution in value caused by the breach is the proper measure if "construction and completion in accordance with the contract would involve unreasonable economic waste; the plaintiffs are prohibited from recovering damages greater than the benefit they would have received after full performance on both sides (plaintiffs should only be awarded the amount their property value has diminished by the restorative work not being performed) DISSENT- Garland received all benefits then didn't perform; the condition of the land was an essential part of the contract



American Standard, Inc. v. Schectman

Facts: American Standard (P), entered into a contract with Schectman (D) a demolition contractor, where the plaintiff agreed to convey the buildings and equipment to defendant in return for the defendant's payment of $275K, and his promise to remove the equipment, demolish the structures, etc. Did not remove the foundations he promised. 

Issue: If work is improperly performed in a breach of construction contract, is the measure of damages the cost of completion? Answer: Yes

Rule: The cost of completion is the proper remedy for the breach of a construction contract (court said different from peevyhouse b/c the condition breached was non-trivial) 

**Criticized for potential to result in large windfall to plaintiff 

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